Deflation, Inflation, Hyperinflation, Signal to Noise Ratio, Gold, Silver, and the End of the Dollar

Everything that has happened so far was predictable.

The worldwide government response to the COVID-19 pandemic was as easy to see for cynics and skeptics as the eventual lying that would take place. First, back in January and early February, the federal government told the public that the threat to Americans from the coronavirus that was ravishing China was minimal. Gradually, that advice was replaced by travel restrictions to and from mainland China, then to and from Europe, until finally, infections and deaths from the virus began to multiply in America.

By mid-March and into the first days of Spring, the veil had been lifted and the virus was spreading rapidly across the United States, thanks to millions of international travelers on ships and airplanes that had been allowed to come and go as they pleased through the winter. Individual cases turned into clusters and clusters to severe outbreaks, especially in New York City, not surprisingly a hub for international travel.

By the time congress got around to passing emergency legislation, lockdowns and shelter-in-place recommendations were put into play by governors of the individual states. The legislation contained the usual: massive injections of currency into Wall Street (because we can't have a stock market crash), a pittance for the public, and payments to hospitals for treating patients infected with COVID-19: $13,000 for each patient admitted; $39,000 for each patient put on a ventilator.

Anybody who has been following government and Federal Reserve policy knew that the response would be to throw massive amounts of currency at the problem because that's all they know about how to handle crises.

And here we are. The government is now readying a fourth "stimulus" bill, chock full of more handouts, bailouts, and currency drops. This time, the public gets nothing. States and municipalities are going to get tons of currency to bail out their broken, drained public coffers and keep millions of teachers, cops, firemen, and paper-pushers on the job and their pensions partially funded because having the Fed backstop municipal bonds simply wasn't enough. Hospitals will get more currency. Small businesses will get another tranche of loans, pressing cynics to respond that cities get grants, while businesses have to pay it back.

All of this currency printing and government deficits won't amount to a hill of beans because the transmission mechanism for the velocity of money is broken. Cops, teachers, and firemen will get paid, but they'll be scared to take on new debt and will spend much of their money paying down credit card bills and overpriced mortgages. After another crash to lower levels, the stock market will stabilize.

The US will have deflation, widely, in big-ticket assets like stocks (market crash), bonds (rolling defaults), real estate (forbearance today leads to foreclosure tomorrow), trickling down to things like furniture (no interest for 5, 6, 7 years), cars (rebates, cash back, 0% financing), and appliances (oversupply). Food, especially meat, which is getting a bit pricey right now due to chinks in the supply chain, will not be affected much. Food was the one thing that didn't go up or down much during the Great Depression of the 1930s. It was cheap enough so that people didn't starve, though meats were generally considered close to being luxuries, so no worries there, until hyperinflation. Besides, even if you have a tiny back yard, you can grow some vegetables of your own to offset any price rises in meats. Why do you think your mother was always telling you to eat your vegetables? Sometimes there just isn't enough meat.

After six to 18 months of deflation, all the while the Fed printing dollars like maniacs and the government running massive deficits (probably over $8 trillion this fiscal year alone (through September 30), prices will seem to stabilize. By this time next year (2021), many will think the crisis has passed, mostly because that's what they'll be telling you on TV. But, it's just a lull. Inflation will return as all that currency begins to be spent into the economy. As the velocity of money ramps up, the Fed will respond by raising interest rates, but it won't matter. The game is on, with hyperinflation underway, the currency will continue losing value and eventually, there will be a massive default on dollar debt.

Forget, for for a few weeks or a few months what's happening on a day-to-day basis. It's mostly noise. The signal to noise ratio (SNR or S/N), a measure used in science and engineering that compares the level of a desired signal to the level of background noise, in today's economy, politics, and society, is very low, meaning the signal is barely transmitting the message as it is being drowned out by the noise.

In terms of decibels, to hear what's really happening in the world, the signal has to be about 60, the level of sound as conversational speech. If the noise is that of a rocket launch (180), the SNR is 0.33 and the noise drowns out the signal. When the SNR gets to above one (1), the signal can be heard. Putting that in perspective, a signal sound of a balloon popping is 125, a toilet flushing is 75, producing a SNR of 1.67. Those are appropriate today, as the balloon popping can metaphorically represent the debt bubble bursting and the toilet flushing the sound of US dollars losing value, going down the drain. That hasn't happened yet, but, as time progresses, the SNR will rise, pass 1.00 and the signal will eventually be loud and clear, one that everybody can hear. That's when inflation proceeds to hyperinflation, with prices rising faster than the Fed can print new currency.

It is at that point that you'll want to have gold, but especially, silver, because it will outperform the currency, just by standing still. Truth of the matter is that gold and silver don't really rise in price. An ounce of silver or a gram of gold is still an ounce or a gram. But the purchasing power of the currency is falling because there's more money circulating. Thus, in a very natural correspondence, gold and silver rise in value as the currency falls, which is why three 1964 dimes (90% silver) can buy more gas at the pump today, in 2020, than in 1964.

In the year 1964, the average retail price of gas in the U.S. was $0.30. So, back then, you could put a gallon of gas in your car with three 1964 (or earlier) dimes. Today, three dimes from 1964 or earlier are worth a silver melt value of about $1.10 each, so, with gas prices currently deflating to around $1.50 a gallon, you could buy more than two gallons of gas, even with silver (and gold) prices being suppressed. That's deflation. One could buy just one gallon and use the other roughly dime-and-a-half to help pay for the increased price of pork or beef. That's inflation. Inflation and deflation can and will occur - in different products or services - simultaneously.

Silver, even under the severe constraints imposed by the futures, central banks, the BIS, and other manipulators, has increased in value 1100% since 1964, an annual, non-compounded return of 16.67%. Try getting that from stocks or bonds. And silver is going higher. Much higher. The price of an ounce of silver in dollars is likely to double in the next few years, then double again, and again, as the dollar is gradually debased, losing all that's left of its purchasing power. Your 1964 dime will buy at least a gallon of gas or the equivalent in bread or beef or whatever items you wish to purchase. It will have value, as precious metals have for more than 5000 years. The dollar, and with it, the pound, yen, euro, yuan, and any other currency not backed by or tethered to a tangible asset (it doesn't have to be gold; it can be anything) will revert to its intrinsic value of ZERO, or close to it because every other country will be going through similar scenarios as the United States.

