Debt Saturation in the US Dollar Economy

The debt must be liquidated and income in the form of real wages must increase to bring this relationship back into balance.

This is going to be a dangerous path for the US monetary authority to tread, because a misstep will lead to an inflationary spiral that will surprise most economists as did the stagflation of the 1970's, which up until that point was considered to be almost impossible according to the prevailing theory of that day.

The financial engineers will keep at this until they hit they wall. If we were not in the car with them it might be a more interesting exercise to observe. The answer of course is to get out of the car as best you can.

Think of debt as a surrogate for the creation of money, in its various forms, for that is what it is. What this chart is showing is that money being creating is aenemic, and a trend that looks very much like the 'law of diminishing returns.'

This is the well spring of monetary inflation, that is, the power of money to create some substance to back it. The more dollars that are printed, the weaker their backing, without an economic vitality created by savings, investment, and labor.

This is why I would say that the US dollar is an obvious death spiral. I would not say that its demise is inevitable, merely likely.



Chart from Nathan's Economic Edge

Canaccord Sets PALM Target Price at *Zero*

Buy that dip, Chip. Traders who are buying now are hoping (betting) that Palm becomes a takeover candidate.

In the 1990s I was actively involved in M&A in the tech sector, primarily around Boston and Silicon Valley. Boston's 128 corridor was absolutely the worst place to try and make a decent acquisition, and few of them I witnessed worked out for the buyers.

In Silicon Valley things were a little more straightforward, but one had to watch their back with the omnivorous acquisitor, Cisco. The flippers were reasonably well known to the cognoscenti and a quick visit to the premises often was an easy 'tell.' The Sand Hill Road crowd and the other denizens of the Lion and Compass were always a treat to work with. Personally I preferred sushi in town followed by The Compass Rose at The Saint Francis, but I was an east coaster, and almost looking for light meal and a drink to take the edge off the jet lag.

I priced mature companies and start-ups, largely based on the potential of their technology and engineering talent, much more so than existing cash flows which were often negative and a key factor in playing the game.

Personally I think zero is too low a price for Palm. Maybe two dollars, with their float of 168 million shares. Maybe even four dollars if it catches a bid soon from more than one interested buyer who wishes to jump start into their space. One would have to look at their portfolio of technology and patents, and franchise players in the engineering group, and the value of your own currency, your stock, and its prospects.

Cash deals generally are a strong indicator of pure intent, and are therefore rare. One positive is that the tech market in the US is so bad that retention bonuses ought not to be such an issue, except for a handful of key engineering talent.

The problem with companies like this is that new money, particularly the venture capitalists and white knights, like to come in and obliterate the existing common shareholders. This is the 'last man standing' phenomenon.

If someone makes a play for Palm, it could turn into a bit of a bidding match. But for now the vultures will prefer to circle and hover. And it would not shock me if a certain broker wasn't hammering the price with their most recent target, for any variety of purposes and headlines.

TickerSpy
Canaccord Leaves Palm Hanging With $0 Target
by Owen Vater
March 19th

Investors who went bargain hunting with Palm (PALM) after its brutal late-February guidance are getting hammered.

Palm shares are off by -18% today after reporting an adjusted fiscal third-quarter loss of -61 cents per share, missing analyst consensus by -19 cents. The company beat on revenue after giving analysts a warning last month. Chairman and CEO Jon Rubinstein said, “the potential for

Palm remains strong,” but Canaccord Adams isn’t buying it, nailing the stock with a $0 price target, down from $4, and reiterating its Sell rating. The analyst noted that Palm has about 12 months of cash on hand with an accelerating burn rate, and the company could start to lose suppliers as its solvency comes into question.

The Palm selloff is dragging the Personal Computer and Smartphone Stocks Index by -3.7%. The Index is now trailing the S&P 500 by -13.7% over the last month, despite every other component gaining more than 2% for the period.

Quad Witching Expiration and a Pullback from the Back-Kiss on the Long Term Trend

The front month on the SP futures has now switched from March to June as a part of the Quad Witching Expiration. (Technically it switched last week, but for charting purposes I made the switch last night.) The June Futures have essentially the same formations as did March, its just that the earlier months have few trades to mark them.

This is the first serious test for US equities since mid-February, as it has been on a spectacular rally streak, no doubt fueled by excess liquidity applied to a selling exhaustion in the funds. Curiously not among corporate insiders who were selling at a rate of 57 to 1 in this latest rally, no doubt for diversification purposes

The extent of this correction will be determined on the amount of actual selling that starts to occur. For now what we are seeing is more of a trading correction in response to an outsized rise in price, or as the Street likes to say, the market was getting ahead of itself.

Key levels to watch are 1135 and 1120. If we break those I would look for a consolidation around the 1080-1100 level.

This news is weighing on US stocks today, but they were overripe for a correction at least.

Bloomberg
U.S. Stocks Erase Advance as India Unexpectedly Raises Rates
By Rita Nazareth

March 19 (Bloomberg) -- U.S. stocks erased their advance after India’s central bank unexpectedly raised interest rates for the first time since July 2008 after inflation accelerated to a 16-month high.

The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,165.46 at 9:46 a.m. in New York. It had advanced 0.3 percent before India’s decision.

“Keep an eye on the punch bowl,” Larry Kantor, head of research at Barclays Plc, told Bloomberg Radio. “The major risk going forward for markets is not budget deficits, it’s the fact that policy makers have put so much into the economy to get things going that they’re going to be withdrawing that stimulus. That’s actually the big risk.”

“Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That's how it goes
Everybody knows”

Leonard Cohen, “Everybody Knows”

Rumours of an Unexpected Fed Discount Rate Hike Dampen Stocks

Bloomberg reports that rumours of a surprise Fed Discount Rate hike circulated trading desks earlier today, helping to depress stock prices in the land of lotus eaters, almost darkening the colour of the biggest winning streak since August 2009.

The rumour reportedly originated with traders in Chicago. It was so ludicrous that one has to believe that it was indeed started there. You expected something original on the day after St. Patrick's Day? The Fed just raised the discount rate, symbolically I should add, at a regularly scheduled meeting.

Oh that's right, it is options expiration and a quad-witch nonetheless. Is the Chicago Board Option Exchange trying to whistle up some action? Are traders struggling to find an easy trade with the forces of the High Frequency Terminators so ably thinning the herds of small specs?

Why is Wall Street like the Planet of the Apes? Because the gorillas have all the weapons, nets, and horses, and ride around all day shooting the human beings.

There are those of us who remember the disrepute and revulsion in which the US markets were held by the public back in the dark days of the 1970's in the aftermath of the 72-74 bear market. The pit crawlers spent the day throwing paper airplanes at one another, the Dow languished sub-1000, and the brokers talked about the 'return of the small investor to the markets.'

It took the bull market of the 1980's and Reagan's voodoo economics and laws about IRAs and 401K's to bring the public back in for a wash and rinse by the Street.

Just another day in the Pax Dollarous.