SP 500 and NDX September Futures @ the Close For the Week

"A long habit of not thinking a thing wrong gives it a superficial appearance of being right." Thomas Paine

The SP futures fell to the bottom of the trendline associated with a rising wedge that is likely to be quite bearish if activated by a confirmed break.

A late day technical rally was able to lift prices back to support on weak volumes, a classic short squeeze. The manipulation in the US equity markets by the big trading desks and high frequency traders is centered around the SP 500 futures. Their fingerprints are all over these markets if you are watching the quotes on Level II access.

The spin from the talking heads will be that the Fed will 'do something' by way of liquidity and further easing for the markets at the upcoming FOMC meeting which is on Tuesday, 10 August.

It is likely the Fed will do nothing next week, but the traders will play their games with the small specs, especially the bears who are an easy squeeze, the markets being what they are.

For my own perspective these markets now are guilty until proven bullish, which means they must break out and stick it, and further, that there must be some substance to support the breakout, even if it is just liquidity from the Fed, aka another asset bubble. The fundamentals just do not support prices at these levels, and the volumes of buyers are not there. But it can drift higher if selling continues to be weak. That is the dangerous, Ponzi like structure of a market that sets up things like the flash crash.

SP Futures



NDX Futures

The Jobs Report In Four Pictures

The recovery in employment has clearly faltered.

The most positive spin that can be put on it is that the rise and dip was caused by the secular hiring in census workers. But that removes the big increase, and leaves one with no recovery yet at all. Which is roughly the same thing as a recovery and a resumption, a dip.



Here is a comparison of the Seasonally Adjusted and the Raw Numbers

When the distortion of the imaginary jobs added and occasionally subtracted by the BLS 'Birth Death Model' are removed, the lack of recovery is made more clear. If one were to also subtract the temporary census workers which are the cause of that spike higher, the lack of recovery is even more apparent.



Here is the detail on the current shenanigans in the Birth Death Model. As previously discussed, the BLS shows dips in the imaginary jobs numbers around the big seasonality events in January and July. Since these birth-death jobs are added to the non-seasonalized raw number, the big seasonal adjustment blunts, if not largely negates, their impact.

But considering that the economy has undergone a sea change, an epic collapse in a credit bubble, the regularity of this metric should remove any doubts that it is at best largely 'a plug,' and at worst a means of distorting the numbers in the short term to make them look better.



Does this lack of recovery mean that stimulus has not had an effect? No. The results could have been much worse, and very likely would have been if the government had done nothing.

But it also shows that the actions have not had traction, are not yet creating jobs. Why should that surprise us? Subtracting out the bubble jobs in housing and servicing the financial frauds in mortgages, job growth in the US, and confirmed by the median wage, has been anemic for a long time.

This is what is called a structural problem. It is a problem that was caused by government policy decisions in deregulation, largely one sided free trade agreements trading jobs for cheap good and corporate profits, decisions that favored offshoring and importation, lack of a coherent immigration policy, taxation subsidies for the wealthy, lack of regulatory oversight, and an industrial policy of decline in favor of 'service jobs' that could be more properly be called 'servant jobs.'

What would we expect from a restoration of the status quo that does not include bubbles? A stagnating economy most likely at least from a wage and jobs perspective, with increasing disparity in income distribution.

The Inflation and Deflation Debate Deconstructed

'What most people call reason is really rationalization. Given a new set of data, most people will search through it only for those examples that support their existing beliefs. Their beliefs are really opinions, a tenuous collection of myths, anecdotes, slogans, and prejudices based largely on justifying personal fear and greed. This is what makes modern propaganda so powerful; people do not bother to think critically and objectively and act for the greatest good. And in their ignorance they can find the will to do increasingly monstrous things, and rationalize them.' Jesse

In a purely fiat regime, the question of a general (monetary) deflation and inflation is a policy decision. Anyone who does not understand this does not understand the modern mechanism of money creation. As the pundit said, "The mind rebels..."

But rather than engage in the usual facile intramurals about the topic, let's consider something more important. How does one 'play this' which is really what all these discussions are about: self interest.

The champion of deflation is the Treasury Bond (and the Dollar), and of the inflationists, Gold.

There are extremes on both sides, and probably more sense in the middle, since life rarely sustains the extreme unless there are people messing about with it. The only naturally efficient markets are in ... nature, and that only as measured over the long term.

Anyone who doesn't think Treasuries have been in a long bull market are blind fools.

But the same is true of gold.

I will leave the dollar aside for now to simplify the discussion, but it hardly lends itself to the deflationary theory.

People who have taken positions and held them in both Treasuries and Gold over the past ten years have made money, a very nice return. When one has a theory that consistently and reasonably encompasses that, you might have something worthwhile.

The deflationists will say that gold is a bubble fueled by mistaken speculators, and the inflationists will say that the Treasuries are being supported and manipulated by the Fed. Neither is able to look out from their deep wells of subjectivity.

You may wish to consider that the great part of this discussion, inflation versus deflation, is a diversion. But that is a discussion for another time.

The question for all failing theories is, as always, what next. What is the alternate count.

Oh boy oh boy, [our desired outcome] is finally coming and when it gets here its going to be good. We are finally turning [Japanese / Weimar].

Things are in bull markets, or bear markets, until they are not. The undeniable trend break is the best indication of change in momentum.

But things in the world of complexity are rarely as simple or straightforward as the average mind will allow, or can accept.

Anyone who thinks the Fed is impotent has not been paying attention to the last one hundred years. The Fed is not impotent, merely constrained. Their constraint is the policy arm of the government, the dollar, and the bond, in the absence of some external standards including external force.

Until one understands that, nothing can or will make sense. That is why the current discussion is so nasty and propaganda-like. It is not about what will happen, but rather about a public policy decision, about what people want to happen.

Consider that these debates are merely diversions, to distract people away from the most significant factors in their troubles, which are exploitation and fraud, and a military-industrial complex that is largely unproductive in terms of organic growth, and is quite simply no longer sustainable.

Paid professionals who were arguing the virtue of credit expansion as the bubbles blossomed are now arguing just as strenuously for austerity now that the bubbles are collapsing, their masters having taken their spoils. They will say for pay, without regard for the solutions that are in the best interest of the country. Few are thinking of their country anymore, as the individual is conditioned to think of themselves as globalized abstractions.

As always, be careful what you wish for, because you may get it. In this current climate, this class warfare, the American nation is a house divided. And you know what happens to those.

And the winners may inherit the wreckage, a pyrrhic victory indeed, but they can console themselves with the satisfaction that they have won the irrelevant debate.