That's where this is all headed. Price deflation with currency inflation through Spring or Summer 2021, relative calm from 2021 to maybe the beginning of 2023, but likely before then, with inflation ramping up; then hyperinflation for two years before a complete monetary system reset is the only solution. It's not the length of time for these varying processes to occur that's importance, it's the sequence (deflation, calm (some inflation), inflation, hyperinflation) and the ability to spot the subtle changes that matters most.

Completely wrecking a global economy takes time. The Fed's been at it since 1913, and in 107 years have reduced the purchasing power of the dollar by about 97%. The last three percent - and the sopping up of all the malinvestment and toxic assets will take time... about three to four years.

Anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.

We have been fragilizing the economy, our health, political life, education, almost everything… by suppressing randomness and volatility. Much of our modern, structured, world has been harming us with top-down policies and contraptions… which do precisely this: an insult to the antifragility of systems. This is the tragedy of modernity: As with neurotically overprotective parents, those trying to help are often hurting us the most.

-- Nasim Taleb

It would be nice if we started listening to the people who have been right rather than the people who have theories.

-- Mike Maloney, The Hidden Secrets of Money, Episode 7, Velocity & the Money Illusion

At the Close, Wednesday, May 6, 2020:
Dow: 23,664.64, -218.45 (-0.91%)
NASDAQ: 8,854.39, +45.27 (+0.51%)
S&P 500: 2,848.42, -20.02 (-0.70%)
NYSE: 10,999.99, -135.41 (-1.22%)

Recession Arrives as First Quarter GDP Contracts By 4.8%; Companies Cutting Dividends at Record Pace

Dispensing with the usual diatribe over coronavirus and the botched government response, today's edition of Money Daily will focus on stocks that pay out quarterly dividends, the mother's milk of investing, as Larry Kudlow might phrase it.

But first, US first quarter 2020 GDP was just announced at 8:30 am ET, and the result was as Money Daily predicted, a decline of 4.8%. A few weeks back, various analysts from the likes of Bank of America Merrill Lynch and Goldman Sachs were making projections for second quarter GDP losses, somewhat overlooking what we considered obvious: a negative number for 1Q GDP. While the corporate analysts were busy downplaying the effect of a nationwide lockdown on business activity, they were missing an existential point.

Assuming that the second quarter was going to be in the red, a decline in first quarter GDP would satisfy the textbook requirement for a recession, which is two consecutive quarters of declining GDP growth. The definition is something of a non sequiter because nothing in nature actually grows at a negative rate. A truer definition might be worded as "two consecutive quarters of contraction," and that's now in play meaning one might as well assume that there's already a recession, and it started roughly the second week of February, when the world started to become focused on coronavirus and how to halt its spread.

Thus, we have the first quarter contraction of 4.8%, which will be revised twice, in late May and again in late June, though the number is so far into the red that there's no practical probability of it being revised into the positive. Second quarter GDP will be an outright train wreck. Figure on something on the order of -40% just for openers. That kind of number will have even the most ardent equity investor seeking safe harbor and scurrying away from stocks. Even today's figure should give everyone pause, and, in normal times, stocks would be falling into the ocean, but, thanks to the generosity of the Federal Reserve, the major indices will likely post more gains.

Underscoring the absurdity of the Fed's fool's errand - one in which they will bankrupt themselves - stock futures all soared higher on this morning's GDP announcement. How's that for in-your-face obstinance and stupidity?

Along with higher stock prices (unbelievable), the political ramifications are stupendous. This places the economy and a recession as front-and-center issues for the election season. Second quarter results will be in place come late July, and they will be undeniably ugly, since April was a complete washout and May isn't going to look much better. There are still vast swaths of the economy that are not operating at even 50% of optimal productivity and others that are not operating at all. Small businesses were shut down across the country for roughly six weeks to the tune of hundreds of billions of dollars in lost revenue and GDP, to say nothing of the lack of velocity in the economy. From late March through all of April and into May, velocity was basically stalled out.

What this means in terms of elections is the very real possibility of a President Biden and a takeover by the Democrats of the Senate, which would give the socialist movement firm footing in the three important branches of the federal government, the presidency, the House, and the Senate, which spells doomsday for America because socialist ideology will only exacerbate the already horrid condition of money-printing and profligate spending. It's doubtful that any of this has been factored into the Wall Street calculations. Current prices on the major indices and in "recovering" individual stocks reflect that, glowingly.

With the opening bell just minutes away, Money Daily will wrap here for Wednesday morning, cutting a little short the look at dividend stocks.

Wolf Richter of WolfStreet.com penned a noteworthy post on Tuesday, titled, Dividend Massacre in This Crisis is Already Breaking Records, But it Just Started, within which he details the number of companies which have already slashed or canceled their dividend payouts and how 2020 compares to other recent years in which dividends were targeted, 2001, 2008, and 2009.

What investors often lose sight of in times of financial turmoil is how mathematics deceives and often leads to false conclusions when considering buying a particular stock.

Picking up this theme on Thursday, along with the latest unemployment figures, the 30 stocks that comprise the Dow Jones Industrial Average - all of which pay dividends - will be examined, with considered opinion on whether or not these companies will maintain, increase, reduce or cancel their normal dividend payouts.

For today, the recession has arrived, though many in the know already think we're at the beginning of what is being hailed as "The Greater Depression."

At the Close, Tuesday, April 28, 2020:
Dow: 24,101.55, -32.23 (-0.13%)
NASDAQ: 8,607.73, -122.43 (-1.40%)
S&P 500: 2,863.39, -15.09 (-0.52%)
NYSE: 11,319.70, +54.86 (+0.49%)

Yellen's Congressional Testimony Fails to Inspire Confidence

As Janet Yellen testified to the House of Representatives (on Thursday, she speaks and takes questions from the Senate), stocks hung on her every, stuttering, stammering word, but eventually fell in late trading as the Fed Chair seemed a bit too concerned about recent data, stock declines and global tensions to allow congress or investors any happy talk on the now-stalled "recovery."

