This Canadian understands America’s dire situation better than most Americans.

On this lackluster Boxing Day dominated by illiquid moves in every asset class, we thought a few succinct minutes spent comprehending the US and European government policies of social welfare and their outcomes was time well spent. Canadian MP Pierre Poilievre delivers a rather epic speech destroying the myths of US and European ‘wealth’ noting that “Once the US citizen is in debt, the US government encourages them to stay in debt,” noting that “the US government encouraged millions of Americans to spend money they did not have on homes they could not afford using loans they could never repay and then gave them a tax incentive never to repay it.” His message, delivered seamlessly, notes the inordinate rise in the cost of all this borrowing, adding that “through debt interest alone, soon the US taxpayer will be funding 100% of the Chinese Military complex.” From Dependence to Debt to the Welfare State and back to Dependence, this presentation puts incredible context on the false hope so many believe in the US and Europe. Must watch.

Take the 9 minutes or so to listen as he and I think alike.

http://www.zerohedge.com/news/2012-12-26/canadian-summarizes-americas-collapse-everyone-takes-nobody-makes-money-free-and-mon

Peter Grandich

peter@grandich.com

Grandich Publications  www.grandich.com

Trinity Financial, Sports & Entertainment Management Co. www.trinityfsem.com

INSTITUTIONAL ADVISORS

THURSDAY, DECEMBER 20, 2012

BOB HOYE

PUBLISHED BY INSTITUTIONAL ADVISORS

The following is part of Pivotal Events that was

published for our subscribers December 13, 2012.

SIGNS OF THE TIMES

“Italian new car sales plunged in November…Decline of 20.1% Y/Y.”

– Dow Jones, December 4

“The European debt crisis has given way to a new wave of corruption as some of the most hard-hit countries have tumbled in an annual graft-ranking study.”

– Bloomberg, December 5 

This is from a watchdog group called Transparency International. Greece fell to 94th place from 80th, ranking worse than Colombia and Liberia. Greece’s “Golden Age of Democracy” was founded not so much on intellectual inspiration, but more upon Athens sitting on one of the richest silver camps in history. Athenians could afford democracy, Spartans could not. The problem recently is that Greece, like any other country, cannot afford interventionist government.

“German industrial production unexpectedly dropped in October.”

– Bloomberg, December 7

 The number was down 2.6% from September, which was down 1.3% from August.

“U.K. Manufacturing production fell more than economists forecast in October. Food and alcohol slumped.”

– Bloomberg, December 7

Progress on this great reformation is being made.  The legislature in Michigan passed a “Right to Work” bill. This brings the count to 24 states where people can work without being forced to join a union. They can work without being forced to contribute their money to union leaders with an agenda they may find offensive.

PERSPECTIVE

Global business conditions continue to deteriorate. Normally, we don’t follow these types of numbers too closely but they have been interesting since the summer. The ability to service debt is diminishing as federales around the world create huge amounts of paper as their lap-dog central banks buy it.

At some time the spell breaks, but skepticism is better than faith that another government scheme will work. It has been frustrating that our technical overboughts on various bond sectors last summer were not followed by substantial price declines. The long bond dropped 9 points when about 15 were possible. Corporates and Munis eased their overbought conditions and then firmed.

What prevented a significant setback? Central bank bids and the knee-jerk about buying bonds as the economy weakens. Into corporates? Then there was the flight-to-risk bid as stocks and commodities weakened into early November.

The bond future rallied to resistance at the 151 level in the middle of November. The action was only moderately overbought, which makes this week’s decline interesting. Yesterday clocked an outside reversal to the downside.  Perhaps the one-way-street is beginning to wander.

However, as Fat Jack famously observed “There is nothing too good that it can’t be screwed up.”

STOCK MARKETS

Due to the oversold in early November and seasonal influences a rally has been possible into December. The next phase includes small caps outperforming the big ones from around now until early January. The “Turn-of-the-Year” model.

If the rally was moderate it would be within the Secular Bear Market model.

So far it has been moderate.

CURRENCIES

The USD was likely to decline into January. Last week, it almost reached support at the 79 level. The low was 79.7 on a weakness that could run into January.

The Canadian dollar has been expected to be firm into January. The low was 99.5 in early November and so far the high has been 101.8. 

If commodities stall out over the next few weeks, so will the C$.

COMMODITIES

After all of the drought excitement in July, wheat continues its “stair-step” down. The high was 947 and today its at 806, a new low for the move. Last week’s view that firming then could continue into January seems not to be working.

