As of 12/25/2012, the CPI adjusted 2000 dollar is worth 73.10¢, and the CPPI adjusted dollar is worth 43.05¢.

Taxes etc...

The total US tax burden (all levels of government plus fees and other charges) is far from an historical low
Federal deficits ratio to GDP - we're still ina record high range.

Update 12/30/2012 - A large trend, and part of the reason that the unemployment rate is dropping while the country isn't doing very well in the standards of living areas, etc.Part time workers as percent of non farm payroll
Part time workers as percent of total population

Japan in deflation = horse puckey or spin. Prices, per their CPI, are virtually identical now to what they were in the early 1990s.

Cool & hot word of the week: cremnophobia (fear of cliffs)

Update 12/31/2012 - Happy New Year, and in spite of everything we wish you a better year than 2012 was!

Snarky & silly quote of the day:
"What's the use of happiness? It can't buy you money."
-- Henny Youngman

Update 1/2/2013 - Partly tongue in cheek, our conservative prediction for the gold price on Dec. 31st 2013 is $1913.

Update 1/3/2013 - Next market turn point estimate, Jan 16-17.
Watching wheat prices patiently for a break of the down trend since last July, which steepened in December.

Update 1/4/2013 - Weekly charts will not be uploaded by the normal Friday afternoon period. They should be updated no later than Saturday evening.

There is no such thing as a conspiracy.
LIBOR trader.

Holidays, friends and joy!...

May all have the best Christmas and Holiday season ever.
Greetings from us all


Still holding small longs in gold. The chances for a big rally starting this week when the 'fiscal cliff' issues show close to a resolution are not small. We're still awaiting more data on things like the CFNAI, industrial production, durables, etc. in order to better judge recession probability changes since QE4. M3 annual change rate growing since May, now just under 6%.

On guns: we're loathe to make political comments... but there's one thing besides guns that is common with Sandy Hook, Columbine, Beslan, Virginia Tech, etc. - psychopaths. It's getting far too little attention in the media, along with drug side effects.

Update 12/18/2012 - Out of long gold at a $20/oz loss, now dead even on the last two gold trades. Very treacherous markets = understatement of the month.


Mildly long gold again, around 1704 basis spot.

Part time employment as a percentage of total non-farm payroll, since 1968 Not a good sign as it remains near all time highs and roughly level, while Obamacare unintended consequences will tend to increase a conversion from full time with benefits to part time without benefits.

Update 12/12/2012 - Our next turn signal is due in about a week, and one likely scenario given what appears to be excess optimism along with significant recession probabilities is for the S&P to slowly paint an extended right shoulder of an H&S whose left shoulder was in March 2011. The initial target if it follows through is 1320-1340. Overall, storm clouds are continuing to gather on the horizon.

QE4 (Fed announcement, source): it's very substantially larger than we expected at $45 billion of Treasury purchases per month, and is also open ended like QE3. Starting January 1st, the Fed will be printing a total of about $85 billion per month which is significantly bigger than QE2 ('only' $59 billion per month for about 10 months). The chances of the NBER actually calling a recession some time this year has dropped quite significantly, and tentatively our view is that it's now back under 50/50, while we want to stress that the chances of an actual recession remains about the same since the various stats upon which the NBER bases their calls are not fully inflation adjusted.
Very sadly, hidden stagflation remains quite alive and well, and growing.

Update 12/14/2012 - CPI-U, 2.2%. Core CPI, 2.0%. CPPI, 5.8% (largest differences this month were medical and Obamacare related, followed closely by OER issues). Most PPI elements were generally flat over the last few months.

Still long gold but have taken some profits, expect to exit by market close so that we don't carry an open position over the weekend.

Fiscal cliff 'noise', recession call...

If all the cuts and taxes pass, the total change in spending is about -$1.6 trillion over 10 years, or -$160 billion per year. The current average Federal deficit is about $1.3 trillion per year. In other words, a drop of about 12.3%. We don't mean to belittle the effort or the cuts themselves, but 12.3% is just a small dent in the very large amount of deficit spending per year. It's also our hope that our comments are not taken as politically biased.