S&P: 1851.86, -0.35 (-0.02%)
Dow: 15914.74, -99.64 (-0.62%)
NASDAQ: 4283.59, +14.83 (+).35%)

As per this article, JP Morgan economists are now "not all that worried" about negative interest rates in the US, my response:

Of course, negative interest rates are the embodiment of absolute insanity, madness of the markets. Whats worse, perhaps, is that some commentators are touting that this will bring on hyperinflation, though none of them explain the mechanism.

Here at Money Daily, the widely-held belief is that if rates go any lower, we will have an outright deflationary depression, or, an extension of the deflationary depression which has been underway since 2008. We've been hearing about hyperinflation for years now, and, while there admittedly is some inflation, there's more deflation, especially when it comes to cash.

If the banks go NIRP and put on more capital controls (ban on cash not going to actually occur in some places), cash will surely be king, as it was in the Great Depression. Gold and silver should be worth even more, but that's not until the COMEX gets stung (still waiting on that one).

Anybody who's read "When Money Dies" by Adam Fergusson should recall that during Germany's Weimar, the farmers were barely affected until near the end when hordes of people came out from the cities and actually slaughtered animals and raided crop stores.

There's a free PDF, though this is not recommended for everyone - it's somewhat dense:

When Money Dies: The Nightmare of the Weimar …

In the meantime, farmers figure on getting started with seedlings in about three weeks here in (now, finally) snowy upstate NY. Then, investors with any sense should go long vegetable stands. If the banks want to charge money to hold cash, figure people will be more than willing to exchange it for FOOD.

The central bankers have lost their minds. Ask a farmer about storage costs for cash and you'll probably hear, after a long, sidewards stare, that he'd be happy to help you out, since he has plenty of storage for livestock, tools, equipment, produce, and his family (commonly known as a home or household).

People in a city or large town/village should be concerned. Out in the country, not an issue. Besides, this madness will only last - at best - a year. Donald Trump will be president and life will get better. We are (pun intended) banking on it.

This, from a poster called "The Continental," is apropos:

Positive interest rates cause capital to form. Negative interest rates destroy capital.

The banks are desperate to prevent the bond bubble from collapse and are extrapolating to negative interest rates. In short, it's game over for the dollar and its fiat currency brethren.

Central bank reserves were growing exponentially after 1948 up to mid 2014 whilst going vertical they suddenly stopped and plateaued. In the last year, ~$1 trillion of reserves have "disappeared" the collective balance sheets of the world. This means that cash/credit dollars are being created while counterbalancing bonds are being destroyed. This is monetization at its worst. The reserve base of the currency is slowly vanishing.

In the short run, cash dollars will become scarce and valuable. In the long run there is nothing, not even bonds, backing cash dollars and they will collapse (hyperinflate) when trillions of dollars return home looking for assets to convert to.

Buying physical gold (and silver) at any price is not only a no brainer vis-à-vis protecting capital; it is financial suicide not to buy gold.

China Steel Exports To USA Subject To 256% Tariff

Remember, folks, the US Department of Commerce has your backs.

The department is recommending that the United States impose a tariff on steel imports from China of 256%, because they feel China has been dumping steel on the market and causing a severe disruption in the price, negatively affecting US steel producers.

Gee, really? What's next, tariffs on electronics, cars, just about anything you buy at Wal-Mart or nearly anywhere in America?

Where's the great Ben Bernanke when you need him? You know, the former Chairman of the Federal Reserve who is an EXPERT on the Great Depression.

Why do we need the Big Bernank now? Because, his expertise would prevail on our glorious government goofballs that protectionism is exactly what made the Great Depression so (not) great.

You take depressed markets overfull of inventory, tack on tariffs and you get exactly what the Fed wants in order to hide its horrible policies: velocity of money at zero, falling wages, layoffs and now, the kicker, goods too expensive for anybody to buy. Pure genius, these guys looking out for all of us little people.

This is just the beginning. Expect to see more trade protectionism going forward and more countries falling into recession. Add it all up and you have Great Depression 2.0.

It's not going to happen all of a sudden, because the Fed is still fighting deflation. But, when the going gets rough, really rough, like when Wall Street (hell) freezes over and commits suicide in a crash of stocks of companies that have been repurchasing their own shares for the past six years and they lay off millions of workers, that's when the government will move in full force with trade restrictions and tariffs so that Americans can't purchase anything from the evil Chinamen.

Maybe somebody should have thought about this before we sent all of our manufacturing base over to the Red Dragons. Then again, maybe they did.

Meanwhile, the Santa Claus rally continues on Wall Street. The S&P gained enough today to show a small profit for the year and the Dow Jones Industrials are closing in on being black for 2015.

Hurrah! Boo! Cyprus is Saved! Cyprus is Doomed!

There are so many angles to the story of what happened to Cyprus over the past week or so that it boggles the mind to consider just a few of the long-term ramifications, but, clearly, the deal struck late, late Sunday evening by the ECB, IMF and the European Commission, deferred to by the president of Cyprus - who really didn't have much say and actually threatened to resign (he should have) - was a game changer in more ways than one.

First, the deal.

Instead of making everybody pay, which was the original plan foisted upon the Cypriot parliament and summarily dismissed in a unanimous vote, the brain trust that is the ECB worked out a plan that would fold up one insolvent bank - Laiki - and reorganize another (Bank of Cyprus), impose capital control limiting withdrawals to 100 euros, and force depositors with over 100,000 euros - because there are so few bond holders - to pay down the bank's debt, with a levy of up to 40% on those deposits.

OK? Stay with me here. Because the plan is not a bailout, but a reorganization, the parliament of Cyprus will not have to vote on it. There. All fixed.

