W. E. Pollock: ZIRP the Wrong Tool For the Job

Gold Daily Chart

Gold had a spectacular run the last two weeks, with only occasional pullbacks such as we had today.

Let's see if gold can hold together into its option expiration next week on the 26th.



Option Expiration Schedule at the Comex

SP 500 and NDX September Futures Daily Charts;

Very quiet expiration for August stock options today.

Q2 GDP second estimate next Friday the 27th.


SP 500

The SP was under pressure all day, but there was a bump up in the afternoon to bring them back to the pivot point around 1070.



NDX

The NDX broke cleanly down out of the rising wedge, so there may be more work on the downside. Potential bear flag that we will have to watch.




Heard on the Street

05/24/10 Goldman adds CME to its conviction buy list. Closing price $323.01
08/12/10 Goldman removes CME from the list. Closing price $249.39

What are the chances they were not on the other side of that?

Gold Daily Chart

Gold has been like a juggernaut the past week.

Let's see if it can take out 1240 without getting too overbought.

As a reminder next week is September options expiration for gold and silver.



Gold Daily Chart



Gold Daily Chart - closer look

SP 500 September Futures @ Noon

Stocks fell from overnight highs on higher than expected unemployment claims this morning, and a much worse than expected Philly Fed. But as one financial wiseguy said on Bloomberg, who cares about manufacturing? Probably does not care about jobs either.

A test of the pivot point support is underway. I would expect it to hold and perhaps recover after the Europeans have gone home to their folks and blokes, but if it gives way, which would be a clear break of the lower bound of that 'pivot channel' then its a new game, as they say.

Unenlightened Self-Interest: Deficit Hawk Down On Tax Cuts and Financial Reform

"Economics is haunted by more fallacies than any other study known to man." Henry Hazlitt

The argument that 'tax cuts for the wealthiest few stimulates growth' aka the trickle down theory needs to be buried alongside the 'efficient markets hypothesis' and the other principle beliefs of voodoo economics that have brought the US from the world's greatest nation to third world status in a generation.

It was the irresponsible tax cuts enacted by Bush II while increasing military spending on two wars, one highly discretionary, along with the increasing financialization of the economy through deregulation, fraud, 'one way globalization,' and crony capitalism that have undermined the foundation of the American economy.

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


h/t The Economist's View for the cartoon

The following charts are from the ContraryInvestor but all annotations and comments are mine.

Think about what this chart below is saying. Will a return to the status quo through Fed intervention 'work?' Is austerity directed at the middle class the answer, as in the suffering endured by the many in the Great Depression?



What would happen if the economy 'recovered' with the same fundamentals in place? Fundamentals such as an overly large financial sector, increasing wealth disparity, and a stagnant median wage?

Can 'the many' continue to borrow to maintain a constant standard of living? Can a democracy be maintained in conditions that start to resemble a third world country? How long before a 'strong man' rises to take control of the political situation on behalf of the national society of workers? And how long after that would it be before the industrialists and oligarchs lose control of this strong man, as they always seem to do?

Can the US afford to maintain 800 overseas military bases while the domestic tax base continues to erode through a parasitical transferal of wealth from the many to the few based on leverage, speculation, monopoly, asset bubbles and fraud?

Closer View of the Rise of Neoliberal Economics and the Ponzi Economy



US Federal Debt Only as a Percent of GDP Since 1792



What the US needs right now, more than ever, is a coherent industrial policy and a national strategy focused on the median wage, a serious reform movement, a reduction in its military spending, and a set of encompassing social principles with a longer term vision for the country as its goal.

Americans may not trust government as a recent tenet of dogmatic faith, but in doing so they are entrusting their futures to other people's governments, and soulless multinational entities who are in fact using globalization and the 'free markets' to aggressively advance their own ends and benefits, which are probably antithetical to yours.

Bringing a dogmatic neo-liberal bias for "free markets" (ironically promoted by political neo-conservatives) into a game where every other major country is executing a well thought out industrial policy based on increasing net exports is like bringing a knife to a gun fight, and then stabbing yourself in the back as an opening move.

Gold Daily Chart

SP 500 and NDX September Futures Daily Charts

Stocks were pushed higher for much of the day.

The GM IPO was announced and stocks faded into the close losing even more ground after the 4 PM cash trade cutoff. As you know the futures trade until 4:15 PM.

It is too soon to attribute anything to this one way or the other, except for another failure at the test of overhead resistance, but no breakdown below key support and the key Pivot.

SP 500



NDX

SP 500 September Futures, Gold Daily Chart, Silver's Ascending Triangle

SP 500

Goal line defense at that pivot point, but they were unable to break it out above overhead resistance today, even on light volumes.

Come on boys, let's get that GM IPO rolling (even though Goldman poisoned the well for the underwriters by low balling the fee)



Gold

Let's get ready to rumble.



Silver

A Massive Ascending Triangle is building energy for what may be an explosive breakout.



Examples of Ascending Triangles

Gold And Energy Futures Contracts to Begin Trading in Singapore

A little competition is just what the COMEX and LBMA need.

Wouldn't it be sweet if some master-of-the-universe trader caught rigging the markets and violating the rules were to find himself on the receiving end of an old-fashioned caning?

Let's see how the arbitrage develops, because you know it will. I wonder how transparent and liquid this exchange will be. It is certainly in an advantageous location.

Bloomberg
Singapore Mercantile Exchange to Start Gold, Energy Futures Trade Aug. 31
By Christian Schmollinger
Aug 17, 2010

Singapore Mercantile Exchange (SMX) will begin live trading operations on Aug. 31, offering both gold and energy contracts, according to an e-mailed statement.

The exchange will offer futures for gold physically delivered in the island city-state, Brent oil denominated in euros and financially settled West Texas Intermediate crude, the statement said. The bourse also plans euro-dollar futures.

“SMX’s launch is a step in the right direction as we leverage off Singapore’s unique position as a premier financial and commercial hub in the region,” Thomas McMahon, the exchange’s chief executive officer, said in the statement. “The launch will provide market players in Asia the flexibility to trade products generic to regional trade flows within the Asian business day.”

The Singapore Mercantile Exchange is backed by Financial Technologies (India) Ltd., which operates the largest commodity bourse in India. Other commodity exchanges in Asia include Singapore Commodity Exchange and projects in China, Tokyo and Dubai.