Recession>Facing Largest Global Union

No. Not the people who work for Boeing or the airline industry, although those companies use underhanded labor tactics. This is an economic superpower that has severe structural problems, excessive debt, aging population and historical ego's as obstacles.

For those who guessed the European Union, you get a gold star. For everyone else, this is why.

Population

if added together, it is greater than the 300 plus million in the US. Language is not the problem. The setback here is the majority is past its peak spending years and looking toward retirement. This means less productivity and places an economic burden for workers to support the pension plan.

Unemployment

The US does not use honest numbers. The recent news of declining unemployment does not tell the whole story. The US divides unemployment into recent and long-term. The news in the media is recent. The long-term has not changed from the 2008 financial crisis and the best, clearest picture is the population ratio to workforce which is at its lowest in three decades. However, the global slowdown shows itself in the EU work numbers. They are scary and offer little hope for a lot of people. 

*France at 10.2%

*Poland at 11.5%

*Italy at 12.6%

*Portugal at 13.1%

*Spain at 23.6%

*Greece at 26.4%

The official average for the union is11.5%. As a whole people cannot find good jobs. They turn to government for answers like socialism. The concept has some good points like retirement benefits, but you cannot have a society where one half works only to be taxed to support the other half. This is the central structural point that needs a new direction. 

Euro

Anyway, because the economic outlook has diminished, this has effected the value of the common currency. This decline has helped exporters like Germany, but it causes economic hardship for all members. Just like the counterpart in the US, the CPI is fudged. It does not reflect energy and food costs. At the moment oil prices are falling and this will help in the near term, but long-term it indicates lower demand from the global market. This is telling us that the world outlook is declining and this only adds pressure to budgets everywhere. In addition, the EU has put deflation front and center which only hides the real effects of inflation. It has also started its own version of QE which will dilute the value of the euro even further. The euro has declined from 138 in January to 124 now, and still falling.

Banking

The EU banking system is larger than the US. However, the banks have not fully recovered from the 2008 financial crisis. The largest bank is Deutsche Bank. This bank has used the dangerous derivative market to get back on track. They are exposed to $75T. They are not alone. This is a common practice in European banks. They are walking dead, zombie banks. If one goes, a chain reaction could hurt Europe and the world.

Debt

Just like the US and everywhere, the mirage in the desert of economic growth is debt. It is fueled by central banks and government. The problem with debt is it must be repaid and it is growing faster than European economies and world economies for that matter. It is like a virus. It is unseen and deadly and grows with interest.

Add It Up

Putting it all together this voodoo mixture, concocted by fiat money has all negatives in the pot at the same time. You have high unemployment. You have high debt. You have an aging population that explodes budgets with less revenues. This brew could boil over or using political correct language, a bursting bubble.     

Japan: Charging Into The Next Financial Crisis

Last week on the eve of Halloween, the Bank of Japan announced that they were beginning a new stimulus program to buy government bonds to the tune of $730B for the year. This will add to the debt ratio which is already the world's highest at 250%. They will be buying 85% of state obligations. This is up from 70%  because no one else in their right mind will these unrepayable notes. The US Fed now buys 63% of the government's notes. This is up from 50%.  Can you see a trend here? By the way the Japanese purchases is equivalent of US purchases at $3T a year. Think about that for a moment. Now, personalize it. You make $35K a year, but you owe or have accumulated obligations of $87.5K. You can't pay your bills! By some quirk of fate, a credit card company offers you a card, to which you pay your $87.5K off, but now, you owe someone else that much and more with interest. Interest is the key word. You are charging towards financial destruction. This is what all fiat central bankers are doing and the Bank of Japan is leading the way.
 "Only the Lonely..."
thank you, Roy Orbison. Sweden recently joined the club as it enacted its third phase of rate cuts after it raised them to combat inflation in 2010 and 2011. It is trying to devalue its currency to gain market share, which is a by-product of central banks QE programs. The ECB also raised rates in 2008 and twice in 2011 for the same reason, but now faces a recession. No central bank declares that the fiat model is a failure. They just increase the money supply to overwhelm any economic declines in activity. They believe that economic engineering works, but I beg to differ.
C-Japan
All its manipulating money spending has not lifted prices of its stock market or housing. They are at one-third of where they were 25 years ago. Central bankers believe money engineering will answer economic problems, but the equation is human not abstract. How do you equate or replace ageing, retirement and dying? How do you measure pension obligation that will increase due to longevity? How do you compensate falling revenues which add to the debt ratio? In Japan, household income declined by 6%, and it is expected to fall further, especially when a national sales tax is added to the economy.
Thanks Japan
They have more than demonstrated that the fiat model fails to maintaining the value of your currency, which is purchasing power, fails against inflation and puts your whole nation under the risk of collapse. Hey, I forgot to mention it allows your exports to grow which favors segments of society at the expense of all its citizens who pay higher prices for imports. This is the plan of Sweden, ECB an all countries that seek a lower value for their currency. Today, the US dollar is up at .87 cents. Dear reader, that is very, very sad. The world's reserve currency is worth less than a dollar, although the bill says it is a dollar. The Euro is down to 1.24 and like my previous blog on Japan, the Yen is at 114. Does anyone remember Zimbabwe? Weimar Republic? Japan is charging towards both of them with all central bankers followng