Except that mush of the money that's going to be "levied" in the "reorganization" is Russian money, laundered or otherwise, and the Russians are not very happy, even though Angela Merkel is. Hmmm... Russians unhappy, Germans happy. That doesn't sound familiar, does it?

Further, banks in Cyprus are supposed to open tomorrow, but probably won't, and even when they do, the flight of capital will be intense, even at the absurdly tiny levels of 100 euros a day. This story is still very, very fluid and has a multitude of effects on all of Europe and the rest of the world, so, stay tuned.

As far as the markets were concerned, news of a "solution" to the Cyprus problem was greeted with hallelujahs and buying, with the futures of US indices all heading skyward and the Euro ramping up against the dollar.

Stocks in the US (and Europe) opened higher, leveled off until, until, Dutch Finance Minister and recently-appointed head of the ECB, Jeroen Dijsselblom, went on the record to say that the Cyprus solution may well be a "template" for other troubled banks in the Eurozone.

Uh-oh. markets tanked. The Dow, which was up 51 points, went negative by 128. European bourses revered. The EUR/USD FX pair went negative in a big way. Impairment of depositor money (government-sanctioned theft) is not what rich people want to hear. Never mind the poor and not-so-poor with deposits of under 100,000 euros, which are guaranteed by the bankrupt ECB, it's the rich people's money that's going to bail out banks in the future Europe.

Ouchie! But, that's what should happen. Insolvent banks should be wound down first by smacking the junior and then senior bond holders and, if that's not enough to cover the debts, uninsured depositors pony up the balance.

So, that's Cyprus, the future of Europe and the global financial system all rolled up into 12 or 14 neat paragraphs. If you've got over 100,000 euros in any bank these days, you are either as nuts as our Federal Reserve chairman or a big business that needs that amount of capital to meet payroll, expenses, etc. For those, there is no alternative (well, there is, but what business really wants to keep that much cash lying around?).

For people with less than 100,000 euros or the equivalent in dollars (about $129,000 right now), how much do you want to risk in any bank, any bank which could be closed indefinitely in case of a financial crisis or emeeeeeeergency, with no access to your funds until the "officials" deem the situation resolved?

Let's just say that the answer for most people would be, "not much."

Well, that just raises another fearsome looking ugly head in the form of capital controls (you can only take out "so much" today) or, outright loss. The answer is bank runs of the kind not seen since the Great Depression, when, remember, banks were closed for weeks and longer and some never reopened. IT CAN HAPPEN HERE because it already did.

So, where do you put all that extra cash of yours, lucky you? Most Americans have sums of money in "investments" which are just promises and based upon given market levels which change from day to day. Trust. It's a fun term.

Others have money in banks. Best advice is, if you must keep your dough in a bank, spread it around. A better solution would be to invest (you have enough money, right?) in a very heavy safe, a good alarm system, a coule of good firearms and maybe a couple of alert, healthy guard dogs. Yeah. Old school, like medieval days, which is to where the world is headed. Maybe a moat filled with crocodiles, drawbridge and turrets should be the new home design for the 2020s?

You laugh. Don't. Money in banks, as proven by the bizarre and brazen moves of the psychopathic leaders of the ECB, IMF and EU. is not as safe as you'd like to think. Ask anyone who lived through the Great Depression. Most people kept more money stuffed into their mattresses than in their local banks, and, with good reason. The banks failed and their money was gone. Poof!

The choice is yours, dear readers, play the game of chicken with the elites, who have no taste nor mercy for the likes of you and yours, or take action. keep in banks only what you need, because, when you think of it, the FDIC insures deposits of up to $250,000 in the US. That went up from $50,000 prior to the crash in 2008. Why? Because people smart enough to understand what was going on were taking their money out and the government and the banks would really have gone bust in a huge way had there been real banks runs like in the 1930s.

Without looking it up, the FDIC budget is something along the lines of $50 billion. The amount of deposits in US banks is on the order of $14 TRILLION. Do the math.

That's it for today. We're all Cypriots now.

Dow 14,447.75, -64.28 (0.44%)
NASDAQ 3,235.30, -9.70 (0.30%)
S&P 500 1,551.69, -5.20 (0.33%)
NYSE Composite 9,022.95, -42.85 (0.47%)
NASDAQ Volume 1,665,435,625
NYSE Volume 3,539,278,250
Combined NYSE & NASDAQ Advance - Decline: 2714-3624
Combined NYSE & NASDAQ New highs - New lows: 489-49 (straining)
WTI crude oil: 94.81, +1.10
Gold: 1,604.50, -1.60
Silver: 28.82, +0.117

No News Good News to Wall Street; Music for a Depression: Benny Goodman's Sing, Sing, Sing

Running a bit late today and writing in the first person singular, not because this is a critical day or anything like that, but because I'm just happy as a lark to see that financial stocks led today's absolutely nothing advance.

From years of personal experience (especially over the past four) any time our broken down banks lead the market, one can rest assured the move is nothing more than self-aggrandizement by the former "masters of the universe," thus completely meaningless in a macro sense.

The afternoon insider ramp job was notoriously devoid of volume, making the major event of the day nothing more momentous than the May reading on ISM services which leapt an entire 0.2, from 53.5 in April to 53.7 in May. Big whoopie, and not much of a reaction from the street, so hold off, for now, on the champagne. Europe's issues and the big fiat debt fiasco that pervades everything these days still lurks, waiting to pounce upon a suspect market.

Major events in this little corner of the world were the two rabbits frolicking in my back yard. From the looks of things, the planet may soon be blessed with a few more little cottontails soon. Ah, Spring...

The sun is shining again
and birds are singing in the trees,
My heart is open wide my friends,
I've just caught a summer breeze.

-- from the soon-to-be-released Flowers in Your Garden, a love song by Fearless Rick

There was an "urgent" conference call by leaders of the G7, bemoaning the fact that Europe's crisis might just be spinning out of control, unlike the Earth itself, which, last we checked, was still orbiting the sun and rotating smoothly without any help from the Fed, central bankers or any over-indebted sovereign nation.

