The Four stages of a bear market ~ expect dashed hopes

Our starting point for developed-market equities is that we are not in a new secular bull market. Extended bull markets typically happen when: 1) the starting point valuation is very attractive; 2) growth is strong and sustained, and 3) credit is readily available, allowing greater use of leverage. None of these factors seems likely in this cycle. Once the current rally ends, we expect an extended period of choppy markets. Exhibit 1 shows a stylized picture of how this could play out (taken from Teun Draaisma's report entitled The Aftermath of Secular Bear Markets, 10 August).

What is likely to end the rally? We think the biggest risk is growth and earnings disappointment. As is typical, an expanding PE ratio led the rally. The PE expands from a market low due to improving risk appetite and investors factoring in better earnings to come. Next year equities will have to become more earnings-led, again as is typical.

Indicator of the Week: Monthly MACD By Rocky White, Senior Quantitative Analyst

Hat Tip qqq.

Foreword: The market has rallied quite strongly during the past several months. A couple of popular long-term technical indicators, the Stochastics and the RSI, signaled a buy at the end of April. We just had another major technical indicator give a buy signal. I'm talking about the Moving Average Convergence Divergence, better known as the MACD.

The MACD can be looked at over different time frames (for example, hourly, daily, weekly or monthly). I'm taking a long-term perspective here and looking at it monthly. In the chart below, the MACD is calculated by subtracting a 26-month moving average from a 12-month moving average of the Dow Jones Industrial Average (DJIA). I plot the difference of those moving averages (red line below), and then calculate the nine-month moving average of that line (dotted line). This dotted line is the signal line. When the signal line crosses above the MACD, it's a buy signal. The most recent buy signals are marked by the red dots (I only consider one signal every 12 months).

Historical Analysis: Going all the way back to 1900 on the Dow, this is just the 25th MACD buy signal. Below is a table showing annualized returns for the Dow following these buy signals. The second table below is for comparison, and shows typical Dow returns since 1900. In the short term, you will see the signal shows no outperformance to the market. In fact, the three-month returns following a signal have tended to underperform the market at other times. But once you get out to six months, especially at the one year mark, you see quite a bit of outperformance. The market has averaged a gain of about 14.5% in the year after a MACD buy signal. This is way better than the typical market return of less than 7%. Furthermore, the market was positive one year later 83% of the time after a signal. Compare this to 64%, which is the percentage of time the market has usually been positive a year later.

http://www.schaeffersresearch.com/commentary/observations.aspx?ID=95912&obspage=2

POSTPONING JUDGEMENT DAY

Has the market bottomed nominally and due up on a money flood.




Puru Saxena thinks so...

There is no doubt in my mind that over the following years, we will witness a massive shift of wealth and power from the West to the East. Over the past few decades, American companies were at the top of their game and they infiltrated the whole world. Now, it is probable that over the coming decade or two, we will see more and more foreign companies and governments increasing their stakes in American corporations.

In summary, the recent policy measures (monetary and fiscal easing accompanied by the nationalisation of private losses) adopted by the US government may have succeeded in stabilising the economy and supporting asset prices in the near-term, but the end result will be a significantly weaker US Dollar and very high inflation.

http://www.financialsense.com/editorials/saxena/2009/0508.html

China stalker leaves his footprints in the Gold Market ~ GATA

Many men fail because they quit too soon. They lose faith when the signs are against them. They do not have the courage to hold on, to keep fighting in spite of that which seems insurmountable. If more of us would strike out and attempt the 'impossible,' we very soon would find the truth of that old saying that nothing is impossible... abolish fear and you can accomplish anything you wish. ...Dr. C. E. Welch

GO GATA!!!

GATA’s credibility took another leap forward this morning when China announced it has increased its gold reserves to 1,054 tonnes from 600 tonnes. For years and years and years GATA has claimed that the gold world establishment has failed to account for surreptitious gold lending operations by The Gold Cartel to suppress the price. For there to be greater gold supply hitting the market, there had to be greater demand to satisfy this undisclosed supply. As a result of Frank Veneroso’s brilliant supply/demand work in years past, we mentioned that one of the demand areas, that the likes of a GFMS was not accounting for, was China, and that someday their stealth buying would be reported. Voila…
China gold reserves apparently doubled


HONG KONG (MarketWatch) -- China has added to its gold reserves and now holds 1,054 metric tons of the yellow metal, according to a Friday report by the Xinhua News Agency, which cited comment by Hu Xiaolian, head of the State Administration of Foreign Exchange.

Hu said that China's gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the International Monetary Fund as per the organization's rules.

A Dow Jones Newswire report said the figure cited was nearly double China's reported gold reserves as of the end of last month, but noted that it wasn't clear which gold reserves Hu was referring to.

She said China's gold reserves now rank fifth in the world among nations which publicly disclose their holdings.

Analysts said China bullion buying reflects efforts to diversify their nearly $2 trillion stockpile of foreign exchange reserves.

"Chinese officials have been increasingly vocal about their concern on the U.S. dollar and the U.S. bailout policies of late, and have actively been seeking to diversify into other assets, especially commodities," said Martin Hennecke, an associate director with Tyche Group in Hong Kong…

-END-

To say that this revelation is a big deal is an understatement … for a number of reasons…

*It is more evidence that various central banks are increasing their gold holdings, in contrast to a number of western banks which have been selling for more than a decade.

*China’s move debunks Planet Wall Street and other western central bankers that gold is a barren asset and not worth owning.

*And it enhances the notion that gold is a valuable reserve which will encourage other central banks to follow China’s lead.

*It surely will spook some of the sheeple central bankers who have foolishly dumped their country’s gold reserves at bargain basement prices … especially at a time when the West is looking at one financial crisis after another and the world’s major currency reserve, the dollar, is looking very suspect. A number of them are unlikely to press for further bullion sales from their countries’ reduced reserves.

*The likelihood of China continuing to build its reserves is extremely high. They were secretly building their gold reserves BEFORE the latest financial crises. If this was the Chinese mindset then, what must it be now? As is, their percentage of gold reserves is still on the very low side.

*Because of what the US is doing with our bailouts and fiscal deficits, the US dollar is surely on a precipice, thus China must be looking to accumulate more gold. Therefore, this is not a sell the news market announcement. It is just the opposite. It is a clarion call to buy physical gold.

*That clarion call will not go unheeded by the sophisticated big money in the world.

*This is a major new headache for The Gold Cartel.

Derrick sends us some retro on China/gold which was brought to your attention years ago…

China's forex watchdog faces dilemma on expanding gold reserves

From Xinhua News Agency
Monday, December 26, 2005

http://news.xinhuanet.com/english/200512/26/content_3971982.htm

SHENZHEN, China -- To buy or not buy? That's a question for Chinese foreign exchange authorities. They have been urged to expand gold reserve since the Renminbi appreciation, but the decision is hard to make since the gold prices are rocketing.

Some economists have been appealing to the State Administration of Foreign Exchange to expand China's gold reserve after the Renminbi appreciation in a bid to reduce the country's reliance on the greenback....

***
GATA has been all over the Chinese gold buying case and we can account for it in our understanding of the true supply/demand picture. GFMS and the World Gold Council CANNOT!


And then to shed light on the MIDAS analysis and what lies ahead…

Bill,
I reproduce the following from a Financial Times article this morning declaring that China's gold reserves have officially been revised to 1,054 tons from 600. You have long held the view that China was buying gold through intermediaries and would eventually disclose part or all of these activities. It is the end quote I append that caught my eye:

"Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes.

"It’s not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis," he said. "The financial crisis means the US dollar’s value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage." (emphasis added)

Thought you might be interested.
All my best to you and your health, Brad

And here’s a big tip o’ the hat to our STALKER source who nailed this one, beginning back in 2003, which just happens to be the year the Chinese now admit they started buying.

Doing a Café search, I have yet to find the initial presentation to The Café ... but the bottom line is our source went to Phoenix for a meeting with six others in 2003. Our source was there to act as a gold buyer in the future. The person who held the meeting spoke FROM BEHIND A SCREEN, as he did not want to disclose his identity. While speaking perfect English, our source thought at the time he might be Chinese and did not wish that to be known.

Our STALKER source called today and I could almost see the smile on his face through the phone. He reminded me of another tip, i.e. it was Chinese doing the buying, and he reported it was going through Australian banks, which have a longstanding relationship with the Chinese.

It is with great pleasure to bring MIDAS commentary to you re the Chinese/STALKER from more than half a decade ago…

September 10, 2003 - Gold $379.70 down $1.80 - Silver $5.22 unchanged

The Stalker

…Could any market trade more predictably than gold has the past month? Every time gold rallies sharply and early in a given day, it is capped by The Gold Cartel, sold off later in the trading session, brought down early that evening in overseas trading, and then is pressured all the next day by the same cabal. Over and over we see the same trading pattern.

You see it, I see it, and SO MUST the $4.6 billion buyer, which MIDAS characterized in general as being around some $40 ago. It seems to me this "gold buying group" is playing with The Gold Cartel. They know the cabal’s drill as well as we do and probably devised a trading plan to take them on, not fight them too hard on given days, and then overpower them.

This "gold buying group" must know what GATA knows, in that the cabal has a serious vulnerability, or Achilles Heel, when it comes to the physical gold market:…

-END-

September 11, 2003 - Gold $379.30 down 40 cents - Silver $5.30 up cents

Dramatic Gold Day / Silver On The Move / Both Have Fireworks Potential

…Today's action was very supportive of MIDAS' notion there is a Stalker ("gold buying group") out there taking on the corrupt Gold Cartel. They waited for Goldman Sachs to strike, then attacked, sending gold $7 off its lows. Dramatic it was. This is a big deal. Other traders will see how easily gold came back after filling the gap and will encourage them to get long, especially since the gap was filled. The huge open interest also suggests a significant move is coming. Gold’s startling comeback suggests that move is going to be one which takes the price MUCH higher….