We Want Deflation, They Don't

There are great scientific laws of motion from Isaac Newton, which I feel can pertain to our own economics and the economy as a whole.
- For every action, there is an equal opposite reaction.
- An object in motion will not change velocity unless an external force acts upon it.
If one were to inject the two principles into the economy, one would realize that they work well with the concept of inflation versus deflation.
Deflation
is the absence of price increases.
Inflation
price increases are present.
I feel that the current climate of deflation in our economy is a result of Newton's first law. The stimulus from the Fed and our government policies are suffering from the equal opposite effect of their actions. This is a good thing for everyday citizens. Deflation offers two great economic benefits: price stability and it lowers the cost of living which raises your standard of living.
Our government and the Federal reserve hate and fear deflation, however they have used the concept to allow them to stabilize our economy, so that they can resume their policy of price inflation. This is why I declare that we need a new political party that is for the people. The two parties in power violated the constitution by creating the Federal Reserve and the guiding principle of the founding fathers, "To promote the general welfare." Let's put this into our everyday experiences.
Everyday people seek to avoid inflation in their lives. We skip steak for hamburger and now, we cannot afford burgers, so we eat chicken. We do this so we can pay our other bills and needs. The people that we elected institute policies that raise prices, even argue the benefits of inflation, regardless of the pain it causes to its citizens.
Consider Newton's Law
The Fed injected money into our system. This is not wealth created from a contribution to society like electricity and the industry that resulted from the invention. This is diluting the value of our currency and lowering our standard of living. This action is inflationary. The reaction to this policy is deflation. Hold that thought.
Flashback: 2002
Prior to the recent Fed action of pumping artificial, worthless paper into our economy, they kept interest rates low which also applies to the second law of Newton.(an object in motion...)
Housing is the biggest purchase in our consumer society. The stock market caused a crash with the dot.com bubble of 2000. The Fed came up with the idea to boost the economy through housing, but it was stagnant, a body at rest. By the lowering of interest rates, added with a stronger dollar during that time, together formed a stimulus to the housing market.
Let's Get Real 2002:
I'm selling my home for $100K. You can buy it with a payment of $650. per month before the boost. Now, with the Fed's help, it only cost $450. per month. Anyone with an IQ of 80 can pick the $450. a month deal. That dear reader, is deflation.
The Fed used deflation to start the housing bubble and it is again using deflation to reignite it.
Let's Get Real 2014:
Today, the government injected refinance programs like HARP, bank modification deals under the threat of law suits and the Fed helped by lowering the interest rates to below 4%. Now, that $100K home is selling for $200K. They did this to stop the bleeding of price declines(deflation and Newton's first law)and foreclosures. My home has a house payment of $1100. per month at the already historical low rate of 5.5%. Now, it drops to $700. per month because of all the manipulated policies. Same house, but now, using deflationary forces. I have money to spend, but don't get thrifty. No policies for the savers and investors in society. They want you to spend that money.
Deflation has a bad side too. If prices continue to decline, people put off purchases in the hope that it may decline further. This can spiral into a negative consumer cycle, which the Fed fears. However, we have never had an extended period of price deflation, to which the Fed claims will happen.
There are examples of industries where deflation has hurt like mining companies at present. The decline in price of the end product, gold or silver and other commodities like copper, results in the difficult decision to close the mine until prices rise because the break even point has passed. Jobs will be lost not only at the mine, but equipment companies and anyone and everyone connected in those regions. The government doesn't care because this segment is not part of its big picture.
On the flip side, price stability of deflation helps citizens. Even if you don't own a home, think oil. You now pay $3. per gallon, whereas before you paid $4. per gallon for the same amount of gas back in January. You are saving for the first time with whatever wages that you earn. Your living standard will rise. You can afford steak.
This same aspect of deflation helps businesses too. It lowers their costs. This is why the stock market climbs. With lower costs, businesses have more money. However, they have used this opportunity to buy back stock rather than developing new product.   
Finally, it allows debt to be restructured. This too lowers cost, leaving more money available after fixed payments whether credit fees, inventory loans or mortgage payments.
The Fed and our government sponsored deflation only because of the financial crisis of 2008. They feared that their policies would implode the system. However, they have society trained like seals. They have plenty of examples to verify. All they have to do is make some announcement to check the pulse. Now, they can return to their big picture because there is house price stability along with rising prices. This is the same formula that the Fed has been using since 1957 after our economy suffered its first haircut. They have us on a staircase. We have just paused on a step. They would like now to resume the price escalation of inflation because they need revenues to cover the debt load that they brought onto our society. These are the policies that erode the middle class, cause inequality in society with hardship under the destruction of the dollar. This loss of purchasing power results in a lower standard of living and it all can be traced to the Fed in 1913. However, we have hope in the fact that Newton is smarter than the Fed or our government leaders. There will be a reaction to the action of the Fed, even if it is painful as we can all pray that we return to the wisdom of our founding fathers to back our currency in gold which will promote the general welfare. This is why I say, End the Fed! 

