Major US Stock Indices Deflated by Gold: the Cruel Deception

Our hypothesis is that after the tech bubble collapse of 2000-2002 and the economic shock of 911, the Fed began a concerted effort to inflate the currency through an unprecedented period of negative interest rates. The result of this has been a brief return to the 2000 highs in most stocks last year except of course the techs, and a substantial bubble in debt and credit derivatives that threatens to overturn the US banking system.

Here we present a few of the US stock indices as deflated by gold, showing their true performance in 'real value' terms discounting the Fed's monetary inflation. A number of commodities could have been used the same way as deflators of financial assets, among them some of the base metals, silver, and oil.

The Fed can create only paper. Inflation does not create value, it merely masks the rot of economic stagnation, but can do so for several years if the inflation can be concealed artfully. The US has been struggling through a particularly non-productive period for most Americans in terms of real wealth production especially as expressed in the growth of savings, which has been decidedly negative.

In their irresponsible foolishness and greed the Fed and the Bush Administration have managed to transfer more wealth from the many to the few, further impeding any sustained recovery since the health of the economic body has been concetrated in a few parts of questionable productive value.

This is how we coined the term "Potemkin Economy" many years ago. It is a cruel illusion of the Fed, the Treasury, and their associates in misdirection and deception. For that is what this has been, regardless of motives or intentions. It is a disgraceful espisode in our country's history, but this is what happens when one gives themselves over to the rule of fear and greed.


Here is the Dow Industrial Average, deflated by gold. It is also known as the "Dow-Gold Ratio." Long run the ratio tends to return to 2. It seems to be well on its way.



SP 500


Russell 2000

US Stocks Rally on a Decline in OIl Prices and the Fed's Extension of Credit Facilities

Crude Oil prices declined today and the US equity markets rallied hard in the final hours as the shorts were covering and the bulls took the opportunity to buy on a spark of optimism in these deeply short term oversold markets.

Alcoa reports after the bell that it beat Earning Per Share by a penny and also exceeded revenues on estimates that have been greatly lowered. Mohawk Industries warned and was spanked after hours. VMWare is weighing on the tech sector.

We'll have to see if this is just another short covering bounce or something more profound. Follow through to the upside tomorrow to take the SP back into the 1290's is required for a firmer indication of any trend change.



Follow through in the decline of oil prices is necessary. So far its just a correction in an obvious bull market.

IndyMac to Halt Most of Its Mortgage Business and Lay Off 53 Percent of Employees

IndyMac to stop most mortgage loans and cut 3,800 jobs
By Jonathan Stempel
Monday July 7, 5:47 pm ET

NEW YORK (Reuters) - IndyMac Bancorp Inc (NYSE:IMB), one of the largest U.S. mortgage lenders, said on Monday it will eliminate 3,800 jobs and stop making most home loans after regulators concluded it was no longer "well-capitalized."

In a letter to shareholders and employees, Chief Executive Michael Perry said Pasadena, California-based IndyMac will stop accepting most applications and locking rates on retail and wholesale mortgages. IndyMac plans to honor existing rate-locked loan commitments.

The job cuts will affect 53 percent of IndyMac's 7,200 person work force and be made in the next couple of months, reducing operating expenses by 60 percent, Perry said. They are in addition to about 2,700 cuts already made this year.

Perry said regulators have directed IndyMac to follow a new business plan designed to bolster capital, but the company does not expect to raise capital "until there is more stability and less uncertainty in the housing and mortgage markets."

IndyMac plans to focus on its mortgage servicing unit, its 33-branch southern California thrift with $18 billion of deposits and its Financial Freedom reverse mortgage unit.

The company made $77 billion of mortgage loans in 2007, ranking ninth nationwide, according to the Inside Mortgage Finance newsletter.

In addition, IndyMac expects its second-quarter loss to be larger than the $184.2 million, or $2.27 per share, it lost in the first quarter. Analysts on average expected a quarterly loss of 96 cents per share, according to Reuters Estimates. IndyMac lost $896 million in the nine months ending March 31.

"It shows the environment for mortgage lending remains extraordinarily challenged," said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey mortgage information publisher. "IndyMac had been a well- regarded player in mortgages, but given how the market is, it may be easier to restart such a business in the future than maintain one now."

Perry also said he asked IndyMac's board to reduce his base salary by 50 percent. His annual salary is capped at $1 million, a regulatory filing shows. Perry was unavailable for comment, spokesman Grove Nichols said.

IndyMac is the largest independent, publicly-traded U.S. mortgage company, following last week's roughly $2.5 billion purchase of Countrywide Financial Corp by Bank of America Corp (NYSE:BAC - News). It joins more than 100 mortgage companies to curtail lending or go bankrupt since the start of 2007.

CAUGHT UP IN MORTGAGE BOOM

IndyMac long specialized in making "Alt-A" home loans, which fall between prime and subprime in quality and which typically go to borrowers who cannot verify income or assets.

While IndyMac typically sold many loans it made, it was hit hard as mounting delinquencies and defaults caused the market for most nontraditional home loans to disappear.

IndyMac in the second half of 2007 refocused on making smaller, safer loans that it could sell to government-sponsored enterprises Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE ).

The changes, however, came too late. IndyMac said its ratio of nonperforming assets to total assets increased sixfold to 6.51 percent in the year ending March 31, as its mortgage industry market share fell to 1.7 percent from 4.08 percent.

A June 30 report by the nonprofit Center for Responsible Lending said IndyMac, like many rivals, got caught up in "the overheated atmosphere of the mortgage boom" by making too many unsuitable loans in the quest for short-term profit.

On June 27 and 28, IndyMac said it suffered a mini bank run as customers withdrew about $100 million of deposits.

The withdrawals came after Sen. Charles Schumer, a New York Democrat who chairs the Joint Economic Committee, wrote to banking regulators that IndyMac could fail. IndyMac said on June 30 that Schumer's concerns created the "wrong impression."

Reverse mortgages let people, mainly 62 years and up, borrow against equity in their homes. Advances are not taxable, and loans typically need not be repaid during homeowners' lifetimes.

IndyMac Letter to Shareholders

Charts in the Babson Style for Market Close 7 July 2008

As a reminder, the first of the Dow Industrials, Alcoa Aluminum, will be reporting quarterly earnings after the close tomorrow.

The Decline from the Market High in October 2007



The VIX as an Indicator of Significant Market Bottoms



Charts in the Babson Style