-END-

September 19, 2003 - Gold $381.10 up $4.80 - Silver $5.25 up 2 cents

The Stalker Strikes With Another Huge Gold Buy Order!

…Gold came in stronger than expected on the Comex opening, which is almost always a very constructive development. It left a $1 gap and quickly shot up all morning, topping $383 at one point. Then the requisite Gold Cartel $6 price-capping rule went into play. That was all she wrote. The cabal regrouped and held gold in check the rest of the trading session and then did their requisite slam, knocking gold down a buck ON THE BELL. These no-good low-lifes are pitiful. Ah for the day when we can get our stretchers out, pick them off the mat, and then dump them in the sewer!

The big news is for Café members only. I received a call from London about The Stalker and learned a bit more about this "gold buying group." Two goodies for you:

*In addition to the $4.6 billion order, The Stalker is buying well in excess of another billion dollars worth of bullion and gold coins. The MIDAS analysis over these past months of huge new buying interests entering the gold arena looks better by the day.

*The orders are emanating out of New Zealand and Australia. My source believes it is Asian money and most likely CHINESE!

This is wonderful news as it would mean the Asian (Chinese) gold buy program is competing with Indian, Turk and Arab buying. Put them all together and it is easy to comprehend why The Gold Cartel has not been able to flush out the massively long specs. The Eastern buyers are always there on dips competing against one another for a diminishing supply of gold.

It also explains why gold has been moving up in price with a corresponding, but lagging, move in the dollar. Gold is leading the way and doing so for the reason John Brimelow and I have articulated for so long. The key to the gold price is the surging physical gold market taking on the corrupt and devious Gold Cartel…

-END-

December 23, 2003 - Gold $410.65 up 55 cents - Silver $5.71 up 2 cents

A STALKER Of A Gold/Silver Tale For Christmas Time

…As Café members have been made aware, the Eastern gold buyers have additional competition due to the enormous physical market buying by THE STALKER ("gold buying group"). Without getting into many details, I want to stress THE STALKER is real. My source’s good friend has attended a meeting with this "gold buying group," or his agent. I say "or" because THE STALKER is very secretive and does not want to be known publicly, even to the sellers from whom he is buying.

Both my source and I strongly believe the gold buying is of Chinese origin…

-END-

January 5, 2004 - Gold $423.80 up $8.60 - Silver $6.19 up 27 cents

Gold ($423.80) And Silver ($6.19) SOAR!

…*THE STALKER input has been incredible. Every time I get word this "gold buying group" is in the market, gold moves higher. Just as I was writing this, I received a phone call from "Mike," my STALKER source. He tells me THE STALKER was in the market today and they are going after $1.4 to $1.6 billion worth of gold in the near term…

-END-

January 15, 2004 - Gold $408.30 down $13.10 - Silver $6.19 down 21 cents

Ouch! Gold Cartel Wins A Battle

…Good news! Just got off the phone with my STALKER source. There was an unscheduled phone conference this afternoon with THE STALKER’S US buyers. They have a NEW order for $800 million to $1.2 billion to be completed between now and March. 72 tonnes of new gold buying is nothing to sniff at! The orders are still coming out of Australia and my source continues to believe they are for mainland China…

-END-

January 28, 2004 - Gold $414.60 up $4.90 - Silver $6.60 up 7 cents

Silver Closes At Six-Year High/Gold Charges Up $5/Gold Share Massacre Orchestrated

..In my various presentations and public commentary at the Vancouver conference I stressed the importance of what was going on in the physical gold/silver market and laid out what has been presented to Café members, including John Brimelow’s unique and extremely valuable work. There was no one else at the conference doing so. While most conference presenters stressed the weak dollar as the most important gold factor, I stressed it was the surging physical market.

In that regard, I learned this morning THE STALKER (probably China) just completed the last bit of its $6.8 billion order. NOW, THE STALKER is working on its additional 800 million to $1.2 billion dollar gold order (brought to your attention recently). I might know more on this on Friday.

To give you some idea of how significant this is, Norway just reported they sold 16 tonnes of gold in January (see below) and plan to dump another 17 tonnes of bullion, which will clean them out. The Gold Cartel and friends jump up and down about more central banks selling their gold and make a big deal how negative it is. What The Gold Cartel fails to tell the press and their clients is who is BUYING gold and to what extent. Can they all be so uninformed?…

-END-

February 24, 2004 - Gold $403.90 up $5.70 - Silver $6.59 up 13 cents

Silver and Gold Pop Very Nicely / $6 Rule AGAIN

…Some input from a bullion/coin dealer who has been in the business for 40 years. He has not seen the physical gold market this tight in two decades. The physical market is in a bit of a disconnect with the price-rigged Comex. Silver is also extremely tight according to my source and only trades in size at a PREMIUM. You cannot buy a decent amount of physical silver without paying up. Wait until next month!

Some STALKER feedback. We have confirmed the buyer is from the Far East, in all probability Chinese, and they still have $1.5 billion of gold to buy. We also know why they are buying. This is a big picture trade, not a short-term speculation. The gold they are accumulating is going into deep storage and not coming back into the market on rallies. The reason is these "Chinese" fear a complete debacle in fiat currencies in the next couple of years…

-END-

That’s enough for now. You get the picture. The GATA camp was right on the money about Chinese gold buying while there was nary a peep about it from the mainstream gold world, or from the big shot bullion dealers on Planet Wall Street.

Meanwhile, back at the gold ranch, it was Gold Cartel business as usual. The Chinese gold news threw a monkey wrench into their plans to keep gold suppressed today and the DOW propped up going into the stress test (criteria) that was released this afternoon … which is why gold was hit in the Access Market yesterday afternoon and the DOW was goosed on the close by the PPT.

Gold popped to $913 during Asian trading hours last night. Then it was Plan A for the cabal. The price rise was stopped cold when they reported to work at the usual 3 Am EDT…



These guys make me sick to my stomach, as do the lightweight people in the gold industry who refuse to deal with the manipulation truth. The Chinese gold news was enough on its own to send the gold price sharply higher. Yet, there were even more bullish market factors for the gold price, which should have sent it much higher on their own…

*The dollar began to break down. It closed off .74 to 84.74 and broke below the neckline of a head and shoulders formation...

June dollar
http://futures.tradingcharts.com/chart/US/69The euro rose .0119 to 1.3245. The pound was flat at 1.4675, but the yen rose .73 to 97.13.

*With short term US Treasury rates near zero at .06%, the yield of the 10 year T note rose to 3%, negating the entire move after the "quantitative easing" announcement and threatened to make multi-month highs. Clearly the inflationary effects of US policy, and what those implications are for the dollar, are having their effect in the marketplace.

June T note
http://futures.tradingcharts.com/chart/NO/69
Should the yield on the 10 yr T note take out 3.05%, we are likely to get an avalanche of Treasury note/bond selling.


*Crude oil blew through $50 again on the upside, ending the day up $1.93 to $51.55 per barrel.

Put all of that together, the price of gold should be screaming higher. Guy notes…

Can there be a more bullish story than the China gold story last night? And, yet again, gold can’t go up much on this news? You have to be kidding me! If China announced they were buying a big bunch of soybeans you can bet your last dollar that the bean market would be limit up today!! All this and the dollar getting hammered again???? When will it end!!!!

***

Don’t get bummed out here cause this is what THE BUMS do. Remember the past couple of days I reviewed the fact that gold almost never goes way up on very bullish news. The modus operandi of the cretin Gold Cartel is to SHOOT THE MESSENGER when there is positive news for gold. This is just par for the course ... with the dopey gold pundits making mention of how poorly gold reacted to such bullish news. Meanwhile, misguided sad sack souls, Geithner and Summers, continue to lead the country to disasterville.

Clearly The Gold Cartel wanted the price of gold down today. However, the news from all fronts was SO BULLISH, and the direction of the future price of gold so clear, they had all they could handle to keep gold from exploding, as it should have.

In the end, today was TERRIFIC for us, as the die is cast for the price of gold in the months ahead. The Chinese news will reverberate all over the word and attract more and buy SUBSTANTIAL buyers.

As The Gold Cartel had their hands full with gold, they sat on silver, which should have rocketed also. One day in the near future it will. In the meantime, oh well, that’s what JP Morgan & GANG does.

Ironically, our STALKER source called yesterday and re-affirmed that this brilliant London trader is still calling for $940 gold and hung in there on the brief dip. In addition he had some insight to some of the silver weakness besides the manipulation by JP Morgan & Co. You might recall that he told us some time ago that a large amount of silver was shipped from London to Dubai. The price at the time was about $17. Not good because after the oil price debacle, Dubai went into the tank and investors over there shied away from precious metals, including silver. Thus, these dealers were stuck with a huge amount of inventory which was doing them no good, so some of them have been dumping their silver and want some of sent back to London.

Will let you know if I receive any further updates on that silver score.

The gold and silver charts look better and better…

June gold
http://futures.tradingcharts.com/chart/GD/49May silver
http://futures.tradingcharts.com/chart/SV/59The gold open interest rose 8224 contracts to 344,626. The specs are on their way back in on the long side as they like gold’s performance following its test of its 200-day moving average.