A Holiday Present From Warren Buffett

At one time in my life I would never have recommended what I am about to suggest to you, dear reader, pick the pocket of someone else. However, if you believe in karma, you will have no trouble at all. The mark is Warren Buffett.
Why?
Because he is a hypocrite. Like many rich people, he will say all the right things in public, but his private actions are just the opposite. The man loves to be the center of attention and there is nothing wrong with that except when Warren has nothing to say, he will talk about things that he doesn't do, but offers advice to do these things. He recently backed President Obama's call to raise taxes on the rich and stated that he thought that workers in America needed a raise, especially those on the lower earning ladder. I have just made a few accusations, here is the basis of those claims.
Burlington Railway
He bought it, but the workers feared that he would cut hours, benefits and jobs. He publically reassured them that he only had positive ideas for growth. All would be well.
One year into ownership, he lobbied for Congress to permit engines and transport cars to be able to go into Mexico where he would center his repairs, thus killing jobs, hours and benefits for American workers. This action would also weaken the union which is his ultimate purpose.
Housing
He stated that renting is the better choice because a mortgage is based on interest rates that are higher than inflation, which means that you are over-paying for shelter.
Derivatives
He once said, "that derivatives are weapons of mass financial destruction." I happen to agree with that statement. I feel that this category of financial insurance needs to be regulated to the point that each party has the reserves to enter into the agreement. To put that into perspective, no one has any idea how much leverage is at stake in this market. Consider this: if an alien came to earth and wanted to buy it, the total GDP of all the plant's economies totals around $64T and the derivative market already exceeds $500T. No company can repay the damage if a chain reaction of bad events happen. This is why it is a weapon of mass destruction. By the way, Warren now uses them.
Do you need anymore reasons to take advantage of this rich boy? If there ever was a sure thing, this is it.
Earning Season
is here on Wall St. Warren's company trades under the stock symbol, BRK/B.  His two biggest holdings are Coca Cola and IBM. Both of these companies have reported declines in earnings and their stock prices have declined severely. It is estimated that Warren lost over $2.5b last week due to the two companies poor earnings. This is what I suggest: His stock is high and trades around $137 to $139 a share. I can't afford those prices, but an option is much cheaper. I would buy the next quarter in time because the recent price action won't be reflected in this quarter's report. I see his stock falling to around $120 per share which would make a nice Christmas present. Don't worry about Warren. His stock will eventually go back up and as of 2013, he was estimated to be worth over $58.5b. He can afford to give us all something and clear up his karma. Peace.

