PERSPECTIVE

Out here in Vancouver – the home of the old and notorious Vancouver Stock Exchange – we have directly watched and took advantage of High Frequency Trading. One of our favourite exploration companies closed Tuesday at 2.13.  Opening at 2.12 yesterday, it ticked up to 2.14 and plunged to 1.81 in the first ninety seconds (repeat seconds) of trade. That was on 1,000 individual trades amounting to a little over 100,000 shares. Recent daily volume on NY has been around 40,000 shares on 25 trades.

At day’s end, the volume was 6.5 million on NY and Toronto, with over 40,000 trades. Wild! The high was 2.16 and the close was 1.90.

No matter how reckless the promoters were back in the day, nothing close to this week’s absurdity could ever have happened. It had to be written up in these pages.

Of course, this was part of the Knight Capital trading disaster and Forbes at 1:44 NY time wrote “Bears Claw Into Knight Capital after Bizarro Trades”.

The inmates have really taken over the institution and it will be interesting to see what they can do next.

The other excitement for the day started at 2 PM when the DX jumped from 82.7 to 83.1 in less than an hour. Our first thought was that perhaps Bernanke had missed the big Fed pronouncements, but sadly he made them. We have yet to figure out what he said.

CREDIT MARKETS

Other than disruptions from disastrous news from Europe, U.S. credit markets remain complacent to enthusiastic. Actually the action in corporates (LQD) has been outstanding – outstanding enough to register technical readings only found at important tops. Our price target has been the 122 level and today it’s reached 121.

Close enough to say it is time to start taking money off the gambling table that the bond markets have become.

The technical peak in corporates follows the “Eiffel Tower” peak on long-dated treasuries.  Up one side and eventually down the other.

It seems that the reach for yield is throwing cash and caution out the window. This shows in emerging market bond funds. Part of the buy recommendation is that such countries have a growing middle class with funds to invest. JP Morgan’s emerging bond fund ETF is one example and is yielding around 4.5%. The EMB chart (follows) is becoming overbought. Also, important highs have shown a common pattern as the RSI sets a negative divergence.

With Wall Street back to “bundling” sup-prime stuff, it is worth reviewing a reliable indicator of the transition from good times to the opposite. The sub-prime mortgage bond we monitor (AAA.6-2) gave us confirmation of the pending high for stocks and commodities in the spring. It is working on a similar top right now and with today’s recklessness higher prices have been accomplished. The chart follows.

After some relief, Spanish bonds are again increasing in yield. The break to new highs will be devastating to financial markets and to the central banking crowd. The latter have been working very hard to prevent or limit bad things.

One of the features of a great post-bubble contraction is that the recession starts with the first crash. Recessions are severe and recoveries are weak and in our example the first business cycle out the crash is ending.

Earnings and tax receipts so essential to servicing debt are again diminishing.

KNIGHT CAPITAL FIASCO

The company is probably seriously impaired and while the cause of their disaster may be unique.  Although small, we should view it as a possible insolvency. Within a likely peak in speculative urges this is could be a classic warning.

Recent stock action is interesting. On July 18 KCG plunged from 11.75 to 10.25 as trading volume jumped from a typical 1 million to over 4 million shares.

At 2.70 the action has taken out the low of 3.47 set in 2002.

CURRENCIES

Today’s swing in the DX from 82.1 (four-week low) to 83.5 is impressive and working an outside reversal – to the upside. This is appropriate for another crisis, and Levente notes that the ECB was “fooling” around in foreign exchange markets overnight.

Last Thursday’s ChartWorks noted that technically the dollar was poised for further weakness. This is still in the chart and the jump in the DX seems mainly due to Spain and KCG.

SIGNS OF THE TIMES:

“GM Ramps Up Risky Subprime Auto Loans to Drive sales”

– Investors.com, July 27

Electrifying concept!

INTERESTING NUMBERS:

In 1962, 6 percent of Americans were on welfare. Now it is 35 percent, or more than 100 million people. Many of whom vote. Some 9 million are receiving federal disability payments, which is up from 5 million in 2001.

“An Intriguing Idea to Encourage Bank Lending”

– Wall Street Journal, July 30

This was an idea promoted by Prof. Alan Blinder at Princeton. An ardent interventionist, he was instrumental in the “Cash for Clunkers” fiasco of summer, 2009. This is minor compared to the late 1980s when he was one of the top-selling authors of economics text books.