The silver open interest went up 1334 contracts to 97,077, which is a recent high. The silver spec longs are emboldened.
The Cafe Sentiment Indicator remains BLAH. As is so often the case, just when gold/silver investors ought to be paying the most attention, they go to sleep as a whole. Some things never change.

The CRB went up 3.73 to 223.27.


More gold goodies:

Is the China game over?

Indian ex-duty premiums: AM $5.50, PM (12c) with world gold at $908.10 and $911. This is basis Ahmedabad, and the AM reading is probably anomalous. Most of the conduit cities seem to have finished the day slightly below import point, which fits with a Reuters story today. See:

http://in.reuters.com/article/businessNews/idI
NIndia-39224220090424

However, the rupee was firm, closing at $1=R49.81 (Thursday R49.92) and the stock market closed up 1.74%. This is the 7th up week in a row; the market has risen 41% since its early March low and is attracting substantial foreign investment. If the Reserve Bank permits the rupee to rise, this will improve the Indian bid for world gold.

On Reuters data, the Vietnam physical market stood at a $5 discount to world gold (which at the time was at $912.50, virtually its high of the day.) Noting the story at

http://uk.reuters.com/article/oilRpt/idUK
HAI00004120090424

UBS guesstimates that Vietnam exported 80-100 tonnes of gold in the first quarter, but that the flow has subsequently stopped. A wider discount than $5 would be needed to make the trade worthwhile; but obviously the situation merits attention

TOCOM’s active contract gained 15 yen last night; aggregate volume was the equivalent of 10,530 Comex lots; open interest unfortunately is not available. World gold added $6 from the Comex floor close: thanks to China, not Japan.

As noted yesterday, Wednesday’s $9.80 Comex gain saw a 2,824 contract 8.78 tonne decline in open interest. MarketVane’s Bullish Consensus added 2 points to 74% yesterday; the HGNSI jumped 13.3 points to 16.8% Bulls. The GLD ETF marked the June Comex $14.10 gain by shedding 0.53 tonnes (260 Comex lots).

China’s announcement overnight that it has raised its gold reserves by 75% since 2003 raises a number of points. Firstly of course, it further demonstrates the CB gold holding statistics are close to worthless. Secondly, from a broad economic perspective, it calls into question Chinese FX policy. This puts them directly at odds with the Americans, who have clearly been hostile to CB gold accumulation for more than a generation. Optimists might think the Chinese are planning to forgo the undervaluation privilege which has been central to their US relationship the rule of Robert Rubin. This could help reflate their economy. More likely, in my view, the risibly cosmetic revaluation charade will be abandoned, triggering competitive devaluations across the Far East.

Not directly helpful to gold – except in as far as stress and antagonism are.

***

CARTEL CAPITULATION WATCH

Dave from Denver…

Hmmm....market being forced higher

in anticipation that Geithner's Private Public Investment Partnership will do a belly flop? Today is the deadline for applications and apparently interest in the scam is lukewarm at best:

http://www.marketwatch.com/news/story/private-investors-
skeptical-toxic-bank/story.aspx?guid=%7B567A0888%2D37E0%2D4F
9F%2D81F9%2D62025CFEB7FB%7D&dist=msr_5Investors also are unlikely to be interested in buying packaged subprime mortgages that were based on misrepresentation and fraud, Lashley noted.

Investors believe bank toxic assets can be divided into three categories:
Attractive securities that can and are being sold without any government help.
Assets that may be attractive but banks want more than they investors will pay.
Bank-owned assets that, no matter what their price, investors won't buy.

***
Talk about a no surprise. The DOW ended the day up 119 to 8076 and the DOG leaped 42 to 1694. "Everything is fine," The Stepford Wives.

Meanwhile...


April 24 (Bloomberg) -- Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

U.S. economic news:

The stress test methodology release was mundane and as expected…

14:00 Fed says large banks should hold additional capital to serve as a buffer against higher losses than normally expected through 2011
The comments come in context of the release of the parameters of the stress test.
* * * * *

14:05 Fed releases white paper regarding stress tests
The following is the opening paragraph from the white paper, which is available via the Fed link attached:
"Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized. However, losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks. Lower overall levels of capital—especially common equity—along with the uncertain economic environment have eroded public confidence in the amount and quality of capital held by some firms, which is impairing the ability of the banking system overall to perform its critical role of credit intermediation. Given the heightened uncertainty around the future course of the U.S. economy and potential losses in the banking system, supervisors believe it prudent for large bank holding companies (BHCs) to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized at over the next two years and able to lend to creditworthy borrowers should such losses materialize."
Reference Link
* * * * *

Top U.S. banks must hold sizable capital buffer: Fed

WASHINGTON (Reuters) - The top 19 U.S. banks need to hold a "substantial" amount of capital above regulatory requirements to weather a potential worsening of the economic recession, the U.S. Federal Reserve said on Friday.

Supervisors said "stress tests" regulators conducted at major banks were aimed at ensuring the institutions have enough capital in reserve to continue to lend in potentially bleaker conditions, and are not to be considered a measure of banks' current solvency.

"It is important to recognize that the assessment is a 'what if?' exercise intended to help supervisors gauge the extent of capital needs across a range of potential economic outcomes," the Fed said in a white paper outlining the methodologies regulators employed.

-END-

08:30 Mar Durable Goods Orders (0.8%) vs. consensus (1.5%); ex-Transportation (0.6%) vs. consensus (1.2%)
Feb Durables revised to 2.1% from 3.4%; ex-Transportation revised to 2.0% from 3.9%.
* * * * *

U.S. durable goods orders fall 0.8 percent in March

WASHINGTON (Reuters) - New U.S. orders for durable goods slipped 0.8 percent in March, far less than Wall Street expected, Commerce Department data showed on Friday.

Analysts polled by Reuters had forecast orders for long-lasting manufactured goods to drop 1.5 percent.

Durable goods orders have now fallen for seven months out of the last eight, the Commerce Department said. The sole rise in that period, in February, has been revised to 2.1 percent from the 3.5 percent previously reported.

New orders excluding transportation slid 0.6 percent last month, compared to February when they rose 2.0 percent. Orders excluding defense also fell 0.6 percent, after rising 0.2 percent in February.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, gained 1.5 percent in March after rising 4.3 percent in February.

-END-

10:00 Mar New Home Sales 356K vs. consensus 337K
Feb figure revised to 358K from 337K.
* * * * *

U.S. home sales drop in March

WASHINGTON (Reuters) - Sales of newly built U.S. single-family homes dropped 0.6 percent in March, but the stock of homes for sale at the end of the month still plummeted at a record pace, Commerce Department data showed on Friday.
The inventory of new homes shrank in March, to 311,000 from 328,000 in February. That left the supply of homes available for sale at 10.7 months' worth, compared to February's 11.2 months.

The Commerce Department said that the monthly change in inventories, of 5.2 percent, was the largest drop in more than 45 years and the year-on-year plunge of 33.7 percent was the largest on record.

February sales were much stronger than originally thought, with the report showing they rose 8.2 percent, compared to the 4.7 percent gain previously reported.

The March drop brought home sales to a 356,000 annual pace. Analysts polled by Reuters had forecast sales at 340,000.

The median sales price for a new home fell to $201,400 from $208,700 in February. The average price, however, rose slightly to $258,000 from $255,100.

-END-
The worst may be yet to come

Is the worst over? Investors seem to think it is. Confidence that the crisis is winding down has been mounting.But the right answer to the question depends on what "worst" is meant. Appropriate replies include: probably, yes but so what, not yet, probably not, and let's hope so.

By Edward Hadas, breakingviews.com
Last Updated: 3:28PM BST 22 Apr 2009

The worst of the credit squeeze is probably over. True, loan losses are still increasing. But the official aid is massive: minimal policy interest rates, ample liquidity supplies, capital injections and implicit loan guarantees.

The aid from above has helped push dollar interbank borrowing rates down in the last six weeks. The cost of insuring against corporate failure in the credit default swap market has also fallen by 0.5-0.7 percentage points to about 1.9 and 1.6 percent annually for the main US and European investment grade CDS indexes. Improving bank credit has contributed to this trend. Better credit all round means more loans will be refinanced, so fewer companies will go under than would otherwise be the case.

The big official liquidity push also gives investors more cash to put into the markets. The additional buying power may account for some of the sharp increase in oil and equity prices. There have also been tentative signs of revival in the junk bond and IPO markets. To some extent, the mood is following the money.

It may be due to government help or it may just be the passage of time, but another worst that has probably passed is in the pace of economic decline. The huge sudden drop in activity after the collapse of Lehman Brothers last September has already become something of a business legend. If the decline had continued at that pace, economies would be back to the Stone Age in a few decades.

It's not going to be that bad. Globally, exports are down 30pc since last July, according to Lombard Street Research. But the pace of decline is moderating. Similarly, US housing starts, which have declined by 75pc since the 2006 peak, may have reached their low.

The balance of indicators still suggests GDP is falling in most developed economies, but at a much less dramatic rate than a few months ago. When the economy is only declining at a moderate pace, some measures typically suggest that growth is returning - the much talked-about "green shoots" - but more show further decline. That seems to the case now.

Inventories complicate the picture. A sharp decline in global demand led to an even sharper reduction of inventories as retailers and manufacturers cut back. As the inventories are rebuilt, production will most likely pick up faster than consumption.

So yes, all in all the economy isn't shrinking as rapidly as it was. But so what? It's still shrinking. On that yardstick, therefore, the worst isn't yet over.

Now look at another measure of "worst": unemployment. Even when growth does return, recovery is likely to be anaemic. It will take time to absorb the excesses built up during the credit boom, from houses in the US to too many Chinese factories making cheap goods.