The chances that the resolution of the current 'fiscal cliff' will include a delay in the form of another fiscal cliff in the future is very far from zero.

The last time we looked, raising taxes in a weak economy does not make it stronger. And indicators that we're in a recession now or that one will start soon are not exactly at a low point as we've been noting for months. Barring a lot more QE or a significant war, it's a high probability (70%+) that a recession will have started by March. We're in a perfect storm, sad to say.

Update 12/5/2012 - will probably go long gold around $1685-90, basis spot.

Top Marginal Effective Tax Rates by State, 2013 Scheduled Tax Law

Maximum Tax Rate: And the lower tax states: Source (SSRN)

Update 12/7/2012, 8:35 AM - exited all long gold positions at a profit, too much of a roller coaster and non trending. 7:44 AM, would have red-entered the longs but it's Friday. Strong possibility of going long again when markets open on Sunday.

Unemployment - Part time for economic reasons (LNU02032194) up about 868,000 showing the *real* economic conditions and partly due to Obamacare 'unintended consequences', participation rate back down to 63.6% from 63.8%, minor change in unemployment mean duration (down to 40 weeks from 40.2). Our U7b reconstructed unemployment rate has gone up to 22.5% from 22.1%.

Retail sales and spin to ∞...

Why Black Friday Numbers Don’t Mean Anything

2.8% GDP is likely priced into the various markets. Any takers on a bet that GDP comes in slightly above on Thursday, at 2.9% or so? (rhetorical and in 'sarcasm font') (11/29/2012, yes, we blew it and were too cynical)

Cost of '12 Days of Christmas' gifts in 2012: $107,300, up 6.1 percent (Yes Virginia, there is no inflation)...

Update 11/28/2012 - Hourly corn chart since November 8th shows nice move up since the 18th

Part time workers as a percentage of total workers is historically very high, and remaining at a high level.

The Ethic of Psychopaths = The Ethic of Wall St.


Watch both Brent oil and gold for one of the best short term predictors of major war ahead in the Middle East or elsewhere. They seldom lie.

Best guess from here, a mildly bullish week for most stocks and precious metals primarily due to small drops in the dollar, and in the middle of a larger down trending set of markets. Inflation sentiments beginning to shift away from mild dis-inflationary expectations. Our expectation for "resolution" of the fiscal cliff is basically more fiscal and monetary can kicking, the basic trend for many years.

"Fiscal cliff" simple math problem - the Federal deficit is about $1.2 trillion per year. The most frequently mentioned proposal cuts about $160 billion per year from the deficit. Answer: little change in the overall trend and picture, aka more can kicking.

S&P short...

Opened up a small S&P short at around 1368 early this morning, will add when trend becomes more pronounced.
11:11 AM: oops, bad call. Out with a small loss.

Update 11/15/2012 - The Fed's QE3 purchases finally show up in the SOMA account, +$37 billion.


Nothing much in the way of relatively low risk trades on the horizon until after the election results are known. We're leaning bearish on stocks and bullish on gold after the election.

The Wrong Side Absolutely Must Not Win

Update 11/6/2012 - QE3 is going nowhere, virtually zero change in SOMA MBS balance so far

US recession virtually assured?
Did anyone else flash on "irrational exuberance" after seeing that chart? (rhetorical)

The main issues with CPI and why it is incorrect

Update 11/9/2012 - Kudos to Nate Silver for being correct on his polling results being virtually 100% correct, in spite of MSM and pundit noise and ridiculous criticism.

“QE has stopped working”
QE1 - $338 billion/month
QE2 - $59 billion/month
Twist - n/a
QE3 - $40 billion/month estiemated
/sarcasm on QE having stopped working

Roller coaster rides...