US Needs the Number One Draft Pick

   After you read the facts below there is only one conclusion, we need a leader who is not from either of the two main political parties. This person would stand up with the people, be from the people and most importantly, for the people to end the lie of free trade.
Facts:
According to the IMF, China is now the number one world economy in terms of purchasing power. The Chinese worker may make less money on a hourly or yearly basis, but can buy more for their dollar as compared to anywhere else. We outsourced both our jobs and factories to them and as a result, consider the following.
*China leads the world in exports.
*this category to me is a negative, however it is listed as a positive. Chinese companies have more total debt than US or anyone. The thinking must be if you can borrow more, you can invest more, but I see this as a house built on sand.
*The US sold to China $121b in trade. China sold to us, $440b. This is how you develop a national deficit. By the way our leading component to China was Trash for recycling while they sold us computer equipment. This trade imbalance is what I have been writing about as our structural economic problem. We don't protect workers or industries while China and everyone else does.
*China is the world leader in manufactured goods.
*China is the largest new car market.
*China has the most foreign currency reserves.
*China imports the most gold, while at the same time is the worlds largest gold producer. By the way, they are looking to control this commodity.
 *In addition, China produces more doctoral degrees in engineering than the US.
*China has the fastest train and best high speed rail network.
*It spends on infrastructure too. It uses more cement than the entire world combined.
*Under alternative energy, China is the number one producer of wind and solar power which was another American invention like the television to which neither political parties encouraged or defended.
Sadly, Robert Fogel of the University of Chicago projects that the Chinese economy will be 3x larger than the US by 2040. We can trace our decline from the anti-union movement with the biggest effects coming from trade agreements like NAFTA. Here is a quick recap of the so-called partnership.
*845,000 workers receive assistance under the Trade Agreement because they lost their jobs or factories were relocated. Of course, this adds to our national deficit.
*this trickles down and around to other jobs, so the total effect is closer to two million lost jobs except those people don't get assistance.
*our illegals grew faster after the agreement. See TWO-WAY STREET
*the year before the agreement we had a trade surplus with Mexico. Last year a trade deficit of $177b. Please note that Canada is included in that figure.
*Since the GM bailout, 70% of GMs cars have been built outside the US, mainly in Mexico.
*Since 2001 the US has lost more than 56,000 manufacturing facilities. Those were good paying jobs and the recovery gave us this job line, "Would you like fries with that?"
Sadly, back in 1950, 80%of ALL men had a job in the US. Today, 59%. This helps to explain why one in five kids are in poverty and 47 million collect food stamps. According to Alan Binder of Princeton, 40 million more jobs will be lost in the next 20 years. Knowing these results Obama is still pushing for the Trans-Pacific Partnership. A Republican will do the same thing, just call it something else.
By the way these deals are a
Two-Way Street
They bring a currency inflation to the other nation because we do subsidize certain industries like agriculture. I'm not against help to any industry or anything that helps workers. I'm just saying that these deals hurt ordinary workers everywhere. In Mexico corn farmers were put out of business and jobs were lost. This led to our illegals. See how things are connected. Mexican citizens suffered 38% devaluation in their purchasing power. The same effects happened with CAFTA too. Our government policies of so-called free trade ends up giving all of us the SHAFTa!
Maybe we cannot protect every job category or industry, but we need to turn the pendulum back to at least, protect what is left of our manufacturing and good quality jobs. Manufacturing is down to under 9% and shrinking. If we could just cut our trade imbalance by a half, we could create 5 million jobs to which means less kids on poverty with a hope for a future. Blame both political parties. We need a new voice, one that will represent the people and end the root cause of all evil - money. This leads to the culprit of our lost in purchasing power and standard of living-the FED. End the Fed!

