“all politics ultimately comes down to violence — armed men paying you a visit to make sure you comply”

Ed Note: The quote above caught my attention given the Department of Homeland Security is presently under investigation for its plans to buy more than 1.6 billion rounds of ammunition over the next four or five years. This massive purchase coming on top of the 360,000 rounds of hollow point bullets (made illegal on the battlefield in the 1899 Hague Convention) and the 1.5 billion rounds of ammo it already bought in 2012. 

It sure seems the Department of Homeland Security is getting ready for something involving a lot of heavy gunfire. Kevin Williamson thinks it is going to be “The End”. The “End” of Society as we know it and he describes what it’s going to look like his book on the right.

Where Kevin probably differs with absolutely everyone who lifts a pen and writes about the USA’s financial straits, is that he thinks “The End” is going to be Awesome and that America going broke will ultimately leave America Richer, Happier and more Secure!

Is The End Near, And Will It Be Awesome?

…….read more HERE

“At some point secular markets change” was the statement made by Federal Reserve Bank of Dallas President Richard Fisher in Toronto on Tuesday. “This is the end of a 30-year rally” in bonds he emphasized, making it doubly clear he didn’t see just this as a short-term top. 

With a Federal Reserve Official broadcasting point blank that interest rates are going up, and that the BIG BOND RALLY that has been raging for 30 years is now over, institutional investors world wide are probably taking that as a signal to agressively review and make moves in holdings they have in fixed income instruments.

One person who tracks Institutional Investors is Sasha Cekerevac. Here is what he had to say:

Institutions Already Shifting Their Investments; Should Investors Follow Suit?

by Sasha Cekerevac for Investment Contrarians

Recently, I’ve issued several warnings in these pages for investors who are heavily involved in fixed-income assets. As I’ve mentioned over the past couple of months, I think the worst investment for investors to make is to put a lot of money into long-term Treasury bonds and notes.

This is because the unprecedented level of quantitative easing by the Federal Reserve will not go on forever. Once this shift occurs—the Federal Reserve beginning to reduce its aggressive quantitative easing program by decreasing monthly asset purchases—I believe it will hit the bond market quite hard.

I am not alone in this analysis, as recently the Federal Reserve Bank of Dallas President, Richard Fisher, stated that he too believes the multi-decade bull run in the bond market is over. (Source: Ito, A., et al., “Fed’s Fisher Urges QE Reduction Seeing End to Bond Rally,” Bloomberg, June 5, 2013.)

As Fisher stated, “The one thing the market has begun to discount is that this will not go on forever.” (Source: Ibid.) Large institutions are beginning to shift their investments ahead of adjustments in the quantitative easing program by the Federal Reserve, and you should consider this too.

Featured below is the chart for the 10-Year U.S. Treasury Yield Index:

Most forecasters expect that growth in Canada will accelerate during the next few quarters. But a more sobering view comes from Montreal-based economist Peter Berezin at BCA Research.

A slowdown is on the way and there’s a 50-50 chance of recession in Canada by the middle of next year, argues Berezin, managing editor of the monthly newsletter The Bank Credit Analyst.

Growth is likely to falter as the housing bubble deflates and as investment spending slows, especially in the natural resource sector.

If that happens, the Bank of Canada would have limited recourse to stimulate the economy with easier monetary policy since interest rates are already near historic lows.

In these circumstances, the Canadian dollar is likely to weaken during the next year while Canadian stocks are likely to underperform.

Canada, he says, shares many of the same characteristics as other medium-sized resource economies such as Australia and Norway. All three have overvalued housing markets, high levels of household debt and overvalued currencies.

Canada may simply be at the leading edge of a broader story that will play out over the coming years, in which smaller economies begin to suffer the ill effects of global financial conditions that, from their perspective, have been too loose for too long. – Peter Berezin 

This would represent a sharp reversal of the trend in recent years in which Canada has outperformed many other economies. Our banking system was stronger after the financial crisis of 2008 and our governments were in better fiscal shape.

Most forecasters have continued to be reasonably optimistic about Canada in the short term, pegging growth at more than 2 per cent in 2014. The consensus view is that Canada will benefit from the recovery underway south of the border.

That’s wrong, argues Berezin. Canada has a 50 per cent chance of slipping into recession, even if U.S. growth does accelerate.