After real inflation adjustments, many/most markets have mostly been roller coaster rides for at least a year. We're in roughly the 6th or 7th inning of the current hard vs. paper asset cycle.
As far as the upcoming week, we continue short the S&P 500 with an initial target of 1240 (assuming a breakdown through 1360), and slightly hedged on silver & gold. S&P 500 initial resistance around 1435 ±5, gold initial support around 1690 ±5, and silver initial support around 30.75 ±35¢. As usual, any substantial trend change will mean we'll exit at least some positions. YMMV.

A very good short essay on "Unconscious Conspiracies"

Possible good news in energy...

Defkalion releases third party test results, COP > 3 at times
Forbes article

Yet another stat at recession levels, total energy consumed. Also at recession levels, the Conference Boards' lagging/coinicdent indicator.

Inflation is alive and well...

Health insurance CPI, up ~15% since last year per the BLS

Low initial claims data last week
The explanation for the unusually low initial claims figure last week is mostly a huge jump in the seasonal adjustment factor. It moved from 81.5 in the prior week up to 96.4 last week, 'causing' the drop to 339,000 (327,063) from 369,000 (299,743). Numbers in parentheses are the NSA numbers, which showed about a 30k rise. Interestingly enough, the U6 seasonal adjustments factors hardly moved at all the last two reporting weeks, and actually moved down (from 85.8 to 84.9).
If the seasonal adjustment factor would not have changed, last week's initial claims would have come in at 401,300.
Also note that the next four weeks of seasonal adjustment factors going forward are 92.6, 92.9, 93.6 and 100.1 - the last being for the week ending 11/3, right before the election. The rest of the year SA factors range from a low of 90.8 to 134.7, most being above 100.

We also find the increasing news and articles about "evil" or "stupid" conspiracies disturbing, especially how vitriolic and filled with loaded terms that many of them are. They remind us of the PR and spin that surrounded events like the Gulf of Tonkin, the housing bubble, Watergate, WMD's in Iraq, and the Pentagon Papers, and which very definitely turned out *not* to be conspiracies and were all true. Caveat emptor.

Christmas season...

LA plus Long Beach containers shipments sure don't look like a booming Christmas ahead (raw container numbers).
Same data, Annual change rates

Update 10/10/2012 - The Conference Board's Employment Trend Index is likely rollingt over

Recession watch...

Recession probability high

Chicago PMI

NBER stats watch since the last recession CFNA vs. Philadelphia Fed on past recessions

Update 10/1/2012 - Federal Reserve purchase of total U.S. government debt, 1916 to present - not what most think is going on
Same chart, short term

People Will Believe Statistics, But Won’t Truly Accept Them (HT: Barry Ritholtz)

Ocean/Sea Ice - South

Magic CPI-U...

Back in early 2011, the BLS published data showing the pre 1983 CPI-U methodology applied through 2010 and called it CPI-U RS. We're unaware of anyone who publicly noted that, although the pre and post 1983 methodologies for calculating CPI are quite different, CPI-U and CPI-U RS show the exact same annual change rates from 1999-2010 (post 2010 CPI-U RS data from Census Bureau estimates). In other words (in spite of Boskin Commissions changes that were supposedly implemented in the substitution, geometric averaging and hedonics areas after 1999), there were no differences between CPI-U and CPI-U RS annual change rates from 1999-2010. File this in the "hmmmm..." folder.
And yes, we know that no changes in methodology were made after 1999 but shouldn't an index that is supposed to show changes from pre 1983 methodology actually show them for the period after 1999 too?

QE perspective:

QE1 length, 4.1 months, $1,400 billion total
QE2 length, 10.1 months, $600 billion total
QE3 length, ? months, $40 billion per month (15 months to equal QE2)

QE comparison, dollar performance
QE comparison, gold performance
QE comparison, S&P 500 performance
QE comparison, CCI commodity index performance
QE comparison, 10 year Treasury performance

Purchasing power...

Purchasing power of the dollar, gold and various currencies since 1910

Update 9/17/2012 - Hedged 1/2 our gold longs today.