What's more, it's not as if all that private-sector debt has gone away.

The rise in savings rates in the US and elsewhere isn't going to be a one-quarter wonder. This means that the peak in unemployment could easily be two years away.

And will that then be the end of the pain? Probably not. The crisis will leave government balance sheets shot to pieces. The best case scenario is that the authorities manage to suck all their fiscal and monetary stimulus out of the economy safely once economic growth has bottomed out. Then all that the world will suffer is high taxes and slow growth.

But there is a risk that this outcome proves too unpopular and that the authorities instead take the current fad for "quantitative easing" to the extreme - and just print money to finance their deficits. The outcome would then be inflation.

An inflationary outburst might even lead to another sort of financial crisis - a loss of confidence in key currencies. That could be worse than anything seen up to now.

Can such a dire outcome be avoided? Let's hope so.

-END-

BofA

Dear Bill,
You've been saying for a while that you smelled something big and awful coming around the corner, and that's why the PMs were getting smashed. Clearly the rapidly unfolding Bank of America scandal was it. I can't say I'm surprised by the revelation that Ken Lewis cared more about his job than the interests of shareholders. There have been so many instances of lying and cheating that it's hard to be shocked anymore.

The fact that the U.S. is not considered as corrupt as a banana republic is simply a result of human conservatism. Human nature won't let us change our minds about deeply held beliefs so quickly.

Despite Andrew Cuomo's investigation, I don't have any illusions that he will be the American people's white knight. As Catherine Austin Fitts points out, Cuomo was largely responsible for the subprime mess at Fannie and Freddie when he was in charge of HUD under President Clinton. (http://www.dunwalke.com/sidebars/andrew_cuomo.htm) Sadly, too many actors in this drama are recycled from the Clinton Administration - Schapiro, Gensler, Summers, Emanuel, and now Cuomo - and all of them are deeply compromised.

The spark of hope I see is the fact that Americans are starting to wake up to the severity of the crisis. Sure, it's still a small number but events like the recent Tea Parties show that a vocal minority is angry about the irresponsible policies of the government. Mainstream intellectuals like Simon Johnson of MIT and William K. Black of the University of Missouri are openly talking about fraud and the takeover of government by financial oligarchs. In effect, the media is moving over to covering GATA's point of view without acknowledging that GATA said it first!

All the best,

Jennifer Barry
http://www.globalassetstrategist.com/
Incredibly, there was barely a mention today about the Bernanke, Paulson, Lewis mess. Unreal! ... Planet Wall Street at its worst.


TOCOM

Good Evening All:
During the April 23rd TOCOM sessions the seven past largest paper gold shorts increased their net short position by 467 contracts to 20,497 contracts. STDJ also increased theirs by 90 contracts to 10,515 contracts.

http://www.tocom.or.jp/souba/gold/torikumi.htmlThe same seven members added 27.50 contracts to their silver net short position leaving them net short 294.50 contracts (60kg deliverable equivalent).

http://www.tocom.or.jp/souba/silver/torikumi.htmlTOCOM posted their "Margin for May 2009" and compared with their "Price Limit and Margin for April 2009" there are clearly differences:

http://www.tocom.or.jp/news/2008/20090421_1.htmlOne of the first differences that stand out when comparing the two is that no price limits will be imposed on and after April 27th for many items including gold and silver. Furthermore, spot month additional clearing margins will be increased for certain items including gold and silver (based on type of position) on and after April 27th. For more details please see the bottom of the "Price Limit and Margin for April 2009" release below:

http://www.tocom.or.jp/news/2008/20090325.htmlBest wishes,
Scott

Large Scale Conspiracies - The Evidence

Bill,
There is a longtime argument that sophisticated investors like Jim Rogers use to dismiss the idea that a gold cartel, or conspiracy, exists. They claim that nothing that involves so many people can be kept quiet. The fact that no banker has come forward to publicly acknowledge a coordinated effort to suppress the price of gold is proof that no such effort exists. Without a smoking gun, or at least a smoking banker, the notion of a large-scale conspiracy is dismissed as impossible.

Well, if you base your position on a false premise, it’s pretty likely you will get a false answer. Garbage in, garbage out, as they say. There is now published evidence that proves that large-scale governmental conspiracies to defraud the public can be quietly maintained over decades. Who has printed this ground-breaking work? The Federal Reserve, thank you!

A study1 by researchers found, "that when government revenues dry up, police write more speeding tickets. After analyzing 14 years of data in North Carolina, the pair found that for every 1 percent drop in government revenue, the number of traffic tickets issued per capita increases by 30 percent the following year.

"It's significant," said University of Arkansas-Little Rock economics professor Gary Wagner, who co-authored Red Ink in the Rearview Mirror: Local Fiscal Conditions and the Issuance of Traffic Tickets. "If there was no revenue for issuing tickets, I wouldn't expect the unemployment rate and revenue to be related."

The study, which analyzed data from 1989 to 2003, found the lowest number of tickets issued in North Carolina was in 2000, after nearly a decade of economic growth. There were roughly 645,000 tickets written that year. The highest number of tickets came two years later, when governments were trying to recover from the post 9-11 recession, and issued roughly 768,000.

Wagner said the study reinforced a theory held universally by economists: Incentives matter.

"If local governments are somehow involved in the revenue that gets generated, there's an incentive to get more revenue," Wagner said.

Wagner said there are numerous anecdotes nationwide of such practices, such as the mayor of Nashville, Tenn., proposing two years ago a 33 percent increase in ticket revenue in his budget.

Wagner's co-author, Thomas Garrett, is an assistant vice president at the St. Louis Federal Reserve. North Carolina was chosen as a case study because the state had good data."

So here we have an effort to covertly defraud and damage the public. The "conspiracy" is widespread and crosses state lines. There is plentiful circumstantial evidence to confirm its existence…AND NOT ONE OFFICER, SWORN TO UPHOLD THE LAW, OR ADMINISTRATOR HAS COME FORWARD TO COMPLAIN! How can that be? Well, it’s obvious. Police officers, and administrators, understand that any whistleblower who speaks out will shortly be looking for a new line of employment.

The same principle works in finance. Why would a banker give up a life of privilege, to protect a public that mostly isn’t even interested enough to listen? Employees intuitively understand who pays their salaries and bonuses. They’ve also been brought up through a system that teaches them that gold is a barbarous relic, that it cused the Depression and that its proponents wear tinfoil hats and are mentally unstable. Who would make a public stand to fight for this? Thousands of people can know the truth, and yet not one person will speak it. Anyone who scoffs at this reality should just ask the Federal Reserve. As long as the "system" approves, a conspiracy can exist practically in public view, and no one on the inside will lift a finger to counter it.
Best wishes,
Peter R.
http://www.news-record.com/content/2009/01/12/article/study_links_economy_to_traffic_tickets
***


Gold availability

From: Michael Wright
Friday, 24 April 2009 7:23 AM

Subject: There is no gold (well very little anyway)

You might want to pass on to your GATA mates that it took me over a month following payment to get my 50 oz gold bar.

I purchased it on the 20 March and as you know they still didn't have it whenI tried to collect it on 3 April. When I went in (again) yesterday, they finally had it ready;
I said why didn't you ring me like you promised? They said sorry, but they only got it last night.
Hmmmmmm.

Michael Wright
West Perth WA 6872

Another bright light for the day was the way the gold/silver shares acted when The Gold Cartel pressured the price of gold back to the unchanged mark. They were firm as could be and failed to react on the downside to the pressure on bullion. As the day wore on they gained traction and closed superbly.

The XAU and the HUI rose 20.15 to 310.81.

It appears the HUI is in the process of completing a massive base … one which can support a move to new highs and beyond…

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=HUI&sid=16794&time=8
From Kiwi Land...


Gold stocks

Hi Bill:
From Midas one year ago

"April 24 (2008) – Gold $886.80 down $19.40 – Silver $16.66 down 50 cents

The XAU dropped 6.77 to 172.61 and the HUI gave up 17.93 to 407.28.

The HUI is one of the worst looking charts I have ever seen, as it has broken through massive support at 425 and broken down after completing a huge top. If I didn’t know the extent to which gold, silver and the shares have been managed, this would petrify me:"

You certainly got the call on the HUI right!

I've been watching for year on year Gold price. Yesterday we moved above the Gold Price of last year and with today's move higher combined with the $19.40 loss of April 24, 2008 we are solidly above it. However look at the silver price, still a good $3.75 below last year.

Today the HUI is up 20 to 310.81. Last year it was down 17.93 to 407.28 but still 30% higher than where we are today. The Gold stocks can move a lot higher from here and still be underpriced.

Cheers from Auckland, Ed Wener
The dollar is breaking down technically, yields on US Treasury notes and bonds are close to busting out, and US short term rates remain right above zero. That alone is one heckuva bullish stew recipe.

Meanwhile, the China gold buying news puts this MIDAS in our Hall of Fame collection. This revelation will act as anchor for gold for many months to come and send the price well beyond $1,000 per ounce.

Spread the word, Thunderbird!

GATA BE IN IT TO WIN IT!

MIDAS

http://news.goldseek.com/LemetropoleCafe/1240765200.php

Market down till Feb 09 ~ forced selling

Down in the morning, up in the afternoon. Or is it the other way around? The topsy-turvy stock market is tough to read.

In the last year, the Dow Jones Industrial Average has briefly been over 13,000 and below 8,000. The past month has felt like the Cyclone roller coaster on Brooklyn's Coney Island -- lots of ups and downs, the whole rickety thing feeling like it's going to crash at any minute.