The main culprit will be a weakening housing market in this country, which until now has attracted new construction investment and helped to sustain consumer spending.

Recent declines in home sales are just the start of a likely slide in prices that could be painful. “Relative to disposable income, house prices stand nearly 40 per cent above their long-term average,” he notes.

And Canadians are dangerously exposed to household debt. By one estimate, 30 per cent of mortgage holders would encounter serious problems in making their monthly payments if rates were to rise by two percentage points.

A housing bust in Canada wouldn’t be as dramatic for our banking system as what we saw in the U.S., but it would have a severe impact on consumption, because of the willingness of Canadian households to take on more debt by using their homes as collateral.

So, if Canadian home prices were to decline by 20 per cent over three years, household wealth would take a $400-billion hit and leave Canadian consumers far less willing to spend.

Along with a slowdown in natural resource prices, Canada won’t benefit so much from a recovery in the U.S. One reason is that the Canadian economy is much less leveraged to the U.S. than it used to be.

In the past, U.S. and Canadian GDP have tended to move in lockstep, but now there are signs of decoupling. Canadian exports of manufactured goods to the U.S. have been on a downtrend for more than a decade.

In 2000, exports to the U.S. of manufactured goods, machinery and transportation equipment accounted for nearly 20 per cent of Canada’s GDP, but today, that has slipped to 8 per cent.

If you want more proof, consider that employment in Canada’s auto industry — usually a bellwether for trade to the U.S. — has shrunk by 30 per cent since 2000.

“In any case,” says Berezin, “it is not clear that Canadian manufacturing firms could easily increase production, even if they wanted to.” Manufacturing capacity has declined during the past decade in line with falling output.

And there will be no manufacturing renaissance north of the border until this country does something to reverse its long slide in competitiveness.

Source: BCA Research

About BCA

“The whole Financial System could blow up due to the huge amount of Derivatives still outstanding.” 

“In my view, the European economy will not suddenly recover. It has too many structural problems. One way that the so-called “banking crisis” could be resolved, though, is to let inflation rates rise. Asset prices would then shoot up, and loan portfolios would be better covered. But I do not really think that inflation is the solution. The danger is that the whole financial system could blow up due to the huge amount of derivatives still outstanding. Once again, excessive speculation is being fueled by artificially low interest rates, and asset bubbles exist everywhere.”

“Basically, wev’e had since may 22nd, quite the sharp drop in markets around the world as in Turkey we are down 15% from the high. Japan also dropped from the recent high by 15%. in the u.s. many stocks have given up gains and they are no higher than in February. i think the market is rolling over. now very near-term we are a bit oversold and we may rally back to around 1660 on the s&p and 1670 and even on the back of the strength of Intel, Microsoft and IBM we could make a new high, but the new high would not be confirmed by the majority of shares so the market could be quite vulnerable.”

“I’ve been wrestling with a moral question.  Would it have been better to allow the bear market of 2008-09 to continue down to its ultimate and natural conclusion — or would it have been preferable to “step in” (as the Bernanke Fed did) and attempt to halt the bear market in its tracks?  Of course, we know that Ben Bernanke chose the latter course, which meant attempting to halt the bear market.

Personally, I’ve voted against the Bernanke way.  The reason is that I never thought it was possible to halt and then reverse the primary trend of the stock market or the economy — any more than I think we can halt the dawn and thus hold back the night.

One of the basic theorems of Dow Theory is that the primary trend of the market cannot be reversed.  Once a bull or bear market is under way, one way or another, it will run its course to conclusion.  The primary trend of the market and the economy is based on human sentiment — greed and fear, bear markets and bull markets end in exhaustion.  Bear markets end when the last sellers have exhausted their desire to sell.  Bull markets end when the last group of buyers have had enough.

After reading my Thursday site on megaphone formations, subscribers may now be wondering whether Friday’s action represented the start of the collapse in the Dow’s megaphone formation.  Unfortunately, I must state that there is absolutely no way of knowing.  This means that holders of stocks must make a personal decision.  Sell or take the consequences — if, indeed, the great megaphone pattern in the Dow is in the early stage of crashing.

Personally, I never wanted to be in this position.  I have already made the judgment that this market was over-bought, over-valued and over-loved.  I also noted that margin borrowing on the NYSE was near a record high — investors were borrowing heavily and greedily to increase their positions in this market.  Treasury bonds were sliding and interest rates were rising. 