As socialism/communism was being marked “failure” by Eastern Europeans his1988 textbook asked “The real question is not whether we want elements of socialism or planning to abridge our personal freedoms, but by how much?”.

This is from a Special Discussion of September 1, 1991 and it is attached.

The main story from Blinder’s notion is that banks are not lending enough – according to those who have personal ideas about controlling the lives of other people.

“$100 Million! The Most Expensive Apartment in the Country Hits the Market”

“The super luxury market has been red-hot in the last few months.”

– New York Daily News, July 30

INSTITUTIONAL ADVISORS

WEDNESDAY, AUGUST 8, 2012

BOB HOYE

PUBLISHED BY INSTITUTIONAL ADVISORS

The following is part of Pivotal Events that was

published for our subscribers August 2, 2012

Link to August 3 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:

http://talkdigitalnetwork.com/2012/08/qe-talk-fades/

 BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL  bhoye.institutionaladvisors@telus.net“>bhoye.institutionaladvisors@telus.net

WEBSITE:   www.institutionaladvisors.com

We have to understand that the bankers DO have fake analysts to put out bullshit. I believe they love to churn the fiat currency thing to divert the blame from them and to make the solution appear that returning to a gold standard means they get paid in gold. But then there are organizations like GATA that insist upon the bankers are manipulating gold to keep it down. Aside from the fact that they manipulate markets in general for immediate profit just as the latest LIBOR scandal has exposed in Europe, The question would be what possible motive would the banks have to keep gold down? That would produce no immediate gain. So if there is some conspiracy to prevent gold from rising, the ONLY possible motive would be an exit strategy for debt. If they pay analysts to keep talking bullshit about fiat currency implying that the solution would be a return to the gold standard, then the debt would become payable in gold. That would be the ONLY plausible reason for them to care about keeping gold prices down. That would be the ultimate end game when they walk away with Fort Knox. The whole fiat currency thing is gibberish. Money historically has been many things and I have pointed out that China has always been a fiat currency since 240BC. Coins were bronze or iron and valued at whatever the emperor said they were because he was god on earth. The same reason Japanese pilots flew their planes into ships because god told them to do so. It is the DEBT that destroys empires – not fiat currency. So putting out bullshit that we need to return to a gold standard without debt restructuring, means we have to pay the bankers in gold and that is the ONLYreason they would have to keep gold prices down.

Let’s face reality: Liquidity does not produce solvency and by no means will bailouts from one insolvent group of countries to another insolvent group create solvency out of thin air! All the efforts to stimulate growth fail because they are debt based that further ensures our insolvency. Nearly 70% of the national debt is interest. So there was no magic program to help the poor or middle class. All we have done is create a mountain of debt and paid the bankers like crack dealers.

I do not hate gold nor do I think gold is a barbaric relic from the past. It has its role as a hedge against the unsound finance or government, but it is a person investment hedge, not legal tender money where government gets to dictate its value and confiscate it. I am concerned that TOO MUCH nonsense is spun around gold that feeds the beliefs of the choir, but it is PREVENTING normal investors from buying because they do not believe the hype. Preaching to the choir is not my style. We are supposed to be trying to figure out what makes the world tick. Some are like Marx trying to dictate to the world how it should function according to their belief. But if we hope to survive, knock off the bullshit!

HYPERINFLATION will never happen because the bankers are demanding austerity and higher taxes to ensure they are repaid. They do not want funny money. In Iceland the homeowner buys a home for 1 million krona and if the currency declines by 50%, he now owes 2 million. This is their dream for the rest of the world. Getting rid of Glass-Steagall was the worst possible thing ever. The banks want to trade with other people’s money because they realize that the purchasing power of money is declining as debt escalates. Their goal is to be a hedge fund using your money, the taxpayer ensures no loss, and they keep all the profits. Then they stack the bureaucracy (UNELECTED GOVERNMENT) with their own people. Who was Obama’s biggest contributor last time – Goldman Sachs.

MOF controls Japan and will completely destroy the economy. Most party leaders come from the Ministry of Finance. Even the $1 billion loss taken by Yakult had to do with the fact that their finance officer was ex-MOF and he did not hedge believing that MOF would support the Nikkei as they kept implying. The market collapsed anyway. Japan is just hopeless with a debt set to exceed $12 trillion. MOF there is doubling taxes rather than reform and restructuring.