Great investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is like a giant mass of pulsing plasma doing price discovery and a game of hot potato, getting stocks into the correct hands with the right risk profile. It's way too big for any one person to manipulate, let alone touch directly. Instead, millions of us provide input with our buying and selling decisions.

When it's at its most efficient, with buyers and sellers neatly matched up at the right price, it's a pretty good predictor. The Crash of 1929 announced a recession, and the wake-up call unheeded might have caused many of the bad policies leading to the Great Depression. The Crash of 1987? Not so much.

You see, the market is a great manipulator. In September, the Dow dropped 700 points intraday after the House of Representatives voted down the Treasury's TARP bank-rescue bill. Spooked, the House passed the bill the next week. Or how about this? The Dow was up 300 points on Election Day applauding an Obama victory and then down 1,600 points since.

The market can also be a bold-faced liar. On Jan. 22, the Fed announced an emergency 75-basis-point rate cut in response to huge drops in European markets. A few days later, it came out that a rogue trader at Société Générale lost them $7 billion and the bank was unwinding his positions. Oops.

So which is it now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I'd say stick wax in your ears and don't listen to the market until February.

Don't get me wrong. The freezing of the credit markets is wreaking havoc on the world economy. Corporate profits are dropping. Central banks are fighting off deflation and may not turn off the spigots fast enough -- which could ignite runaway inflation. But because of the credit mess, I am convinced the stock market is at its least efficient today. Don't read too much into any move. Here are the five biggest dislocations taking place:

- Tax-loss selling: Whenever you have a loss in a stock -- and who doesn't -- it's always tax smart to sell it, take a tax loss and either buy something similar or wait 30 days and buy the original one back. December can be an ugly month of indiscriminate selling. The December effect will be huge this year.

- Mutual-fund redemptions: Mutual funds are also dumped for tax losses. When the stock market is down in the morning, it's usually because of mutual-fund redemptions.

Fidelity's giant Magellan fund, down 56%, is one of many in the $6 trillion stock-fund business having an awful year. As investors call or click to get out of these funds, Fidelity and the others have to unload shares the next morning to raise cash. This forced-selling overwhelms the system. New York Stock Exchange specialists, who are supposed to maintain an orderly market, stop buying and back away. You get huge drops, which can unnerve even more investors and cause them to redeem.

- Mutual fund cap-gain distributions: To make matters worse, in December mutual funds do capital-gains distributions. In a down year like 2008, you would think there are no taxes to pay. Think again. Legg Mason's Value Trust, run by Bill Miller, outperformed the market for 15 years by buying many "unvalue" names like Amazon. As investors redeem, he is forced to sell many of these stocks originally purchased at very low prices, triggering huge capital gains in a year his fund is down 62%. You can almost guarantee investors also will sell more of these funds to pay their unexpected tax bill.

- Hedge-fund redemptions: Instead of overnight selling like mutual funds, hedge funds typically require 45 days' notice for investors to get out of a fund. They've been furiously selling since September to raise cash to pay investors. This usually shows up as a set of stocks that just go down and down and down with no obvious explanation.

Rubbing salt in hedge-fund wounds is the fact that Lehman Brothers was a prime broker to many hedge funds, holding their shares. While Lehman's bankruptcy was not a problem in the U.S., in England the policy is to freeze accounts until the mess can be sorted out. There are billions in assets locked in this bankruptcy, and hedge funds are forced to sell positions in the U.S. and elsewhere to raise cash, exacerbating the downside here.
More from Yahoo! Finance:


By the way, when hedge funds are down for the year, they work practically for free until they make up the loss. We'll see hedge funds close and stocks liquidated as -- no surprise -- hedge-fund managers like to get paid.

- Margin calls: Whenever stocks go down sharply, you quickly find who owns them with debt. We have seen spectacular margin calls, a requirement for more capital to cover share losses. Chesapeake Energy CEO Aubrey McClendon unloaded 33 million shares to cover losses. Viacom CEO Sumner Redstone had a forced sale of $400 million in Viacom and CBS shares because of a margin call on other stocks. You can bet many not-so-public margin calls are behind many huge price drops. These usually take place in the last 30 minutes of trading.

So won't January be alright once these dislocations weighing on the market are lifted? The January effect is supposed to be positive.

Well, often money managers are fired at the end of disastrous years. A new manager comes in, looks at the existing positions and dumps them all and remakes the portfolio with new stocks that he likes, thus generating more selling. My favorite Wall Street adage suggests that the stock market trades to inflict the maximum amount of pain. Remember, you can only ignore the stock market for so long. Once everyone thinks it can only go down . . . it might go up.

US military is where savings must be made

DISPATCHES FROM AMERICA
We have the money
By Chalmers Johnson

There has been much moaning, air-sucking and outrage about the US$700 billion that the US government is throwing away on rich New York bankers who have been ripping us off for the past few years and then letting greed drive their businesses into a variety of ditches. In fact, we dole out similar amounts of money every year in the form of payoffs to the armed services, the military-industrial complex, and powerful senators and representatives allied with the Pentagon.

On Wednesday, September 24, right in the middle of the fight over billions of taxpayer dollars slated to bail out Wall Street, the House of Representatives passed a $612 billion defense authorization bill for 2009 without a murmur of public protest or any meaningful press comment at all. (The New York Times gave the matter only three short paragraphs buried in a story about another appropriations measure.)

The defense bill includes $68.6 billion to pursue the wars in Iraq and Afghanistan, which is only a down payment on the full yearly cost of these wars. (The rest will be raised through future supplementary bills.) It also included a 3.9% pay raise for military personnel, and $5 billion in pork-barrel projects not even requested by the administration or Secretary of Defense Robert Gates.

It also fully funds the Pentagon's request for a radar site in the Czech republic, a hare-brained scheme sure to infuriate the Russians just as much as a Russian missile base in Cuba once infuriated us. The whole bill passed by a vote of 392-39 and will fly through the senate, where a similar bill has already been approved. And no one will even think to mention it in the same breath with the discussion of bailout funds for dying investment banks and the like.

This is pure waste. Our annual spending on "national security" - meaning the defense budget plus all military expenditures hidden in the budgets for the departments of Energy, State, Treasury, Veterans Affairs the Central Intelligence Agency (CIA) and numerous other places in the executive branch - already exceeds a trillion dollars, an amount larger than that of all other national defense budgets combined.

Not only was there no significant media coverage of this latest appropriation, there have been no signs of even the slightest urge to inquire into the relationship between our bloated military, our staggering weapons expenditures, our extravagantly expensive failed wars abroad, and the financial catastrophe on Wall Street.

The only congressional "commentary" on the size of our military outlay was the usual pompous drivel about how a failure to vote for the defense authorization bill would betray our troops. The aged Senator John Warner, former chairman of the Senate Armed Services Committee, implored his Republican colleagues to vote for the bill "out of respect for military personnel". He seems to be unaware that these troops are actually volunteers, not draftees, and that they joined the armed forces as a matter of career choice, rather than because the nation demanded such a sacrifice from them.

We would better respect our armed forces by bringing the futile and misbegotten wars in Iraq and Afghanistan to an end. A relative degree of peace and order has returned to Iraq not because of President George W Bush's belated reinforcement of our expeditionary army there (the so-called "surge"), but thanks to shifting internal dynamics within Iraq and in the Middle East region generally.

Such shifts include a growing awareness among Iraq's Sunni population of the need to restore law and order, a growing confidence among Iraqi Shi'ites of their nearly unassailable position of political influence in the country, and a growing awareness among Sunni nations that the ill-informed war of aggression the Bush administration waged against Iraq has vastly increased the influence of Shi'ism and Iran in the region.

The continued presence of American troops and their heavily reinforced bases in Iraq threaten this return to relative stability. The refusal of the Shi'ite government of Iraq to agree to an American Status of Forces Agreement - much desired by the Bush administration - that would exempt off-duty American troops from Iraqi law is actually a good sign for the future of Iraq.

In Afghanistan, our historically deaf generals and civilian strategists do not seem to understand that our defeat by the Afghan insurgents is inevitable. Since the time of Alexander the Great, no foreign intruder has ever prevailed over Afghan guerrillas defending their home turf. The first Anglo-Afghan War (1838-1842) marked a particularly humiliating defeat of British imperialism at the very height of English military power in the Victorian era. The Soviet-Afghan War (1979-1989) resulted in a Russian defeat so demoralizing that it contributed significantly to the disintegration of the former Soviet Union in 1991. We are now on track to repeat virtually all the errors committed by previous invaders of Afghanistan over the centuries.

In the past year, perhaps most disastrously, we have carried our Afghan war into Pakistan, a relatively wealthy and sophisticated nuclear power that has long cooperated with us militarily. Our recent bungling brutality along the Afghan-Pakistan border threatens to radicalize the Pashtuns in both countries and advance the interests of radical Islam throughout the region. The United States is now identified in each country mainly with Hellfire missiles, unmanned Predator drones, special operations raids, and repeated incidents of the killing of innocent bystanders.

The brutal bombing of the Marriott Hotel in Pakistan's capital, Islamabad, on September 20 was a powerful indicator of the spreading strength of virulent anti-American sentiment in the area. The hotel was a well-known watering hole for American marines, special forces troops and CIA agents. Our military activities in Pakistan have been as misguided as the Richard Nixon-Henry Kissinger invasion of Cambodia in 1970. The end result will almost surely be the same.