When the global financial system finally falls completely apart, those of us with good minds, bodies and hearts will know what to do: Make sure our gold and/or silver is safe, our guns well oiled and our crops bathing in sunshine, pour another drink and watch the crooks being harnessed by their own hangman's noose.

It's really just that simple.

Since we're already well into the Greater Depression, I thought it appropriate to post a couple of Youtube videos - actually they're more music than anything else, in hopes that we might all come to understand better how things were during the Great Depression of the 1930s.

My father, who was born in 1924 and passed away in 2009, was a spry lad of five years old when the markets crashed in 1929. He used to tell me that they didn't know they were poor, as just about everybody was in a similar situation. It's somewhat the same today, except that the many of the truly poor and unemployed now receive all kinds of benefits such as food stamps, free rent and free health care, which makes them much better off than many of the working stiffs who grind out a living on wages that have been stagnant or declining since the year 2000.

At the end of this post there are two videos posted. The first (to which you are encouraged to stand up and dance to) is of Benny Goodman's original recording of Louis Prima's (my dad's favorite) Sing, Sing Sing.

The year was 1937, the depth of the Great Depression, but Goodman's big band orchestra really let it rip in this rendition, which helped Goodman earn the reputation as the "King of Swing." The band leader and on clarinet, Goodman was aided by Gene Krupa on drums (amazing, by any standard) and Harry James on trumpet, among others. The piece is an absolute classic, a treasure of Americana, showing that even as hard as times were for millions, the spirit of the day was one of joy, a never-say-die attitude and unbridled musical genius.

While Prima's original version carried lyrics, Goodman's arrangement was purely instrumental. With Krupa's driving beat and Goodman's flawless orchestration and leadership, the tune became an instant hit crossing generations of music fans. The title is a bit misleading; it could easily be re-named "Dance, Dance, Dance."

If you can't get up and dance to this tune, you either have no sense, no rhythm or no business being alive. All you oldies out there, be careful. Don't bust a disk or pull a muscle. This one's a mover. Enjoy.

The second video (again, it's all for the music) is of the same tune at the fabled 1938 concert by Goodman's band at Carnegie Hall in New York. The piece is longer, lasting 12 minutes, and includes some introspective solos by Goodman and notably, pianist Jess Stacy's solo work, which the Wikipedia entry calls, "exceptional, a four-chorus, chromatic impressionistic masterpiece distinct from everything that preceded it." The entire track is marvelous. Turn your speakers up for this one.

As the global depression expands and envelops more and more of the world, music like this may be the best antidote to the craven antics of thieving bankers and incompetent politicians.

Dow 12,127.95, +26.49 (0.22%)
NASDAQ 2,778.11, +18.10 (0.66%)
S&P 500 1,285.50, +7.32 (0.57%)
NYSE Composite 7,338.65, +53.10 (0.73%)
NASDAQ Volume 1,627,906,750
NYSE Volume 3,403,227,500
Combined NYSE & NASDAQ Advance - Decline: 3882-1641
Combined NYSE & NASDAQ New highs - New lows: 54-117
WTI crude oil: 84.29, +0.31
Gold: 1,616.90, +3.00
Silver: 28.40, +0.40

Correction Confirmed; Bear Market, Recession, Deflation to Follow

Technically, a stock index correction is defined as a 10% decline from a recent high.

If one takes a look back just three-four months ago, the highs were put in place in late April, just around the time of the Japan earthquake, tsunami and the Fukushima nuclear disaster (still worsening).

The closing highs for the individual indices, all made on April 29, were:
Dow Industrials: 12,810
S&P 500: 1363
NASDAQ: 2873
NYSE Composite: 8671

The numbers needed for a 10% decline - a correction - are:
Dow Industrials: 11,529
S&P 500: 1226
NASDAQ: 2585
NYSE Composite: 7803

By today's close all of those numbers had been exceeded to the downside, easily.

The reasons for markets being down nine of the last ten (the Dow) or 8 of the last 9 (S&P) sessions are various, but interrelated. Most obvious among them is the absoute fact that Europe is suffering through a financial crisis which rivals that of the US in 2008. In many ways, Europe and the United States have never recovered from the disastrous events of the housing bubble and subsequent deep recession. The time to pay the piper is past due.

Along with woes in the Eurozone, the United States faces its own hard times, in many ways similar to the Great Depression of the 1930s. Joblessness, millions on food stamps, homelessness and a housing crisis deeper than most people living today have ever witnessed have led to the worst three years of non-growth in the US economy since World War II.

Whatever has been done to cure the ills that plague us - $700 billion for TARP, two rounds of quantitative easing (money printing) and a failed $780 billion stimulus program - have been for naught because the nation's leaders failed to do what any free market economy should have done: allow the decrepit and deceitful large banking institutions to fail, reorganize them and shed the underlying bad debt.

That course was not taken because, simply, Wall Street controls Washington, and the politicians had the gun of losing elections pointed squarely at their heads by Wall Street's banking elite, headed up by then-Treasury Secretary Hank Paulson and still-Fed Chaiman Ben Bernanke.

Today's final figures are a chilling reminder of what happens when leaders are not actually men of principle, but rather are guided by greed. They make bad decisions and continue to do so. The cascading declines of Thursday, August 4, are the worst tumbles in the markets since the dreadful Fall of 2008 and Winter of Discontent in 2009.

Dow 11,383.68, -512.76 (4.31%)
NASDAQ 2,556.39, -136.68 (5.08%)
S&P 500 1,200.07, -60.27 (4.78%)
NYSE Composite 7,428.41, -424.79 (5.41%)

Advancers were decimated by decliners, with losing stocks outpacing winners 6233-574, a ratio of 12:1 losers to winners. On the NASDAQ there were only 13 new highs, but 237 new lows. The NYSE was a disaster area, with 7 new highs and 366 new lows. The combined total of 20 new highs and 603 new lows is the widest gap since early 2009. The most reliable indicator - new highs vs. new lows - has once again proven infallible in predicting market turns. The Bears are growling and hungry for more equity meat.