Dow Up 200, Down 200=?

If you step back and just reflect on the numbers, the stock market makes no sense. Why would so many buy to push prices up, and the next day, so many sell to lower prices? It would behoove one to remember the market adage, "to take the most amount of money from the most amount of people in the shortest amount of time."
Big Picture
This is why I take the big picture approach, but use charting to make trades. The most important word in that sentence is "trades." Investing for life in a forever stock is just a market ploy. Nothing lasts. Always use a stop on trades. Know where you would like to enter and exit before you make your first move. With that said and a guideline, here is how I see the market in the near term.
There is one indicator that both fundamental and technical traders both use, the Dollar. Price action on the dollar is affected by many aspects from the Fed all the ways down to Main St. How much disposal dollars do ordinary citizens have? Keep in mind that commodities are still priced in dollars. So, when the value of the dollar is up, people have more disposable money and conversely when it is down, less to spend.
If you haven't noticed, the dollar has risen from .79 cents to over .86 cents. This is huge. The market does not like a strong dollar, not that .86 cents is strong, but any uptrend hurts S & P 500 companies that have outsourced because those foreign dollars are worth less. The consumer benefits, and he has also become a smart shopper. He wants discounts and this Christmas shopping season will demonstrate this change in consumer attitudes. Retail will produce sales, but not profits as margins shrink.
These type of inflection points are nothing new for the market. During the early 70s, oil prices were low. A gallon of gas only cost .31 cents. Yes, that is true. OPEC was suffering from inflation without getting higher prices for their oil. In addition, politics entered the equation. OPEC cut production. Prices doubled. That was then, this is now.
China
is the elephant in the room. Their government decrees that GDP should grow at 7.5%, however it is not. The same leaders thought that domestic growth would pick up and continue the target level. It has not, and they are definitely in a housing bubble. What to do? The speculation is a devaluing of the Yuan. This will spur exports, regardless of the international fall out with other currencies. If this happens, the dollar will get even stronger.
EU
is under duress, but the euro should bounce from the recent lows up to 130, however at that point, I see it resuming its fall, giving yet more strength to the dollar. So, the dollar will retrace a little and then, rise to around .89 cents. It could go higher.
What It Means?
As stated above the market hates a strong dollar even though it is best for the consumer. The small cap index has already dropped 10% and if the Dow would correlate to the Russell Index that means the dow would sink to around 15,000. In addition I have some fundamental reasons why this downtrend will continue.
Population
For society to produce, it needs to create demand. In America today and every day for the next sixteen years, 10,000 baby boomers are subtracting by collecting from Social Security. You hear about job growth and the recovery to the tune of 200,000 every month this year. It sounds impressive until you understand this important aspect. During the recovery period our population has grown by 14 million, maybe more. No one knows for sure with all the illegals. Therefore, we create 1.6 million jobs, but 12.4 million people need jobs. We are way, way short and that is why long-term unemployment is still 12 million. Not to mention the 4.6 million who are collecting on disability which is another part of social security or the 47 million collecting food stamps and adding all this together the working population is at a decades low of 62% which means 38% of the population is not contributing. Again, our population is well over 300 million and 38% of it is unemployed and that, is a lot of people not to mention that within the employed there is a record number of part time workers. The bottom line is disposal income is shrinking as our economy produces less.
QE
is suppose to end this month and even though interest rates are at historical lows, the perception will be to the negative bias. Beside controlling short term rates the Federal Reserve released their Survey of Consumer Finances(SCF). It reveals that the middle class has suffered both low wage growth and net asset losses during the so-called recovery. Wages for them are down 12% and net worth by 38% in the last six years. Keep in mind that the CPI used to adjust those results is skewed. If it included food and energy the results would be worse. This is the structure within our economy and all the talk is just that, talk. These bipolar swings will continue. It is the market telling you that a change is coming like dark clouds before a storm.
One last thought. Gold has increased in tonnage on average by 1.5% since 2002. Fiat money by central bankers has multiplied from a low in Japan of 8.4% to all the rest with double digit figures:  US Fed grew money supply by 16.9%, Bank of England by 20.5% and China by another 20.7%. So, which is the rarest? Which has retained its value? Which is why I say, End the Fed!
   