Incidentally, I note that there are now five distribution days for the S&P and four for the Nasdaq.  And one churning or stalling day on Thursday.  This tells me that institutional money wants OUT of this market, which is another indication that being out of this market is the correct position.  A stalling day is a session in which the market is up only slightly on rising volume.

We’re now in June which, historically, is the worst month for stocks.  The next five months make up the “bad” six months of every year for stocks (“Sell in May and go away”).  All things considered, this is not a market I want to be in.  My preference has been to buy dividend-paying blue chip stocks at or near bear market bottoms, at which time great stocks are usually sold for whatever the bid may be (and the bids at a bear market bottom are usually “below known value”).  Conclusion — I would probably stay with this market if I owned the diamonds (DIAs), and be ready to sell if the market turns nasty.  If I was out of the market I would stay out.”

“I believe Fed chief Bernanke thought he was doing a good and patriotic deed when he stepped into the market in 2009.  Bernanke believed that the Fed made terrible mistakes during the 1930s, and that he, Bernanke, now knows better.  Bernanke even went so far as to apologize to the nation for the Fed’s mistakes during the 1930s.  Bernanke believed that he had learned from the Fed’s errors during the Great Depression, and that this time the Fed, under his (Bernanke’s) supervision would do it better.

In the coming weeks and months we will have a chance to see whether Bernanke can “do it better.”  From my standpoint, I see only two courses for the Bernanke Fed, (1) sit tight and HOPE that everything works out as originally planned, or (2) step up QE-2-infinity even further on the thesis that “if first, you don’t succeed, then try, try again.” 

Other than that I see the picture as a battle — the Bernanke Fed versus the power of the primary trend (plus perhaps the unintended consequences of attempting to halt the path of the great primary trend).”

“Gold represents wealth.  It is the staple around which everything else revolves.  Alan Greenspan agreed with this in an article he wrote in 1966. But when Greenspan was chosen as Fed chief, he turned his back on gold in favor of power and prestige and Federal Reserve notes.  

From there, his career went downhill, he’s now considered a sad joke. When Ben Bernanke was asked if gold was money, he dodged the question, and by omission he denied that gold was money.  This was the beginning of his troubles.  He was living a lie.

When you start with a dishonest premise, everything that follows will fail to work. The Constitution of the United States (Article 1 Section 10) tells us that “No State shall make any Thing but gold and silver Coin a Tender in payment of debts.”

The Federal Reserve acts on the thesis that their Federal Reserve notes can be used as tender in the payment of debts, a premise in direct opposition to the US Constitution.  I see this betrayal as the basic cause for all the troubles that we are now contending with.

The ratio of debt to Gross National Product in the US is climbing up off the charts.  This never could have happened if the gold standard was in use.  The US is like a 500 pound fat man who faces the choice of an extreme diet or a lingering death.  To actually solve our problem, Americans would have to choose an extreme decline in living standards (and deflation) while at the same time boosting their savings radically.  Americans would never submit to a drastic decline in our living standards and deflation.  The unappetizing other side of the coin is that we continue to live it up, while China buys up our nation, piece by piece.

What is the worst possible environment for investing?  The Fed has given it to us — A low interest environment along with an eroding currency.  That’s what we have now.  At present there’s no perfect or even a satisfactory investment position.  You are not safe in bonds, you are not safe in stocks, and you are not safe in cash.  Which is why I choose gold.  It doesn’t bring in income, but it will be around when everything else is in ruins.  And if the whole current house of cards starts to fall apart, chances are that there will be a huge panic to own gold, which is out of the Fed’s and the government’s grip.”

Russell’s warning for silver bears: “Everybody hates silver, and everybody wants to short it.  But keep your eye on silver.” (the chart on the day he published these extraordinary comments)

The Chart Close of business June 4th:

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About Richard Russell

Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics –plus Russell’s widely-followed comments and observations and stock market philosophy.

In 1989 Russell took over Julian Snyder’s well-known advisory service, “International Moneyline”, a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron’s, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.

A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12^th Air Force during World War II.

One of the favorite features of the Letter is Russell’s daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell’s opinions. But Russell always defers to his PTI. Says Russell, “The PTI is a lot smarter than I am. It’s a great ego-deflator, as far as I’m concerned, and I’ve learned never to fight it.”

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“Rich Man, Poor Man (The Power of Compounding)“

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