Volume was easily the highest of the year. Quite possibly, today was the highest volume day since March of 2009.

NASDAQ Volume 3,223,976,000
NYSE Volume 8,432,305,000

One consolation from all of this is that crude oil has been taking a beating and took a serious one today, losing $5.30, to a 2011 low of $86.63, a number not seen since last December.

Gold was pricing higher early in the day, as was silver, but margin calls and the need to raise cash quickly ended their brief moments in the sun. Gold fell $7.30, to $1,659.00, while silver tanked $2.32, to $39.43. The losses in the precious metals, though serious, are not as bad as what happened in equities; not by a long shot. Gold had been making new highs almost daily for the past few weeks. Silver had broken out of a range and was siting at 4-month highs before today.

Undeniably, this is not the end of stock market declines. Bracing for Friday's non-farm payroll report, stocks will be lucky to see even a glint of hope in that data. Consensus estimates are for gains of roughly 100,000 jobs from July, but after today's initial unemployment claims came in at 400,000, making the 18th straight week they have been 400,000 or worse, hope is a scarce commodity.

Today's climactic losses may be only presaging what's ahead for the global economy. With US GDP somewhere between ZERO and 1% growth for this year, the remainder of 2011 offers quite a challenge. And politics being what they are in an upcoming presidential year, with a Democratic president and all legislation held hostage by a Republican majority in the House of Representatives, 2012 might offer an even worse set of economic circumstances.

Forget Double Dip, the Next Bottom May be Deeper

Stocks continued their now four-day rally with the weakest volume of the week on Friday. Most of the buying - mostly positioning for earnings releases beginning next week - occured in the final two hours of the session.

Nonetheless, it was a stellar performance for the holiday-shortened span, with stocks rebounding sharply after two months of relentless selling.

Dow 10,198.03, +59.04 (0.58%)
NASDAQ 2,196.45, +21.05 (0.97%)
S&P 500 1,077.96, +7.71 (0.72%)
NYSE Composite 6,808.71, +52.90 (0.78%)

Advancers buried decliners, 4901-1497, and new lows were trampled by an onrush of new highs, 168-72. Volume was the lightest it has been in weeks, typical for summer trading, though potentially disconcerting to some trend-watchers who have noted many recent higher moves on inadequate volume. It's called speculation, and there's still plenty to go around.

NASDAQ Volume 1,601,902,625
NYSE Volume 3,999,371,000

Commodities were again positive for sellers, with oil up 65 cents, to $76.09, gold rocketing higher by $13.80, to $1,209.60 and silver tacking on 20 cents to the price of an ounce, at $18.05.

Following up on a recent post - June 1, US Markets the World's Laughing Stock; Second Great Depression Still Looming in which I compared current stock market conditions to those of the Great Depression, along come two esteemed commentators, Donald Luskin of Trend Macrolytics LLC, writing for the Wall Street Journal, and Daryl Guppy of GuppyTraders.com to solidify my position and rationale.

Luskin's article, Why This Isn't Like 1938—At Least Not Yet, carries my argument about the similarities a step further and somewhat in another direction, comparing today's stock market, and economy, to that of 1937-38, a recession within the Great Depression which exhibits an eerily-similar pattern to the recent S&P 500. Offering an over-imposed chart of the two periods, it's difficult to argue against his analysis, especially when he mentions:

In 1937 the economy was in a strong recovery from a severe crisis, and there was complacency that the worst was over—much like the exuberance about a "V-shaped' recovery this April. But after 1937 the economy relapsed into what historians call "the recession within the Depression," a downturn so severe that in any other context it would qualify as a depression itself.

It was triggered by a set of very specific policy mistakes. The Fed tightened by raising reserve requirements. Consumers were hit with new taxes to pay for the then-new Social Security program. Worried about excessive deficits, Roosevelt cut government spending. At the same time, his administration accelerated antibusiness rhetoric and regulation.

Those conditions sound quite a bit like what is directly ahead for the US economy, some of the same policies already set in motion.

Guppy's point is that there's a head-and-shoulders pattern developing that looks just like the one at the start of the Great Depression, the period to which I referred in my June 1 post. His analysis was released on July 5, when most of us were still enjoying the tail end of a three-day weekend, so it's unsurprising that many missed it.

Whether or not anyone agrees with history repeating itself, charting or comparisons, it certainly seems worth considering what might happen over the next 6 months to 6 years. Using reasonable market assumptions being a key tenet of any sound financial plan, might it not be time for people to begin using models which predict lower rates of return, possible deflation - instead of inflation - and benchmarks taken from actual conditions rather than the rosy assumptions (7-9% y-o-y gains, 3% inflation) usually thrown around by "respected" financial planners and analysts?

Which brings up yet another point of contention. Bull or Bear, optimist or pessimist, everyone has to have some kind of time horizon for investments, and, there being no better time than the present to plan for the future, one wonders just how long it might be before stocks return to the all-time highs of October, 2007.

I'll toss out a number here, just for argument's sake. With the Dow right around 10,000 today, I'll say that the index won't return to the 14,164 number (October 9, 2007) for maybe thirty years. How's that for perspective? Too gloomy? Bear in mind that it took more than 25 years years from stocks to recover from get back to the previous pre-crash high. The Dow Jones Industrials closed at 381.17 on September 3, 1929 and didn't rise back to that level until November 23, 1954, when they closed at 382.74. Surely, conditions were dire during the Great Depression and through world War II, but, considering the massive amount of debt overhang (still growing) and unfunded liabilities of around $130 Trillion (unfunded and unresolved), one might suggest that economic conditions are far worse, by degree, than they were some 80 years ago.

Just using a simple formula of 7% gains, compounded annually, it would take five years to retake the 14,164 level, and is anybody predicting five straight years of 7% returns? None that I know of, and if you know of any, do yourself a favor and seek out other opinions. With the ten-year treasury hovering around 3% and the 30-year around 4%, we all should be well aware that explosive growth is not in the near-term cards.

That's why I keep saying that cash is king, because if stocks and other assets decline in value, your cash will buy more down the road. That's what deflation is all about.