Added 1/2 of the gold longs back on that we dropped last week, even though the chances that the recent breakout is a bull trap isn't tiny.

Possible trend changes...

Our electic indicators are showing a much higher than normal likelihood of a trend change in all markets during the period August 28th throught September 4th. We have zero leveraged positions and are wary.

M3 uptrend still in place, same with velocity (red line on chart). Inflation (CPPI) continues to diverge trend wise from CPI-U.

Update 8/27/2012 - lightened up to about 1/2 our original long position in gold and silver.

M3 uptrend?...

M3 money supply showing signs of reversing the down trend, annual change rate up from 1.1% in late May to about 3.7% week ending August 6th.

Update 8/20/2012 - Gold silver ratio broke out of its trading range, we're mildly long both silver & gold.

TOMO fail?...

$810 million Fed TOMO operations, all expiring no later than late Monday, appears to have failed at this writing of moving the S&P 500 up. Disquieting at best.

Fed discount window borrowing on noticeable uptrend for about 2 months

Update 8/13/2012 - We're slightly over 50/50 on an official recession starting in or before October/November 2012.

Update 8/15/2012 - CPI 1.4%, CPPI 4.5%. GDP deflator 1.7%, "Core" CPI 2.1% CPI 'issues'


Our recession preidction algo is broken, due to the unknown effects of such unprecedented high excess reserves on the predictions themselves. So here's two charts that show both sides: Recession watch, NBER stats and Recession watch, our preferred and comparable stats.

Update 8/7/2012 - Huge Fed TOMO operations recently = S&P 500 and other support

Inflation turn probable confirmation...

Velocity, likely rounded bottom. Fed multiplier bottomed last year        Velocity, short term oscillator

CPI-U and CPPI trends diverging, CPI about 1.8% and CPPI about 4.8%


Consumer Purchasing Power Index (CPPI), a better measure of inflation

Hare Psychopathy Checklist

Update 7/17/2012 - CPI-U 1.66%, CPPI 4.79%. Both basically unchanged from last month. Reconstructed U7 unemployment rate, 22.7% and up from 22.3% the prior month.

Update 7/18/2012 - Drought & temperature perspective since 1900

Big perspectives and thoughts

Major reasons for gold price changes, in no particular order:
  1. Limits in supply, "peak cheap gold"
  2. Changes in demand (investment, jewelry, manufacturing, central bank etc.)
  3. Inflation direction & speed of change
  4. Real interest rate direction
  5. Fear - social, political, "financial system", peer pressure, safe haven
  6. Pain & Misery index (unemployment plus inflation rate)
  7. Changes in confidence of money or a given currency or the "financial system" (..."gold is simply the reciprocal of the world's faith in the institution of managed currencies. It is one divided by T, where T stands for trust." - James Grant, Barrons, Sept 2011)
  8. Manipulation/control/intervention by central banks and others
  9. Mania
  10. Technical analysis factors
  11. High general volatility
This is not intended as a complete list but at least provides a framework within which to judge price action.

Another take: Fundamental Drivers of the Gold Market

Some of the major ways the whole world wide economic and political issues could play out, in no particular order:
  1. Inflationary or hyperinflationary depression, aka very significant stagflation
  2. Deflationary depression
  3. Debt restructuring
  4. "Rescue" by the IMF, BIS & World Bank (or similar institutions) involving a new world currency etc.
  5. "Debt jubilee", partial or not, and including an all consumer government bailout in order to pay down debt.
  6. Wars of varying sizes, and not necessarily involving guns and shooting
  7. Large population decreases, due to disease, weather events, energy and/or food shortages, wars, or other Malthusian issues.
  8. "New World Order" - oligarchy, fascism, corporatism, kleptocracy, etc.

    On the brighter side:
  9. Energy breakthroughs
  10. True leaders and statesmen emerge
  11. "Age of Aquarius" factors, in other words very unexpected positive changes - aka, "white swans"

    And obviously, various combinations of the above.

"The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery."

Prior years blogs