We should begin our disengagement from Afghanistan at once. We dislike the Taliban's fundamentalist religious values, but the Afghan public, with its desperate desire for a return of law and order and the curbing of corruption, knows that the Taliban are the only political force in the country that has ever brought the opium trade under control. The Pakistanis and their effective army can defend their country from Taliban domination so long as we abandon the activities that are causing both Afghans and Pakistanis to see the Taliban as a lesser evil.

One of America's greatest authorities on the defense budget, Winslow Wheeler, worked for 31 years for Republican members of the senate and for the General Accounting Office on military expenditures. His conclusion, when it comes to the fiscal sanity of our military spending, is devastating:
America's defense budget is now larger in inflation-adjusted dollars than at any point since the end of World War II, and yet our army has fewer combat brigades than at any point in that period; our navy has fewer combat ships; and the air force has fewer combat aircraft. Our major equipment inventories for these major forces are older on average than any point since 1946 - or in some cases, in our entire history.
This in itself is a national disgrace. Spending hundreds of billions of dollars on present and future wars that have nothing to do with our national security is simply obscene. And yet Congress has been corrupted by the military-industrial complex into believing that, by voting for more defense spending, they are supplying "jobs" for the economy.

In fact, they are only diverting scarce resources from the desperately needed rebuilding of the American infrastructure and other crucial spending necessities into utterly wasteful munitions. If we cannot cut back our longstanding, ever-increasing military spending in a major way, then the bankruptcy of the United States is inevitable. As the current Wall Street meltdown has demonstrated, that is no longer an abstract possibility but a growing likelihood. We do not have much time left.

--------------------------------

Chalmers Johnson is the author of three linked books on the crises of American imperialism and militarism. They are Blowback (2000), The Sorrows of Empire (2004), and Nemesis: The Last Days of the American Republic (2006). All are available in paperback from Metropolitan Books.

The Sound (and Strength) of Economic Fundamentals~ Darmajoint

If an economic fundamental fell in a forest, would it make a sound?

America, it seems to me, is engaged in a form of self-mutilation I call the "death of 1000 clichés."

While waiting for the other shoe to drop, frankly, I have to say that Hurricane Ike wasn't as strong as forecast and the fundamentals of the economy are sound. (a riff on this theme, very funny)

"Feel good" Americans consume substantial quantities of drugs, both legal and illegal, to achieve their desired mental state, but the most abused narcotics are the deceptions that become clichés- clichés are popped faster than valium and xanax when things don't go well. Their frequency of use is directly proportional to the delay in effective response.

Let's consider a few.

1) John McCain, who admitted The issue of economics is not something I've understood as well as I should, nonetheless continues to assert alternatively, that the economy is fundamentally sound or that the fundamentals of our economy are strong.

He is, of course, not alone in popping this cliché, which has overtaken in popularity the late 90s, early 00s bromide, "stocks are a good investment."

The currently popular cliché begs the question, "what are the fundamentals of the US economy?"

As Milton Friedman, inter alios, have argued that, "those basic forces of enterprise, ingenuity, invention, hard work, and thrift...are the true springs of economic growth." In a capitalist economy, in theory if not in fact, money and markets are the fundamental tools used to unleash those true springs. Thus, Friedman argued, The first and most important lesson that history teaches about what monetary policy can do -- and it is a lesson of the most profound importance -- is that monetary policy can prevent money itself from being a major source of economic disturbance.

In my view, money and markets, the fundamental tools of capitalism, are working against the true springs of growth- particularly with respect to thrift.

The "sound-ness" of our debt based currency has been eroding for some time and with each addition to Federal obligation (Fannie and Freddie) and dilution of Federal Reserve collateral, the erosion picks up steam. People thought they were being thrifty pouring savings into equity and housing markets, but they weren't.

2) An ancillary cliché, "we believe in (or remain committed to) free markets," is often "popped" to counteract intervention indigestion, sometimes in combination with " a strong $ is in the interests of the US."

Free markets aim to discover fair value. When fair value isn't discovered, such as occurs when markets are used as price enforcement, instead of price discovery mechanisms, markets don't clear.

Speculators often become scapegoats when prices move in unpopular directions, yet, as many in the SE US are discovering, expensive products are better than no products. As I wrote to a friend today, I wonder how many millions of barrels of oil were sold by speculators fearful of the wrath of Congress.

Speculators also take heat when prices fall. In the equity market, their actions are often resisted by management through deception, omission, and intervention (think stock buy-backs) to the cheers of share-holders.

Yet, in an increasing number of cases, management resistance obscured a signal many share-holders, in hindsight, wish they had heeded. A little more speculation and transparency along with a little less self-dealing might reduce the number of sudden collapses in equity prices en route to bankruptcy.

The same might be said for the value of the US$. I'll take a fairly valued currency over an artificially strong one any day. The latter scenario begs the "banana republic" collapse a la Thailand '97.

3) The "it's better than I expected (or was forecast)" bromide is very popular among both financial market and weather watchers who were a safe distance from the crisis to which the cliché refers.

This begs three questions which are rarely considered by hard-core users: 1) what were you expecting? 2) have you seen the carnage? 3) why not?

I heard (and read) this cliché in reference to many recent hurricanes. In part the response is a function of weather forecasters' choice to "over-forecast" a storm to save lives (an option some economy forecasters might consider) as well as the desire among hard-core meteorologists to see a really big storm- a desire which usually ebbs quickly once they get the experience.

Yet, in the cases of Katrina, Rita and Ike, the destruction was quite extensive.


The "better than expected" quip has also been used recently with respect to Houston area refineries. While the refineries proper, according to my research, did escape with limited damage, they have no electricity, water, sewage, or infrastructure to either receive or deliver product, not to mention the problems of their workers getting to work.

To repeat, their frequency of cliché usage and acceptance is directly proportional to the delay in effective response- it widens rather than narrows the always present gap between reality and the perception thereof.

Altering maps to improve one's territories is akin to putting posters of sunny skies in windows when a hurricane is about to strike.

Market behaviour does not indicate a gold top

When did a bull market last end with commentators correctly calling the top? It just does not happen that way. The top comes when the last bear has thrown in the towel and is silent, having been proven wrong for too long.

That was the case with UK housing last summer. And look what has happened since then.

So the extent of the sudden bearishness among commentators about gold and silver should be no cause for concern, although the short term impact can be painful, particularly for those who ignore the cardinal rule and insist on buying precious metals with borrowed money.

Only when the mass media and great unwashed public are roaring gold bulls will this bull market come to an end. That will mean that few buyers are left and exhaustion is setting into the market.

With hindsight that was the condition of UK housing last summer with the first-time buyer market having crashed and mortgage finance stretched to the limit. But did anybody call the end of the housing boom then? Roger Bootle, for example, had been doing so for two years and had shut up.

Clearly precious metals are nowhere near this point, although in increasingly nervous times they are getting more media attention. Yet the idea that because the dollar rallies and precious metals fall means that all is now well with the US economy is just lunacy.

Today we have a former IMF chief economist warning a major US bank is likely to go bankrupt within three months, and the bail out of Fannie Mae and Freddie Mac is likely to prove so expensive that the US national debt will double. Meanwhile, geopolitics from Pakistan to Georgia are a reminder of the flash points in the world that could ignite oil prices which remain very high.

So I will be sitting out this market madness while opportunists will be piling into gold and silver for the next round of the bull run. Even the US dollar rally is bad for exporters who have been the only thing keeping the US out of recession. This downturn has much further to go and systemic failure will be the catalyst for very much higher precious metal prices.

Confessions of a risk manager

Why did banks become so overexposed in the run-up to the credit crunch? A risk manager at a large global bank—someone whose job it was to make sure that the firm did not take unnecessary risks—explains in his own words.

IN JANUARY 2007 the world looked almost riskless. At the beginning of that year I gathered my team for an off-site meeting to identify our top five risks for the coming 12 months. We were paid to think about the downsides but it was hard to see where the problems would come from. Four years of falling credit spreads, low interest rates, virtually no defaults in our loan portfolio and historically low volatility levels: it was the most benign risk environment we had seen in 20 years.

As risk managers we were responsible for approving credit requests and transactions submitted to us by the bankers and traders in the front-line. We also monitored and reported the level of risk across the bank’s portfolio and set limits for overall credit and market-risk positions.


The possibility that liquidity could suddenly dry up was always a topic high on our list but we could only see more liquidity coming into the market—not going out of it. Institutional investors, hedge funds, private-equity firms and sovereign-wealth funds were all looking to invest in assets. This was why credit spreads were narrowing, especially in emerging markets, and debt-to-earnings ratios on private-equity financings were increasing. “Where is the liquidity crisis supposed to come from?” somebody asked in the meeting. No one could give a good answer.

Looking back on it now we should of course have paid more attention to the first signs of trouble. No crisis comes completely out of the blue; there are always clues and advance warnings if you can only interpret them correctly. It was the hiccup in the structured-credit market in May 2005 which gave the strongest indication of what was to come. In that month bonds of General Motors were marked down by the rating agencies from investment grade to non-investment grade, or “junk”. Because the American carmaker’s bonds were widely held in structured-credit portfolios, the downgrades caused a big dislocation in the market.

Like most banks we owned a portfolio of different tranches of collateralised-debt obligations (CDOs), which are packages of asset-backed securities. Our business and risk strategy was to buy pools of assets, mainly bonds; warehouse them on our own balance-sheet and structure them into CDOs; and finally distribute them to end investors. We were most eager to sell the non-investment-grade tranches, and our risk approvals were conditional on reducing these to zero. We would allow positions of the top-rated AAA and super-senior (even better than AAA) tranches to be held on our own balance-sheet as the default risk was deemed to be well protected by all the lower tranches, which would have to absorb any prior losses.