US Markets the World's Laughing Stock; Second Great Depression Still Looming

US equity markets must be the laughing stock of the entire planet. Whenever there's a risk of a serious downturn, especially on days in which Asian and European markets have already taken a hit, the globalists can count on a comedic interlude supplied by insider trading schemes run amok here in the cradle of free market economics and democracy.

Tuesday was just another shining example of how rigged and moronic US stock markets have become after years of manipulation by government operatives generally identified as the President's Working Group on Financial Markets, created in 1988 after the blowup of Long-Term Capital Management (LTCM), by then-president Ronald Reagan with Executive Order 13621, along with complicity by major banking and trading firms such as Goldman Sachs, JP Morgan Chase, Bank of America and Citigroup.

While the existence of the "Working Group" (or PWG, as it has evolved) is a matter of fact, some decry the operations of the group as clandestine market participants (formerly known as the Plunge Protection Team, or PPT), such as this blog entry by Barry Ritholtz, complete with an array of illuminating comments and links.

It's more than plain and obvious that government is working in collusion with major banks, though whether or not they are involved in significant "market pumping" is still an unresolved question. Market volatility has become a semi-permanent fixture in US equity (and other) markets for many years, and recent policy decisions mostly made by the Federal Reserve, to ensure liquidity, and the Senate, to bail out generally-insolvent banks and states suffering from enormous budget shortfalls, beg the question.

The Fed's official federal funds interest rate has been at it's lowest level in history for 18 months (since December 2008) and while equity markets have bounced off their March 2009 significantly, there's worry that the momentum cannot be maintained. The Fed is pretty much out of bullets, but underhanded trading schemes should be able to avert another major market collapse for the near term.

That's the general condition of US equity markets today: volatile, manipulated and operating on the adrenaline of fear while the talking heads on CNBC glad-hand the purveyors of the pump all day, every day, relentlessly trotting out this or that analyst or trader with positive spin, keeping the whole charade of "recovery, growth and prosperity" churning along.

Meanwhile, the major indices have fallen below their 50-day moving averages and a sitting upon their 200-day MAs for the most part. Like all other government work, whatever the PWG is doing to prop up markets, they're doing a pretty shabby job of it. The entire US - and, to a large extent, global - financial system resembles a creaking ship adrift at sea, burdened by an overload of bad debt, faulty rigging and deficits billowing out of its hold.

Intra-day market actions only help to keep the ship afloat, hoping it can reach shallow enough waters so that when it does sink, it won't be resting too far below the surface.

In sum, market manipulation always fails. One only has to bear witness to the magnificent drops in markets in 2000 and 2008 to verify that point. Government intervention only works in the near-term, pushing the longer-term, systemic issues further out into the future, for another generation or another government to handle. The game cannot continue for long without some major disruption. We've just been through the worst month of May on the markets since 1940, and while the "double-dipsters" have been effectively silenced by the media, the level of fear and apprehension is still palpable.

Pushing markets off their lows through whatever conception available still seems to be bad business and one that cannot eventually, effectively halt the onslaught of dreadful deflation in assets of all classes. Globalization began the deflation process; the banks and inept or corrupt government operators witlessly helped it along. With no way out of what has morphed into a global currency "race to the bottom," equities will eventually falter, flat line or die. The only question is how long it's going to take.

History, always a great guide and usually ignored, provides the best answer, with the operative time period being the Great Depression of 1929-1942. Taking Fall of 2008 as the starting point, we're at roughly the equivalent of September, 1930.

On August 3, 1929, the Dow closed at 381.17. Then came the crash in October and November, with the Dow falling from aournd 352.86 on the 10th of October to 198.69 on the 13th of November, a 44% drop in just over a month, which compares to the Fall of 2008 and Winter, 2009, quite favorably. On the 17th of April, 1930, the Dow rebounded and stood at 294.07, a 48% gain off the lows and a level it would not approach again for nearly 24 years.

Yes, you read that right, 24 years. After the crash of 1929, the market rebounded, just as it did in recent history, from its bottom of 6,547.05, on March 9, 2009, to a peak of 10,725.43 on January 19, 2010, a gain of nearly 64%, though still well short of its all-time high of 14,164.53 on October 9, 2007.

President Herbert Hoover and his Republican counterparts in the banking community and the congress could not revive the slumping US economy, however. On July 8, 1932, the Dow Jones Industrial Average fell to it's all-time low of 41.22, helping usher in FDR and his New Deal policies. Elected in November, 1932, Roosevelt worked quickly to keep Americans out of financial misery, but for many it was too late. The country survived, barely, through the 30s and into World War II, which had been raging in Europe for more than 5 years before the US formally became involved in 1942. It wasn't until February 26, 1954 that the Dow surpassed that 1930 high, closing on that date at 294.54.

Thus, contrary to widely-held beliefs, the crash of 1929 was just a prelude for more pain to come. From the peak in August, 1929, to the bottom in July of 1932, the Dow lost nearly 90% of its value. A similar slide in today's terms would wipe the Dow all the way down to 1450.00, a number not seen since late November 1985, about 9 months into Ronald Reagan's second term as president, in the full throes of the supply side financial revolution.

It's an interesting point in history. From November 1985 to October, 2007, a period of nearly 23 years, the Dow Jones Industrials increased in value some ten-fold. That kind of expansion is unprecedented in economic history and it was largely fueled by low tax rates on wealthy individuals, lax tax compliance by major corporations, and, notably, little advance in the overall wealth, prosperity or wages of the middle class. So, a major, dramatic fall, similar to that of 1930-1932, might still be ahead for those of us who still give a damn.

The timeline of history is not without flaws, to be certain, but, taking the case of a largely manipulated market which is the current, dominant theme in American finances, the overhang of burgeoning federal and state deficits, unresolved banking issues from 2008, it is not outside the realm of possibility that stock markets and the global economy could suffer a blow even more dreadful than the shock of 2008-09. In fact, we are looking at January, 2010 as comparable to April 1930, we have an eerily-similar timeline, with the worst yet to come.

