The relationship between CMI's Growth Index as an indicator of US GDP is interesting. If it continues its correlation the US GDP is in for a serious slump, if not a double dip. The Fed is likely to initiate a new round of quantitative easing in response, although they will try to jawbone their way around the monetization issues.
Growth Index Past 4 Years
The Consumer Metrics Institute's 91-day 'Trailing Quarter' Growth Index -vs- U.S. Department of Commerce's Quarterly GDP Growth Rates over past 4 years. The quarterly GDP growth rates are shown as 3-month plateaus in the graph. The Consumer Metrics Institute's Growth Index is plotted as a monthly average.
Consumer Metrics Institute's Contraction Watch
The comparison of the 91-Day Growth Indexes during the 'quarter' immediately following the commencement of a contraction. The quarterly GDP growth rates are shown as 3-month plateaus in the graph. The Consumer Metrics Institute's Growth Index is plotted as a monthly average. The contraction events of 2006, 2008 and 2010 are shown against the same scale of annualized contraction.
Charts by the Consumer Metrics Institute
16 July 2010
Consumer Metrics Institute: Growth Index Update Vs. US GDP
15 July 2010
The Problem of Unresolved Debt in the US Financial System
Michael David White has painted some dire pictures of the US housing market, but this one is shocking in its implications.
Chart fromA Blistering Ride Through Hell by Michael David White.
I enjoyed the synopsis of this chart that was done by Automatic Earth in Is It Time to Storm the Bastille Again:
"That is, what Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that's right: US homeowners lost more, by a factor of 26, than they "gained" through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333."
Nine out of ten Americans will notice that there is a significant gap that must be closed here. What makes it even more chilling is that the gap is continuing to widen as home prices continue to correct to the mean.
This debt must be resolved. There are two major ways to do it: repayment and default.
Repayment is probably a fantasy, if not beating a dead horse. The homeowners do not have the money with which to pay the loans given the current state of employment and wage stagnation, and the mortgages are for the most part on houses whose value is significantly under water compared to the debt, as in ' just mail in the keys.'
Straight up default, writing off the debt even through foreclosure, is also probably out of the question, because it would essentially vaporize the balance sheet of the US banking system which is also insolvent, to a greater degree than most understand, and if they understand it, would admit.
Automatic Earth references an essay which we also had linked here by Eric Sprott called Wither Green Shoots that points out the unfortunate fact that of the 986 bank holding companies in the US, 980 of them lost money last year. The lucky six were the TBTF banks on major government subsidy.
So, where is the government going to liquidate the debt? And what effect will it have on dollar assets when they do it?
The Japanese solution was to ignore their bad debt and insolvent kereitsu, because admitting it would cause significant loss of face, not to mention financial loss, to an elite that does not permit such things to happen. So instead they arranged for their single party LDP system to drag the debt like a ball and chain through what came to be known as 'the lost decade' while they tried to make it go away by export mercantilism and crony monetarism wherein funds were given to the same kereitsu in a remarkably ambitious (and expensively wasteful) series of public works boondoggles.
Do you think the US can follow this path? As if. Japan started from a base as a net exporter with a huge trade surplus and little debt. Scratch that idea.
Someone has to end up 'holding the bag.' And the consumer cannot rise to the occasion, the banks are all insolvent and a sinkhole until they change their business models. So what will be 'the last bubble?' Bernanke has managed to monetize about 1.5 trillion dollars so far. Only 5.5 trillion more to go, if housing prices can stabilize at current levels, and employment return to pre-crash levels quickly.
A few European readers have expressed their relief, and some noticeable pride, that their banking and political system resolved its own debt crisis so quickly and easily. To the extent that their banks are holding dollar denominated financial assets, they have merely stopped the table from shaking for the moment, as their sand castles await the next mega tsunami to come rolling across the Atlantic.
Consider this well, and you will understand what is happening in the economy, and why certain things occur over the next 24 months, despite the fog of wars, currency and otherwise. And bear in mind that the only real limit and effective constraint on the Fed's ability to monetize debt is the value and acceptability of the bond, and the dollar in payment of interest, by foreign debt holders, as domestic debt holders are under legal compulsion by the law of legal tender.
And it was all unnecessary, attributable to the dishonesty and greed of a remarkably small number of men in New York and Washington who managed to rig the markets and the political process, with the acquiescence and support of a public grown complacent and in far too many cases, soft headed and corrupt.These are the same people, along with their enablers, who are now preaching the virtues of austerity for the many, and free and easy markets for themselves. All gain, no pain. While the game is going it must still be played. Obama has been disappointing, but what comes next may well be worse, much worse.
Bernie Madoff was lying and cheating and taking money until the day he closed his doors.
Perhaps they are in denial, but surely they must hear the footsteps of history approaching. And their bravado is yet another bluff, and hides the rising stink of fear.
Gold Daily Chart, Overhead Resistance, the 50 DMA, and GLD Option Expiry MaxPain
Gold is struggling to overcome some fairly well defended overhead resistance. That much is obvious.
The bullion bears took gold down hard below the 50 Day Moving Average in early July when it was threating to break out through key resistance at 1260, and have been holding it down below that 50 DMA ever since. The price selling is obvious and determined.
Seasonal selling? It does not look anything like selling by motivated investors or actual holders of positions. It does not even look like liquidation under duress.
I think it is more like a trading gambit by the hedge funds, who planned for seasonality in their cross trades with miners and other pairs, and are determined to make it happen. The 50 DMA is a logical place for traders to make their 'goal line stand.'
This could be tied to the option expiration tomorrow in the GLD ETF. This has become a major trading instrument for cross trades in the metal, and is convenient because it has a tenuous relationship to the physical bullion market.
This is important because if it is just hedge funds they are more likely to get stuffed badly and have to scramble to unwind, as compared to a big bullion bank working with the FED, BIS or IMF determined to maintain control of the currency markets.
Gold Spot Daily Chart with 50 DMA
GLD July Options Expiration 'MaxPain' 
MaxPain looks like about where it 'should be' going into the expiry.
MaxPain Chart from OptionPain