In May 2005 we held AAA tranches, expecting them to rise in value, and sold non-investment-grade tranches, expecting them to go down. From a risk-management point of view, this was perfect: have a long position in the low-risk asset, and a short one in the higher-risk one. But the reverse happened of what we had expected: AAA tranches went down in price and non-investment-grade tranches went up, resulting in losses as we marked the positions to market.

This was entirely counter-intuitive. Explanations of why this had happened were confusing and focused on complicated cross-correlations between tranches. In essence it turned out that there had been a short squeeze in non-investment-grade tranches, driving their prices up, and a general selling of all more senior structured tranches, even the very best AAA ones.

That mini-liquidity crisis was to be replayed on a very big scale in the summer of 2007. But we had failed to draw the correct conclusions. As risk managers we should have insisted that all structured tranches, not just the non-investment-grade ones, be sold. But we did not believe that prices on AAA assets could fall by more than about 1% in price. A 20% drop on assets with virtually no default risk seemed inconceivable—though this did eventually occur. Liquidity risk was in effect not priced well enough; the market always allowed for it, but at only very small margins prior to the credit crisis.

So how did we get ourselves into a situation where we built up such large trading positions? There were a number of factors. As is often the case, it happened so gradually that it was barely perceptible.
Fighting the last war

The focus of our risk management was on the loan portfolio and classic market risk. Loans were illiquid and accounted for on an accrual basis in the “banking book” rather than on a mark-to-market basis in the “trading book”. Rigorous credit analysis to ensure minimum loan-loss provisions was important. Loan risks and classic market risks were generally well understood and regularly reviewed. Equities, government bonds and foreign exchange, and their derivatives, were well managed in the trading book and monitored on a daily basis.

The gap in our risk management only opened up gradually over the years with the growth of traded credit products such as CDO tranches and other asset-backed securities. These sat uncomfortably between market and credit risk. The market-risk department never really took ownership of them, believing them to be primarily credit-risk instruments, and the credit-risk department thought of them as market risk as they sat in the trading book.

The explosive growth and profitability of the structured-credit market made this an ever greater problem. Our risk-management response was half-hearted. We set portfolio limits on each rating category but otherwise left the trading desks to their own devices. We made two assumptions which would cost us dearly. First, we thought that all mark-to-market positions in the trading book would receive immediate attention when losses occurred, because their profits and losses were published daily. Second, we assumed that, if the market ran into difficulties, we could easily adjust and liquidate our positions, especially on securities rated AAA and AA. Our focus was always on the non-investment-grade part of the portfolio, especially the emerging-markets paper. The previous crises in Russia and Latin America had left a deeply ingrained fear of sudden liquidity shocks and widening credit spreads. Ironically, of course, in the credit crunch the emerging-market bonds have outperformed the Western credit assets.

We also trusted the rating agencies. It is hard to imagine now but the reputation of outside bond ratings was so high that if the risk department had ever assigned a lower rating, our judgment would have been immediately questioned. It was assumed that the rating agencies simply knew best.

We were thus comfortable with investment-grade assets and were struggling with the huge volume of business. We were too slow to sell these better-rated assets. We needed little capital to support them; there was no liquidity charge, very little default risk and a small positive margin, or “carry”, between holding the assets and their financing in the liquid interbank and repo markets. Gradually the structures became more complicated. Since they were held in the trading book, many avoided the rigorous credit process applied to the banking-book assets which might have identified some of the weaknesses.

The pressure on the risk department to keep up and approve transactions was immense. Psychology played a big part. The risk department had a separate reporting line to the board to preserve its independence. This had been reinforced by the regulators who believed it was essential for objective risk analysis and assessment. However, this separation hurt our relationship with the bankers and traders we were supposed to monitor.
Spoilsports

In their eyes, we were not earning money for the bank. Worse, we had the power to say no and therefore prevent business from being done. Traders saw us as obstructive and a hindrance to their ability to earn higher bonuses. They did not take kindly to this. Sometimes the relationship between the risk department and the business lines ended in arguments. I often had calls from my own risk managers forewarning me that a senior trader was about to call me to complain about a declined transaction. Most of the time the business line would simply not take no for an answer, especially if the profits were big enough. We, of course, were suspicious, because bigger margins usually meant higher risk. Criticisms that we were being “non-commercial”, “unconstructive” and “obstinate” were not uncommon. It has to be said that the risk department did not always help its cause. Our risk managers, although they had strong analytical skills, were not necessarily good communicators and salesmen. Tactfully explaining why we said no was not our forte. Traders were often exasperated as much by how they were told as by what they were told.

At the root of it all, however, was—and still is—a deeply ingrained flaw in the decision-making process. In contrast to the law, where two sides make an equal-and-opposite argument that is fairly judged, in banks there is always a bias towards one side of the argument. The business line was more focused on getting a transaction approved than on identifying the risks in what it was proposing. The risk factors were a small part of the presentation and always “mitigated”. This made it hard to discourage transactions. If a risk manager said no, he was immediately on a collision course with the business line. The risk thinking therefore leaned towards giving the benefit of the doubt to the risk-takers.
Gary Neil


Collective common sense suffered as a result. Often in meetings, our gut reactions as risk managers were negative. But it was difficult to come up with hard-and-fast arguments for why you should decline a transaction, especially when you were sitting opposite a team that had worked for weeks on a proposal, which you had received an hour before the meeting started. In the end, with pressure for earnings and a calm market environment, we reluctantly agreed to marginal transactions.

Over time we accumulated a balance-sheet of traded assets which allowed for very little margin of error. We owned a large portfolio of “very low-risk” assets which turned out to be high-risk. A small price movement on billions of dollars’ worth of securities would translate into large mark-to-market losses. We thought that we had focused correctly on the non-investment-grade paper, of which we held little. We had not paid enough attention to the ever-growing mountain of highly rated but potentially illiquid assets. We had not fully appreciated that 20% of a very large number can inflict far greater losses than 80% of a small number.

Goals and goalkeepers

What have we, both as risk managers and as an industry, to learn from this crisis? A number of thoughts come to mind. One lesson is to go back to basics, to analyse your balance-sheet positions by type, size and complexity both before and after you have hedged them. Do not assume that ratings are always correct and if they are, remember that they can change quickly.

Another lesson is to account properly for liquidity risk in two ways. One is to increase internal and external capital charges for trading-book positions. These are too low relative to banking-book positions and need to be recalibrated. The other is to bring back liquidity reserves. This has received little attention in the industry so far. Over time fair-value accounting practices have disallowed liquidity reserves, as they were deemed to allow for smoothing of earnings. However, in an environment in which an ever-increasing part of the balance-sheet is taken up by trading assets, it would be more sensible to allow liquidity reserves whose size is set in scale to the complexity of the underlying asset. That would be better than questioning the whole principle of mark-to-market accounting, as some banks are doing.

Last but not least, change the perception and standing of risk departments by giving them more prominence. The best way would be to encourage more traders to become risk managers. Unfortunately the trend has been in reverse; good risk managers end up in the front-line and good traders and bankers, once in the front-line, very rarely go the other way. Risk managers need to be perceived like good goalkeepers: always in the game and occasionally absolutely at the heart of it, like in a penalty shoot-out.

This is hard to achieve because the job we do has the risk profile of a short option position with unlimited downside and limited upside. This is the one position that every good risk manager knows he must avoid at all costs. A wise firm will need to bear this in mind when it tries to persuade its best staff to take on such a crucial task.

Gary Schilling: U.S. In Recession Now

The U.S. is already in a recession that’s unfolding in four stages — and it’s going to get a lot worse, investment advisor Gary Shilling says.


“We’re between the second and third stages right now,” Shilling told a Bloomberg interviewer.


“The first phase was the collapse in housing market, led by subprime slide last year;, the second phase was Wall Street, where there was a tremendous amount of over-leverage and investment in assets of questionable if not unknown value and highly illiquid.”


Shilling believes the third phase — a big nosedive in consumer spending — is about to unfold.


“Once people work through their tax rebates, they’ve run out of borrowing power,” Shilling notes. “Their home equity has disappeared. They’ve been relying on that and on income growth that isn’t happening. With high energy bills and maxed out credit cards, I think consumers are about to go off the cliff.”


“I look for the biggest decline in consumer spending since the 1930s,” Shilling says — and after that, it’s on to phase four, when recession spreads to the rest of the world.


Looking on the bright side. Shilling says that as consumers really hit the skids, concerns about inflation will fade, foreigners will once again look to the U.S. as a safe haven, and the dollar will rise.


“I’m looking for a rally in the dollar and basically selling stocks short now,” Shilling says.


For investments in this market, Shilling likes long Treasuries. “I think they’re going to rally as people look for a an alternative, a safe haven, as inflation worries turn to deflation worries as I think they will do by the end of this year and as the Fed eases further, which I think it will.”


Shilling also expects the unemployment will reach 7.2 percent at the bottom of the recession, which he thinks will be in the second quarter of next year. He disagrees with the Fed's assertion that inflation is a concern.


“To make a bold prediction, I think towards the end of the year we'd be back to worrying about deflation and not inflation,” Shilling says.


Shilling points out that in the past, housing cycles construction as a percentage of GDP normally fell from around 5.5 percent to 3.5 percent. In this super cycle, he expects a decline from the 6.3 percent peak to below 3.0 percent for a cumulative negative impact on real GDP of more than 3 percent.