Other agricultural prices have been sympathetic, with the index (GKX) stair-stepping down from 533 to this morning’s 462, a new low for the move.

However, wheat and the index are approaching an oversold condition.

Going the other way, base metal prices have rallied nicely with copper making it to 372 yesterday. The action is close to an overbought condition and close to resistance. Copper is vulnerable.

The index of base metals (GYX) is recording a similar pattern and at 397 seems close to a setback. On the bigger picture, base metals set an important high at 502 in April 2011. We took that as a cyclical high and the subsequent low was 346 in July – during that concern about European insolvencies. The difference between then and now is that the European economy has suffered further deterioration but there is no panic. Not even a little one.

Metals were likely to rally into January, but the action is approaching overbought. Who cares if it continues over the next few weeks. Let’s declare a victory and enjoy a “Christmas bowl of smoking” punch. It would help to restore alcohol consumption numbers in England.

Link to December 14 ‘Bob and Phil Show’ on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2012/12/fed-checks-into-hotel-california/” http://talkdigitalnetwork.com/2012/12/fed-checks-into-hotel-california/

BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL   HYPERLINK “mailto:bhoye.institutionaladvisors@telus.net” bhoye.institutionaladvisors@telus.net 

WEBSITE:    HYPERLINK “http://www.institutionaladvisors.com” www.institutionaladvisors.com 

By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve’s Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally “unlimited” QE3.

Now that those moves have failed to deliver economic health, the Fed has doubled the size of its open-ended money printing and has announced a program of data flexibility that virtually insures that they will never bump into limitations, until it’s too late. Although their new policies will create numerous long-term challenges for the economy, the biggest near-term challenge for the Fed will be how to keep the momentum going by upping the ante even higher in their next meeting.

The big news is that the Fed is now doubling the amount of money it is printing. In addition to its ongoing $40 billion per month of mortgage backed securities (to stimulate housing), it will now buy $45 billion per month of Treasury debt. The latter program replaces Operation Twist, which had used proceeds from the sales of short-term treasuries to finance the purchase of longer yielding paper. The problem is the Fed has already blown through its short-term inventory, so the new buying will be pure balance sheet expansion.

To cloak these shockingly accommodative moves in the garb of moderation, the Fed announced that future policy decisions will be put on automatic pilot by pegging liquidity withdrawal to two sets of economic data. By committing to tightening policy if either unemployment falls below 6.5% or if inflation goes higher than 2.5%, Bernanke is likely looking to silence fears that the Fed will stay too loose for too long. While these statistical benchmarks would be too accommodative even if they were rigidly enforced, the goalposts have been specifically designed to be completely movable, and hence essentially meaningless.

Bernanke said that in order to identify signs of true economic health, the Fed will discount unemployment declines that result from diminishing labor participation rates. It is widely known that a good portion of unemployment declines since 2009 have resulted from the many millions of formerly employed Americans who have dropped out of the workforce. But like many other economists, Bernanke failed to identify where he thinks “real” employment is now after factoring out these workers. So how far down will the unemployment number have to drift before the Fed’s triggering mechanism is tripped? No one knows, and that is exactly how the Fed wants it.

A similarly loose criterion exists for the Fed’s other goalpost – inflation. Bernanke stated that he will look past current inflation statistics and look primarily at “core inflation expectations.” In other words, he is not interested in data that can be demonstrably shown but on much more amorphous forecasts of other economists who have drunk the Fed’s Kool-Aid. He also made clear that rising food or energy prices will never fall into the Fed’s radar screen of inflation dangers.

For as long as I can remember (and I can remember for quite some time) the Fed has stripped out “volatile” increases in food and energy, preferring the “core” inflation readings. But in the overwhelming majority of cases, the headline numbers are significantly higher than the core. In other words, Bernanke simply prefers to look at lower numbers. In his press conference, he made it clear that the Fed will avoid looking at price changes in “globally traded commodities,” that are all highly influenced by inflation.

These subjective and attenuated criteria give Fed officials far too much leeway to ignore the guidelines that they are putting into place. If the Fed will not react to what inflation is, but rather to what it expects it to be, what will happen if their expectations turn out to be wrong? After all, their track record in forecasting the events of the last decade has been anything but stellar.

The Fed officials repeatedly assured us that there was no housing bubble, even after it burst. Then they assured us the problem was contained to subprime mortgages. Then they assured us that a slowdown in housing would not impact the broader economy. I could go on, but my point is if the Fed is as spectacularly wrong about inflation as it has been about almost everything else, will they be able to slam on the brakes in time to prevent inflation from running out of control? And if so, at what cost to the overall economy?