Ebola: The Good, the Bad, and the Ugly

The Ugly
Just as in the classic movie, we begin with the Ugly. At present there are 7,178 infections and 3,338 have died from the Ebola virus. Almost all the cases in this outbreak have been in the neighboring countries of West Africa: Guinea, Liberia and Sierra Leone.
No Cure
for this virus and like HIV, the treatment is cocktails of medicine that allows the patient to recover, but the virus will always be within.
Ebola can enter the body through mucus membranes of eyes, nose, ears and mouth. I have heard doctors say that you cannot get Ebola from someone who has not displayed the symptoms or from coughing and sneezing. This sounds like a lie because doctors do not know what causes Ebola, how it started and very little on how it transfers from one to another. Coughing and sneezing emit spit which can penetrate your eyes, nose, ears and mouth. So much for truth, although I understand the doctors are trying to squelch fear. This is one reason why travel bans have not been put in place. Doctors fear that potential victims would seek other ways to leave their infected area and escape over a border. That would cause a possible epidemic.
Projections
The continuation of the outbreak in numbers are staggering. It is estimated that at the present pace, and if efforts to contain are not successful, we are looking at a half-million infections by the end of January 2015. If it gets to that point, we will have a serious epidemic on our hands.

The Bad
The present numbers are not correct as there are unreported and under-researched possible infections out there. It has spread to the US and probably, will soon hit Europe, Asia and elsewhere.
The first treated in the US were two missionary helpers, Dr. Brantley and Nancy Writebol. The doctor walked into the hospital at Emory University because he knew that they had the experience to help. Their medical center set up an Ebola section 12 years ago in another outbreak. He received a serum called, ZMAPP. This is not a clinical drug, but it has been used with some success in Africa. He recovered.
Since then, another doctor, Rick Sacra who also volunteered in Africa got infected. He entered a hospital in Colorado because it too had experience with Ebola. He received some of Dr. Brantley's blood as part of his recovery.
Thomas Duncan is the first Ebola patient to develop the virus within our border. This is not exactly accurate. He left Liberia because he knew that he helped a patient with Ebola and maybe he wanted to get the best treatment possible. He arrived on September 20th and fell sick on the 24th. He visited a Dallas hospital on the 26th. He was released. Two days later, an ambulance was needed to return him there. He is now under treatment, however there are 19 other people being monitored because they have had contact with him. Of this number five are children.
Keep in mind that people have been treated outside of Africa before, as far back as 1994. At that time a researcher fell ill. He flew to Switzerland for help. There have been others who were treated in Spain, France and UK.
There are twelve other people in the US who are being evaluated as possible Ebola infections.

The Good
The role played by big Clint is residing in the only two drugs which are permitted by the FDA: ZMAPP and TKM-ebola.
The first, believe it or not was financed by the Department of Defense back in 2002. It is now a private company in San Diego.
I do not like to suggest stocks because I feel terrible if I am wrong. However, in this case, I am recommending Tekmira(TKMR). It is the maker of TKM-ebola. The medicine is based on the 2006 Nobel Prize in medicine by Andrew Fire and Craig Mello. They used RNAi, which is a field inhibitor with interference therapeutics which utilize the bodies own natural processes to defend itself from infection. A safe entry would be where the gap on the 30th of September begins, and I would wait until it closes before buying.
TKM-ebola is in clinical study. It was used on ebola infected monkey's and they recovered.
Some patients have been given this drug with most surviving. However, this was done outside of the clinical study in Africa for desperate patients.
The World Trust has given Tekmira a grant to develop more medicine and they will be using it in West Africa.
Finally, Thomas Duncan and the other people that are being monitored will have an answer in 21 days which in the past has shown whether a patient will recover or not.
There is no more ZMAPP available. It is made by Leaf Biopharmaceutical. One other technique will be used, the blood of Dr. Brantley or Dr. Sacra, but this is very limited.
The international community, WHO, and the US have all pledged help, but action speaks louder than words or the only words we will hear is, "Oh, no! Not me!"

I do have a position in TKMR.