According to Shilling, a 3 percent drop in GDP constitutes a major recession. He points out that only twice in the post-World War II era — the 1957-1958 slump and the 1973-1975 retreat — were there peak-to-trough declines in real GDP of over 3 percent.


“Unless strength in some other sector offsets it, the normal cyclical drop in housing is enough to register a recession, and the collapse in the current super-cycle implies a major recession,” Shilling says.


Without any follow-on effects or other negatives such as high fuel prices and falling stocks, Shilling says the 25 percent decline in house prices he foresees could slash consumer outlays by 3 percent, creating a 2 percent drop in GDP.


This, added to the 3 percent or greater drop Shilling expects will occur from slower residential construction, will result in the worst recession in the post-World War II era.

S&P 500 to Dive Below 800

The S&P 500 stock index is heading south and could break through the 800 level before it hits bottom, says David Tice, founder of the Prudent Bear Fund.


"We think this is going to be a secular bear market," Tice said in a recent Bloomberg interview. He went on to enumerate the many problems tugging the U.S. economy downward, including the disastrously high price of oil.


"We think we should break through the 800 level [to the down side] on the S&P where we were in '02," Tice said. That drop would represent an additional decline of about 20 percent from current S&P levels.


Tice believes the fall will not be precipitous, but rather incremental, "over the next 18 months, to two years," he says.


"We think the U.S. economy is going to have to adjust to a lot less consumption. There's going to be a lot of restaurants, gambling casinos, movie theaters, and shopping malls that are going to be closed down."


Among the major factors behind the slump in consumer spending — about 70 percent of which drives the U.S. economy — is the housing bust, according to Tice.


"We no longer have our houses as an ATM machine, and unfortunately, we're just going to have to adjust."


Unlike previous economic downturns in which the notable resilience of the American consumer spent the economy back into good health, this time is different, Tice observed.


"...We've had this great real estate bubble, back in '02, after 9/11."


President Bush and former Federal Reserve Chairman Alan Greenspan, "...were encouraging people to go out and spend. We had this historic real estate bubble [with housing prices increasing] 20 percent a year compound growth .... People were able to take equity out of their homes and spend money."


Unfortunately, said Tice, those days are over.


"Now people are spending on their credit cards, however, auto defaults are going up, credit card defaults are going up, mortgage defaults are going up."


And the price of oil, currently trading at record highs, is another negative factor, Tice said. "So we think the consumer is going to slow down."


Would a decline to $100 a barrel for oil make Tice "tweak" or rethink his market forecast?


"Oil will probably sell-off, and it wouldn't surprise us .. .Even if oil goes back down for a while and we get a bit of a rally, we think that rally should be sold."


Also troubling Tice are the problems of Fannie Mae and Freddie Mac, both of which suffered steep declines recently.


"They need to potentially raise 75 billion, which is triple what their current market capitalizations are," said Tice.


"The issue here is capitalization, and the issue is losses that are going to occur for their guarantee business ... Right now they are holding capital for only 45 basis points for those guarantees and there will be significant losses ..."


Tice sees similar problems for many other financial institutions. "We think a lot of financials could go down a lot further from here ... We happen to be short Fannie and Freddie right now."


When asked what other sectors he thought were most likely to decline, Tice answered with bluntly bearish gloom.


"We think the overall market is going to decline, and you can sell virtually everything."

China Syndrome

The Wallace Street Journal

By David Bond, Editor
The Silver Valley Mining Journal

Another China Syndrome

Wallace, Idaho – Forgive another rant about China, but this one's kind of important, because if what we heard from a well-placed China guy (WPCG) in Vancouver the other day is to be believed – and he's not in the habit of making things up – North American mining shares are about to rock. The conversation was of a backgrounder nature, so we're not going to toss out any names. But here is the gist of what transpired:

WPCG: China has a problem. What it would most like to do is convert its huge holdings of U.S. dollars and U.S. Treasuries into gold.

WSJ: Then why not start buying gold?

WPCG: We can't. The minute that word gets out that China is unloading all, or any part, of its $1 trillion in U.S. paper to buy gold, the game is up. Two things happen: the price of gold goes to $10,000, and the current value of the U.S. dollar falls to about 10 cents.



end quote

Crisis is apon us --- Impact phase Second half 2008

On the occasion of this 26th – Summer 2008 Special – edition of the Global Europe Anticipation Bulletin, the LEAP/E2020 team has decided to launch an alert on the July-December 2008 period. Indeed, our team is now convinced that this period will consist for the whole world in a major plunge into the heart of the phase of impact of the global systemic crisis. The upcoming six months are in fact the core of the unfolding crisis. The troubles met in the past six months were mere harbingers.


US consumer confidence index (1978-05/2008) – Source: Briefing.com / Conference Board
In the next semester indeed, all the components of the crisis (financial, monetary, economic, strategic, social, political… ones) will converge at the height of their intensity (1). Avoiding to repeat a description of the various sequences already anticipated in the previous editions of the GEAB, our researchers have decided to describe the trends that will be at work in the world's main regions in the next six months. Therefore they analyse eight fundamental processes that will mark the next semester and affect decisively the years 2009-2010, i.e.:

1. A Dollar in distress (EUR 1 = USD 1.75 at the end of 2008): Panic-fear of a US currency and economy collapse eats into the American collective psyche

2. Global financial system: An impossible requirement – placing Washington under international trusteeship – provokes the system's break

3. European Union: The periphery sinks into the recession, the Eurozone only slows down

4. Asia: The « double whammy » inflation/export-collapse

5. Latin America: Difficulties increase but growth remains steady in most parts of the region, Mexico and Argentina in crisis

6. Arab world: Pro-Western regimes go adrift / 60 percent risk of socio-political explosion on Egypt-Morocco axis

7. Iran: 70 percent probability of an attack by October 2008 confirmed

8. Banks/Speculative bubbles: When bubbles collide

In parallel, LEAP/E2020 presents five strategic advices for the intention of central banks, governments and regulatory authorities, aimed at reducing and channelling the very bad consequences of the phase of impact of the crisis.

As to private investors, LEAP/E2020 develops in this 26th issue of the GEAB, a series of 8 operational advices for them to avoid committing fatal mistakes in the course of the next semester.

For this public announcement, LEAP/E2020 chose to present its anticipation on the upcoming break of the global financial system.

Make way for the Chinese giant

By Walter T Molano

The emergence of China as a global superpower occurred much faster than anyone imagined. China is the new giant on the block, with enormous resources at its disposal. An exporting powerhouse, China displaced the United States last year as the largest exporter to the European Union.

Chinese exports to the EU jumped 21% year on year in 2006, reaching 255 billion euros (US$336 billion), versus an 8% year-on-year increase in US exports, which totaled 176 billion euros. Chinese exports continue to expand aggressively, driving up



shipping prices around the world. The Dry Freight Index on the Baltic Exchange was up 41% year-to-date, with no end in sight. The earnings from trade are becoming a headache for the Chinese central bank. International reserves recently passed the $1.3 trillion mark. China's current-account surplus is expected to reach $400 billion this year - representing 12.8% of gross domestic product (GDP). The heady expansion of the Chinese economy is putting it in a leadership position, allowing it to move to center stage in the global arena.

China is having a positive effect on the global economy, which in 2006 grew 5.4% year on year. Developed countries expanded 3.1% year on year, while non-Japan Asia grew more than twice as much - expanding 7.9%. China's GDP growth was 10.7% year on year and India expanded 9.2%. The Chinese effect on the developing world was remarkable. The former member states of the Soviet Union surged 7.7% year on year, sub-Sahara Africa expanded 5.7% and Latin America grew 5.5%.

The commodity boom is changing the economic landscape across the developing world. The volume of global trade rose 9.2% year on year in 2006, and emerging-market countries increased their international reserves by $738 billion. This explains the emerging-market boom. This is not a fad or a reflection of global liquidity. The $256 billion of net private inflows into the emerging markets reflect the credit strength of these economies and their ability to grow.

At the same time, the United States is withering away under the weight of its enormous debt load and various asset bubbles. The US economy grew an anemic 1.3% year on year during the first quarter of 2007. Unemployment is picking up and the dollar is collapsing. The unemployment rate in the US increased to 4.5% in April. Indeed, April saw the weakest pace of job creation in two years. The impact of the housing slowdown is starting to appear in the employment data. The tightening of lending standards is reducing the availability of mortgages, forcing further slowdowns in the construction sector.

The economic slowdown in the US is accompanied by serious concerns about the health of the financial sector. With more than $700 trillion in derivative contracts floating in the marketplace, and much of it tied to the mortgage market, an accident is definitely on the way. Some analysts attribute the steady rise in gold prices to concerns about a looming crisis in the US financial sector.

The changes in the global economic order are also realigning the planet's geopolitical structure. China is starting to set the tempo in the international arena. It has the indisputable lead in Africa, committing $20 billion over the course of the next three years to develop infrastructure and trade. It is shepherding the reconciliation between North and South Korea, easing tensions on its eastern flank.

The growing irrelevance of the multilateral institutions, such as the World Bank, International Monetary Fund and World Trade Organization, is providing a greater opportunity for China to exert a more prominent role without appearing to be a usurper of power. Fortunately, the changes are for the better, at least for most emerging-market countries. China's insatiable appetite for commodities is breathing new life across the developing world.

Last of all, China is providing a bonanza of cheap manufactured goods to developing nations - fueling an unprecedented consumer frenzy. The Chinese behemoth is rapidly displacing the US as the world's main source of capital, manufacturing and commodity demand, leading to a decoupling of the waning North American giant from the rest of the marketplace.