The Fed is committing to more than a $1 trillion annual expansion in its balance sheet, an amount greater than the total size of its balance sheet as late as 2008. Most forecasters believe that the Fed will have $4 trillion worth of assets on its books by the end of 2013, and perhaps more than $5 trillion by the end of 2014. If conditions arise that require the Fed to withdraw liquidity, the size of the sales that would be required will be massive. Who exactly does the Fed believe will have pockets deep enough to take the other side of the trade?

As the biggest buyer of treasuries, it is impossible for the Fed to sell without chances of collapsing the market. Surely any other holders of treasuries would want to front-run the Fed, and what buyer would be foolish enough to get in front of the Fed freight train? The bottom line is that it is impossible for the Fed to fight inflation, which is precisely why it will never acknowledge the existence of any inflation to fight.

But perhaps the most absurd statement in Bernanke’s press conference was his contention that the Fed is not engaged in debt monetization because it intends to sell the debt once the economy improves. This is like a thief claiming that he is not stealing your car, because he intends to return it when he no longer needs it. To make the analogy more accurate, there could not be any other cars on the road for him to steal.

Without the Fed’s buying, it would be impossible for the Treasury to financeits debts at rates it can afford. That is precisely why the Fed has chosen to monetize the debt. Of course, officially acknowledging that fact would make the Fed’s job that much harder. Without the monetization safety valve, the government would have to make massive immediate cuts in all entitlements and national defense, plus big tax increases on the middle class.

As I wrote when the Fed first embarked on this ill-fated journey, it has no exit strategy. The Fed adopted what amounts to “the roach motel” of monetary policy. If the Fed actually raised rates as a result of one of its movable goal posts being hit, the result could be a much greater financial crisis than the one we lived through in 2008. The bond bubble would burst, interest rates and unemployment would soar, housing prices would collapse, banks would fail, borrowers would default, budget deficits would swell, and there would be no way to finance another round of bailouts for anyone, including the Federal Government itself.

In order to generate phony economic growth and to “pay” our country’s debts in the most dishonest manner possible, the Federal Reserve is 100% committed to the destruction of the dollar. Anyone with wealth in the U.S. dollar should be concerned that economic leadership is firmly in the hands of irresponsible bureaucrats who are committed to an ivory tower version of reality that bears no resemblance to the world as it really is.

Click here to buy Peter Schiff’s best-selling, latest book, “How an Economy Grows and Why It Crashes.”

For a look back at how Peter Schiff predicted the current crisis, read his 2007 bestseller”Crash Proof: How to Profit from the Coming Economic Collapse” [buy here]

Unemployment, US Dollar, Palladium Aluminum & Gold:

We note commentary from President Obama’s Chief Economic Advisor Alan Krueger, a wildly accomplished academic-economist, following Friday’s release of the BLS Employment Situation Report for November …

— “Today’s employment report provides further evidence that the US is continuing to heal. It is critical that we continue the policies that are building an economy that works for the middle class. The types of programs that the President has been proposing to support the economy in the short-run, get us on a sustainable fiscal path in the long-run, and protect the middle class. We are going to continue to see progress in this economy.”

Indeed, appearing on radio following the report, Krueger specifically singled out one data point, one which could have easily been gleaned from watching television, as a ‘major positive’. Mister Krueger focused solely on the sizable single-month increase in hiring by the Retail sector posted in November. Alan even stated how this headline figure defined a resurrection in consumer confidence within the middle-class.

Confidence, linked to this labor report ???

Why, because the Unemployment Rate declined and retailers hired more people during their busiest season ???

Try selling that thought to the MILLIONS of CHRONICALLY UNEMPLOYED.

Try selling that thought, to those who once represented the middle-class.

Indeed, we would quickly point out that the rise in Retail Employees posted for November was NOT as large as the rise posted in November of 2007, during a period immediately preceding the biggest collapse in the US labor market in decades.

In fact, an even larger rise in Retail Employment, posted in November of 2007, marks what is still the all-time peak in Retail employment in the US. The simple fact is, that the total number of people employed in the Retail Industry fell to a new multi-decade low in December of 2009, and has only managed to climb back to the SECULAR LOW set in 2003.

This is a sign of building confidence ???

Moreover, we note that Retail Employment has regained ONLY 44.8% of the jobs lost during 2008-09 … and … despite the sizable single-month gain in November, hiring in this macro-sensitive sector continues to LAG the overall, still-feeble and sub-par, ‘recovery’ in total employment.