Europe is a basket case and Germany should have floated Eurobonds. Their debt would have depreciated as it should have but instead Germany is being dragged down the rabbit hole. Their fear of inflation will bankrupt Europe anyhow. There is no government that ever intends to pay anything back. So what’s up with always borrowing? Whose advice are they following?

The US will go into an economic decline since the bankers are insisting upon higher taxes and their spokesman is Buffett. They are advising for massive deflation to save their bond holdings. We will see taxes explode next year. The bipartisan committee of course could not reach any agreement on cuts so they go into automatic mode next year.  State and local governments are told if they want to borrow, they too have to raise taxes. The bankers are taking their pound of flesh.

The economy is overburdened with debt obligations that cannot be repaid. We have reached the point where we NEED monetary reform and debt restructuring. Global leaders will never recognize the necessity because they are career politicians firmly in the hands of the bankers. The nightmare we face is that global leaders will deny the necessity for a world economic summit and bring Western Society to the brink of total disaster. This is a systemic economic meltdown. We lack politicians who are not in the back pocket of bankers. Democracy has been reduced to a joke.

Capital has been fleeing Spain and Europe. It has been pouring into the USA short-term which is why the Dow bottomed in June and then July with the Panic Cycle it reversed course and has made a run for the old highs. The bankers such as JPMorgan Chase have shown that they are not even about protecting shareholders, but internal management. MF Global can walk away with client’s money and nobody is charged while other investor funds are taken to pay those who lost. The courts are a joke and will no longer protect contracts and once contracts are no longer enforceable in New York, as is the case now, capital is no longer safe. Fine! They can blame me as the reason China has refused to deal with the NY bankers. You can fool people just so long. You want to rig the game, this is what happens. People leave.

The Dow & Capital Flows

The amount of capital that has been pouring out of Spain is unbelievable. We are now approaching 27% of GDP. This is ensuring a collapse in real terms. The banks are falling apart and the ECB has been putting in 300 billion euros monthly. That is 10% of all deposits in Spain! They have enacted laws to prevent people from withdrawing money and imposing fines if you do not inform the government that you have overseas accounts. See, this is what I am talking about where gold provides the alternative to the above ground economy. This is not about fiat or hyperinflation, this is about privacy and survival against governments that are bent upon robbing the people to pay the bankers so they can keep selling their debt and pay themselves. Putting money in equities where you take delivery is also possible. Do not leave them in the hands of a bank or broker. If you need the leverage, do not leave all your assets on the table.

click on image below for larger version:

When we look at the two computer forecast arrays for the Dow Jones Industrials expressed in a Basket of Currencies and the in US dollars, we can see the disparity being caused by international capital flows through currency values. The Panic Cycle was due in June in a basket format and July in dollars. This combination produced the June low with the July reversal to the upside. That is what a Panic Cycle does. In this case, we declined into the June low, and rallied off to the upside. A Panic Cycle is ideally an outside reversal exceeding both the high and low of the previous period and changing trend. In the instant case, we are looking at a Panic to the upside because capital is fleeing Europe. The 1987 Crash was the opposite pattern and capital fled the USA and went back to Japan causing the bubble there in 1989.

Technically, the Dow has broken out through the top end of the 2000 Downtrend Channel. The Weekly Bullish Reversals are 13571, 13615, 13770, and 14170. Weekly timing targets seems to be lining up as July 13, August 17, September 21, and October 26 with the two more dominant targets being October 5^th and December 14^th. When we look at the technical resistance for August it stands at 13765 which very close to the 13770 Weekly Bullish Reversal. Support lies at the top of the 2000 Downtrend Channel. 12568. If we can achieve a weekly closing above 13770, then we may be looking at a double top.

In gold, we have 1547 as the Weekly Bearish. Electing that would give us an August low with a recovery thereafter. Nevertheless, if gold closes above 1570 at year end, we can still see a correction before a breakout to the upside. So it would be nice to see a clean low for gold in 2012 for that would be much better for the long-term ahead. I still disagree with those that only say buy when the professionals are selling it to them. Knowing how corrupt the banks are and how they try to control the press, government, and analysis, I have to question the integrity of such analysis.

So hang on to your seat. It looks like the fall is going to be very interesting. Thank God for a unemotional computer right now. Somebody has to look at just the numbers please. There are always two sides to every fundamental no matter what you focus on.

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Armstrong is the developer of the Armstrong Economic Confidence Model, best known for calling the crash of 1987 to the very day. The model pegged June 13-June 14, 2011 as the start of a long-term upward trend in the market; the market obliged by notching its first weekly rise since April 29.