Just as in the Spring of 1930, politicians and financial experts explain how we averted crisis and survived a major financial event. Back then, just as today, nobody knew what was ahead, though today's "experts" apparently have not done a detailed analysis of history, though the one man who may know more about the subject than anyone on the planet, Fed Chairman Ben Bernanke, hasn't exactly sounded the "all-clear" alert. In fact, Bernanke has been assiduously most cautious during this critical period. Though he has reassured the nation that the recession has ended, his remarks of late - few that they are - have been quite tempered and reasoned. Certainly, he reasons that more trouble may lie ahead and his actions - keeping rates low and maintaining full liquidity - speak volumes about his inner thinking.

Should the "recovery" stumble and the economy remain weak, stocks could face armageddon again, though this time, it will be long-lasting and severe, making the episode of 2008-09 look like a walk in the park by comparison.

I'm going to reiterate some of the things I've said repeatedly in various posts over the past three to four years, but they should be maintained within the context of the foregoing discussion. Jobs will continue to be scarce. Prices for everything from gold, to homes, to food, to shoes, will fall demonstrably. The goals of many will be survival, not prosperity. By the time the bulk of the baby boomer generation reaches retirement age - within the next 5-7 years, the Social Security system - already broke - will be running a deficit so large that it will break the will of the markets and the government completely. That event could come sooner, though by no means later than 2017, unless radical changes are made today, and, considering the dithering aspect of the current congress, that doesn't seem likely.

Mortgage interest rates will likely fall to below 3%. Some friends have already told me that their home equity lines are hovering around 2%. Most banks cannot make money with rates at 3-4% long term. More bank failures are a near certainty, possibly peaking in 2012, with the number in the thousands, rather than today's hundreds. Foreclosures and bankruptcies will overwhelm court systems which are already stressed beyond a level at which they can operate efficiently. Inner cities, many already slums of third world order, will become hell-holes of crime and depravity. Suburbs will become vacuous spaces for survivors of the crisis. Most people will cash out of their retirement plans if they can, because they need the cash. The next few years will be telling times indeed.

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Now, back to our normally scheduled daily market recap:

The number of bank failures in 2010 reached 78 on Friday, with the FDIC closing down 5 more - three in Florida and one each in Nevada and California.

At the current pace, bank failures this year will easily surpass the total of 140 from 2009. Regulators will likely shut down between 180 and 200 banks this year as the real estate and banking bust widens and deepens.

When markets opened for trading following the three-day holiday, futures pointed to a lower open and that's exactly what occurred, with the Dow off by 80 points and the other major indices following suit... for about five minutes. That's when the usual/unusual pattern reappeared, buyers emerged and by 10:00 am - just 1/2 hour into the trading day - the indices were all either positive or close to it. With the Dow gaining steadily, then leveling off, finally reaching a peak of 10,218, some 84 points above the previous close, the chicanery was in full blossom.

But, by 1:30 in the afternoon, the bloom was off the rose, and stocks began to sell off, just as Asian and European markets had earlier in the day. Finally settling at the break even line about 3:30 pm, the Dow and other indices took on all of their losses in the final half hour of trading, closing at their lowest levels of the day. One can only wonder where stocks might have been had it not been for the underhanded intervention which has become commonplace and remarkably humorous.

Dow 10,024.02, -112.61 (1.11%)
NASDAQ 2,222.33, -34.71 (1.54%)
S&P 500 1,070.71, -18.70 (1.72%)
NYSE Composite 6,661.10, -130.47 (1.92%)

Declining issues eventually overcame advancers, 5170-1374, and the pattern of new lows surpassing new highs emerged once more, 121-98. Volume was very light, a feature that could endure the entire summer and possibly extend deeper into the year.

NYSE Volume 5,695,913,500.00
NASDAQ Volume 2,001,166,750.00

Commodities tried to play along, though there seems to be no saving grace for the price of oil, which fell again today, losing $1.39, to $72.58 on the July contract. Gold bugs were busy at work, snatching up hat they believe to be the "new" currency (and they may be right), boosting the price $12.60, to $1,224.80. Silver also sported a gain, of 13 cents, to $18.54. Prices for gold and silver should be stable to higher at worst, until deflation grabs hold of them and their ardent admirers as well.

With the action on our horribly-manipulated markets notwithstanding, the global economic crisis seems to have entered a new phase, with governments seriously looking at options from reflation to default and everything in between. It's becoming a something of a game of chicken as currencies take turns being beaten down to levels at which their products can compete in various foreign markets.

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Here's a new feature:
Death Spiral Watch List:

I'm opening this one up with two companies which seem to be living on borrowed time. One is obvious, that being British Petroleum (BP), which lost another 15% today, down 6.43, to $36.52, as the federal government announced today that it was opening investigations into potential criminal and civil lawsuits (about time). TARGET=6.00

The second may not be such an apparent loser, but it is eBay (EBAY), formerly the world's online auction giant, which, through a series of ill-conceived management decisions launched by CEO John Donahoe, has effectively destroyed the trust of millions of small merchants globally. Ebay has embarked upon a path of dealing comfortably with larger concerns, offering them much lower fees than are afforded the average small business or occasional seller. It's a long, sad and sordid tale, but ebay has been turning the screws on small business with great force for the past two years, and sellers are actively seeking other platforms, tired of the endless game-changing and lack of responsible management. ebay closed down 0.45, to 20.96. Target=4.50

I call this the death spiral syndrome, recalling the demise of Countrywide Financial in 2007-08. The company was once the darling of Wall Street, at one time originating more than 50% of all mortgage loans nationally. Then came the sub-prime crisis and the company, and the rest, as they say, was history. Bank of America finally took over the company for $2/share, which makes one believe that maybe BofA might someday make this list itself. Time will tell.

The death spiral watch list tracks companies which I believe are headed for insolvency - a list that may grow to unprecedented levels should economic conditions continue to worsen.

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An interesting point made today on Yahoo! Tech Ticker, which points to the uncertainty we all face: