<![CDATA[The Wealth Code - How the Rich Stay Rich in Good Times and Bad     2010 Finalist: Independent Book Awards - Personal Finance - Economic Blog!]]>Sun, 20 May 2012 05:10:49 -0800Weebly<![CDATA[A world flying blind: Blame it on leaders lacking vision for gloomy outlook ]]>Thu, 09 Feb 2012 06:22:44 -0800http://thewealthcode.com/1/post/2012/02/a-world-flying-blind-blame-it-on-leaders-lacking-vision-for-gloomy-outlook.htmlBy Andy Xie

BEIJING ( Caixin Online ) — Recently, stock markets around the world have performed remarkably well. This may even continue for a few months. The U.S. Federal Reserve’s promise to hold interest rates near zero until 2014 and signal of a third round of quantitative soon, combined with an improving U.S. labor market, have emboldened risk-takers. Financial markets are seeing more risk-on trade.

However, the fundamentals for the global economy remain dire. The West is mired in debt troubles, declining competitiveness and unsustainable social overheads. The East is struggling to build up robust consumer demand to balance its manufacturing prowess. So far, world leaders have used liquidity and fiscal measures to prop up demand without addressing structural problems. In essence, they are continuing to treat the global economy as a car with a dead battery rather than a bad engine.

So, 2012 will be an extremely difficult year. The global economy is likely to slip into recession, as Europe and Japan are mired in deep recession and emerging economies stall. Black swan events, such as a sovereign default in Europe, an emerging market crash, a surge in oil prices due to conflict in the Middle East, and a sell-off in Japan or the U.S.’s sovereign debt market, will haunt the fragile global economy.

At the annual World Economic Forum in Davos we again saw familiar faces from the West, but some different characters from emerging economies. Some of the last year’s bunch went to jail amidst the revolutions engulfing the Middle East. They were discussing how to fix capitalism. Apparently, the same people who blew up the world and got their governments to bail them out are now again making millions and talking about how to fix things. Not many people see the irony in this. The tragedy of the global financial crisis is that it didn’t sweep away the old order.

During an economic boom people who are good at ingratiating themselves with the establishment tend to rise to the top. After a boom of two decades, leaders are already two to three generations into such a process. These people pretty much make a living by just looking the part. This is why the global crisis will last for years to come, until a new generation of leaders rises through a competitive process.

America’s problem

The Fed’s announcement sparked a 10% rally in stock markets around the world. By promising to keep money cheap and holding down bond yields through asset purchases, despite the inflationary impact of cheap money, it is pushing investors into risk assets. I believe that it is targeting the stock market.

Playing with expectations works temporarily. The risk-on trade is in a mini bubble, as today’s buyers want to be ahead of the slower ones. The buying trend is sustainable only if the global economy strengthens, which is unlikely. The stocks aren’t cheap. Desirable consumer stocks are selling for twenty times earnings. Banks are cheap for a reason. Internet stocks suggest another bubble in the making. The Fed is trying to inflate an expensive asset. The rally, hence, is quite fragile. As soon as a shock like Greece defaulting or bad economic news unfolds, the market will quickly head south.

There is a saying that one shouldn’t fight the Fed. Because the Federal Reserve keeps money cheap, other assets become more attractive. This logic works as long as the Fed knows what it is doing. But, can it predict three years out? Newly released information tells us that it was laughing at the troubles in the housing market in 2006, right before the crash. This shows that the Federal Reserve couldn’t see events a few months ahead, let alone years.

I believe it will have to raise interest rates way before 2014, as inflation becomes a problem. The Fed and most analysts believe that a weak economy wouldn’t suffer an inflation problem. However, I think that labor markets in the emerging economy and energy shortages will turn monetary excess into inflation around the world. One can shield from these forces by running a strong currency like Japan. But, this kills the economy through weakening exports and the balance of payment. The US dollar isn’t strong like the yen.

Recent statistics give hope that the labor market in the United States is recovering. In the past six months, the U.S. economy has added 2.2 million jobs. However, the improvement may not be sustainable or sufficient. The country’s under and unemployed is still close to 20% of the labor force. The improvement hasn’t come quick enough to overcome the crisis in the labor market. Further, the improvement may not be sustainable because the recent improvement is due to a declining savings rate and the debt overhang remains unaddressed.

First of all, the U.S.’s debt overhang largely remains. It is well known that the U.S. government has run up a lot of debt, doubling that not held by the social security trust in four years. The 2008 financial crisis with its origin in over-leveraged U.S. households hasn’t made them cut debt. Household savings surged to nearly $1 trillion per year after the crisis, but has declined by more than half since to $429 billion. The savings rate is too low to bring down debt to sustainable level, probably half of the current level, any time soon.

Also, the financial sector has a current debt level of $13.7 trillion, about the same as four years ago. I suspect that financial institutions couldn’t get rid of their dubious assets and are waiting for a rising tide to bail them out. Hence, the financial sector cannot help the economy, but is instead waiting for help from the economy.

Second, household savings don’t have much room to fall before hitting zero. This means the U.S. economy cannot rely on this force for long. Before the 2008 crisis, household savings dipped below zero because they could tap into capital gains in first the stock market and then the property market. Neither source is possible now. In short, U.S. consumption cannot lead the economy now.

Third, the virtuous cycle of employment, income, consumption and corporate investment doesn’t work well in today’s global economy. To put it bluntly, the U.S. labor force isn’t that competitive in today’s world. It is not just a wage issue. A big chunk of its labor force is less productive than its counterparts in emerging economies. The market clearing wage for them is insufficient for supporting basic living needs. Such workers are better off relying on welfare. This is not a new issue. It was covered up by the housing bubble that exaggerated the bargaining power for the domestic labor force. I suspect that the U.S. unemployment will remain much higher than before the crisis for many years.

Fourth, the U.S.’s exports will suffer when Europe and Japan are in recession and emerging economies are slowing sharply. One benefit from a loose monetary policy is a weak currency that boosts exports. This trick isn’t likely to work in 2012.

But U.S. companies have plenty of cash. If they invest the money, the country’s economy could boom for a year or two. But, anticipating its unsustainability, they won’t do this. There isn’t a second channel for the U.S. economy to boom.

A chronic crisis

Euro zone leaders have agreed to adopt tougher rules to limit the fiscal profligacy of its members. This sounds good. But, the old treaties for establishing euro were already tough enough. However, the rules were not followed. It is unclear whether new rules that strengthen a monitoring and sanctioning capability would make a difference. Anyway, the rules are not relevant to the debt mess that the region is in now. If they work, they might prevent a future crisis. However, the current crisis requires urgent measures today.

Europe’s debt problem began with Greece two years ago. It has a much bigger one now. Its austerity measures have caused the economy to plunge, making the debt overhang look bigger. Greece, even if it is sincere in tackling its problems, may not find a viable path forward. Its equilibrium living standard, supportable by its productivity, may be a fraction of what it experienced before the crisis. Greece isn’t more productive than an average developing country. So its downward spiral won’t stop for the foreseeable future.

Euro zone leaders are forcing Greece to cut more for the current bailout round to avoid default in March. The settlement will cut its debt by 50% in face value and 70% in net present value due to lower interest rates. Still, Greece’s debt will be above 100% of GDP. As its economy continues to shrink to a sustainable living standard, the debt load will soon become too big again. It is in Greece’s best interests to default and stay in the euro. Kicking Greece out isn’t a credible threat. No one can tell Greece what currency to use.

If Greece defaults, it will hit the balance sheets of many big banks in Europe. The current restructuring plan is for a 50% haircut in face value and 70% in net present value. When it comes to capital accounting, a 50% loss needs to be booked now. If Greece defaults, the accounting loss will be doubled, which will require a greater capital infusion for the region’s banking system. Considering how chaotic the region has been in handling the crisis, the shock to the banking system will likely cause chaos again.

The region probably could handle the shock. Its low growth potential and the massive deleveraging needed by its banking system will hold down the region’s economy for years to come. The weak growth will, of course, hold down fiscal revenues for its members, which will expose their debt problems repeatedly.

The only way to stabilize the situation is for the European Central Bank (ECB) to engage in massive quantitative easing to stabilize the debt market. Germany is opposed to this. The ECB lent half a trillion euro ($665 billion) to the zone’s banks at 1% for three years. It was backdoor quantitative easing. It works if the banks are willing to use the money to buy bonds. Considering that the banks are overleveraged already, the strategy won’t work over time. The euro zone crisis won’t be solved until Germany accepts quantitative easing.

What is Japan waiting for?

Meanwhile, Japanese exporters are losing billions of dollars. Japan’s economy is probably in recession again due to poor exports. But the yen is reaching historic highs. The governor of the Bank of Japan recently said that the fundamentals for the yen were strong.

Japan has the highest government indebtedness, over 200% of GDP, in the world. It also has a shrinking nominal GDP. The debt bomb isn’t blowing up because the interest rate is so low. That is because the Japanese hold all the debt and their strong currency compensates for the low interest rate. The latter, of course, keeps the economy depressed. This is a vicious cycle, though spiraling down slowly. The end-game is that the strong yen leads to a trade deficit, which makes domestic financing insufficient for supporting rollover of the existing debt plus the new debt from the deficit.

Japanese savings display an unusual bias. Despite a near zero interest rate and scary debt levels, Japanese savers keep money at home. Financial market believes Japanese savers are just loyal. It is a cultural phenomenon. Economics can’t explain it. I think that the strong currency is equally important to keeping money at home. The yen has nearly doubled against the U.S. dollar since Japan’s bubble burst in 1989. Staying home has worked so far.

But, when the yen turns around due to Japan’s poor corporate profitability and weakening exports, the home bias may not be so strong. Japan is setting up for a currency crisis. This is another dark cloud hanging over the global economy. If the yen crashes, it would impact the whole economy, especially the ones that live on eating away at Japan’s market share, like Germany and South Korea.

China may take a long pause

China has contributed greatly to global economic growth since 2008. Much of this is due to the bubble at home. As the bubble bursts, the process reverses. China’s weak imports point in that direction. Commodity exporters like Australia and Brazil will be significantly affected.

Unlike Western economies, China can restructure its economy to create another growth cycle. The wage level is still low by international standards. Hence, making the supply side more efficient can increase China’s market share in the world. The household debt level is low. There is no problem turning labor income into consumption.

However, China is not showing the resolve to restructure its economy. The resolve must begin with a meaningful tax cut that redistributes one trillion yuan ($158.7 billion) to the household sector. The Chinese government has consistently shown preference for increasing its share in the economy. This is a political phenomenon. It requires political reforms to change. These don’t look forthcoming. Hence, China’s economy may experience slow growth for years to come.

Emerging economies have done well in the past decade, mainly due to rising commodity prices. And that is due to a tenfold increase in China’s fixed-asset investment (FAI) in a decade. The odds are that China’s FAI will be stagnant or even decline in some years in the next decade.

I’m bullish on energy and agriculture because neither is recyclable. As China shifts to consumption, the demand for both will continue to rise. But, for industrial metals, the story could be very negative. The price of iron ore has risen tenfold in the past decade. It is likely to spiral down in the next decade. Countries like Brazil will likely slow down.

The risk appetite is now rising. We have seen several such episodes in the past three years. None lasted. The driving force for risk-on trade is the Fed’s threat to depreciate money through its policy. It’s the fear of paper money rather than optimism for the future that drives such rallies in risk assets.

The risk-on trade is pushing hot money into emerging markets and at least keeping it there. So some vulnerable currencies, like the Indian rupee and Brazilian real, have bounced. However, economic fundamentals will come back to haunt such trades. Declining commodity prices will worsen the balance of payment for countries like Brazil and India. When the trade data hits market confidence, the rally will reverse.

The world is a dangerous place because it is being led by the wrong people like the Davos crowd. Monetary and fiscal measures merely prolong the stagnation and stoke inflation down the road. This muddling-through equilibrium will blow up in our faces when inflation causes social turmoil.

]]><![CDATA[How Gold, Silver And Platinum Will Respond To ECB's Money Printing!]]>Thu, 29 Dec 2011 07:27:56 -0800http://thewealthcode.com/1/post/2011/12/how-gold-silver-and-platinum-will-respond-to-ecbs-money-printing.htmlby: Avery Goodman
December 22, 2011

Today, about 490 billion euros ($637 billion) worth of ultra-low interest "loans" will be delivered to European banks.
This cash has been provided courtesy of the ECB, which denies that it will ever engage in printing money, like the
Americans, Britons and Japanese have now done for many years. The "loans" are for a 3-year period. In return for the cash, the ECB accepts various forms of "collateral," which includes the debt of insolvent southern European sovereigns. This is the largest uptake of cash in the history of the European Union, including the cash given out by the ECB after the collapse of Lehman Brothers.
This is merely the first of a series of so-called long-term refinancing operations (LTRO) the ECB is going to undertake.
These are unlimited tenders of cash. The banks call the shots. Any amount they ask for will be given to them, subject only to the availability of collateral. The next tender is scheduled for February 28, 2012, and many are predicting that it will generate an equal or greater demand for cash among euro-banks. The stated intent is to provide liquidity to banks at a time of great stress for the eurozone. The unstated expectation is that part of the cash will be used to shore up balance sheets, and another to replace or buy more bonds from troubled sovereigns of the eurozone, including, particularly, Italy and Spain.

The maturity time for the "loans" is long enough to cover banks until the maturity of many of the sovereign bonds
banks might purchase. A bank can now borrow from the ECB at 1% per year for 3 years, invest in a 3-year Italian
bond paying 6% plus, and pocket 5% each year in pure profit. That is an enticing proposition. But, the end game is
much more lucrative than that. Today's cash delivery is only the first of many 3-year LTRO events that will happen every two months this year. The next one is scheduled for February 28, 2012. The income achieved from buying sovereign debt can, therefore, be leveraged each time a new LTRO takes place, until it reaches an astronomical level of profit. Remember, sovereign debt collateral, at the ECB, is in so-called "category I," and is the subject of a tiny 1.5% haircut.

The tiny haircut means that a eurozone bank can post $1 billion in Italian bonds with the ECB on December 21, 2011. On December 22, it can take back $985 million and use that cash to buy more Italian bonds. On February 28, 2012, it will be able to take the newly purchased bonds back to the ECB, take out another 3-year loan, and walk away with $970 million in euros the very next day. It can use that money to buy more Italian bond. Every two months, it will be able to do this again and again, until such time as the ECB decides to stop the LTRO offerings. It is unlikely that the ECB will stop doing LTROs until sovereigns have sold all the bonds they would have liked to sell directly to the ECB if that institution were not prohibited from buying them directly.
The LTROs, therefore, are a back-door method of quantitative easing. If Italian bonds continue to pay about 6%, after 1 year of participating in bimonthly LTROs, a euro bank can earn about 30% per year in spread interest. The longer the LTROs continue, the bigger bank earnings will be. Even if LTRO offers end after one year, in three years, an actively participating bank, taking a modest risk, will achieve a 90% return on investment, with the ECB taking all the risk. If the eurozone collapses, at the end of the 3-year period, and bank would likely collapse anyway. But, if it participates to the fullest extent possible, in the back door money printing, its executives will have collected fat bonuschecks from big profits made on sovereign debt. That cash will, by that time, be safely invested in gold, silver, platinum and palladium.
Yet, in spite of this reality, many market pundits still claim that European banks won't buy the debt of troubled European sovereigns. This view is naive. While While it is possible that this first LTRO may be used to bolster balance sheets, you can be sure that clever executives at the banks will quickly catch on, and , by February 28, plenty of banks will be taking hundreds of billions of euros for the sole purpose of buying sovereign bonds and earning the spread. But, being "clever" is not really necessary. Central bankers communicate heavily with commercial bankers before making decisions to flood financial markets with hundreds of billions, and, probably, trillions of euros or dollars.

If commercial bankers had not already agreed to buy sovereign bonds, this program would not exist. There is no doubt that before providing unlimited LTRO money, q quid pro quo has been reached. Even in the extremely unlikely event that banks do not buy much European sovereign debt, the money market in Europe is going to be very liquid over the next 3 years. The total amount of cash injected by the ECB may total several trillion dollars. That means the eurozone is not going to fall apart for a while. It will remain until at least the end of the 3 years, even though individual nations, like Greece, may end up dropping out or nations like Germany may introduce national currencies toward the end of that period. But, at the very least, the free availability of cash over the next 3 years will make commercial and personal loans, including loans to buy automobiles and capital equipment, very easy to come by. Production of cars, trucks, airplanes, etc. are not going to nosedive, but are likely to increase.

As usual, therefore, the Wall Street groupthink is wrong. Europe is going to see significantly better nominal growth levels that the assumptions gave it credit for. It is also going to see a lot of monetary inflation, at least over the next 3 years. Since withdrawal of trillions of dollars in liquidity, 3 years from now, would implode the eurozone, you can be sure that some EMU treaty modifications are going to be made, by that time, to make this soon-to-be bulging money supply permanent. The money supply in Europe is about to exponentially increase. This is money printing on a scale that exceeds that of even the master money printers of America and Britain. The end result, at the least in the medium term, is going to lower yields of European sovereign debt, and increased bond prices.

Gold prices will eventually respond directly to monetary liquidity increases, no matter how much central bank price suppression intervention there may be right now. With huge euro injections, alongside significant quantitative easing in the UK and the USA, gold will rise stronger than ever, at least over the next three years. Silver, which responds both to monetary liquidity and to commercial demand, is going to rise even faster, especially as commercial demand increases in Europe, and those that "feed" Europe, like China. Platinum responds to monetary liquidity, commercial demand, and, particularly, auto and truck sales. Of all the precious metals, platinum has been the most deeply abused by Wall Street groupthink, which assumed the complete death of European auto sales. It may, therefore, rise most quickly, once reality catches up, especially considering the 27% drop in South African production in October.
]]><![CDATA[SP500 versus Gold chart]]>Mon, 31 Oct 2011 06:39:00 -0800http://thewealthcode.com/1/post/2011/10/sp500-versus-gold-chart.html
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To understand the basics. The peak of the markets purchasing power was in 2000. When gold was $275 oz and the SP500 was at 1587.  You'll notice not only have we been in a consistent free fall in purchasing power, but we've actually fallen below the March 2009 lows of the SP500 when its NOMINAL value was 666. The rally we've experienced in the Nominal value from March 2009 to April 2010, the interim high which I discussed on Radio/TV/Print in April 2010 as well as my book which was written in early 2009, has held true and now we are below lows and falling faster and faster.

To understand the difference between Nominal and inflation-adjusted, Nominal is just the pure number. For instance the SP500 was 1580 in October 2007 and today it is around 1300. In nominal terms it as fallen about 20%. Looking at the chart you'll see that in inflation-adjusted terms we've already fallen about 65% in purchasing power since then and there is no end in sight.

Not understanding that you need to keep up with inflation and not nominal terms is vital for long term financial stability in ones retirement. $5000 per month today might seem like a great retirement pension, but if it does not grow to $10,000 per month over the next 10 years, you'll have to adjust your standard of living down.

Welcome to the new reality of living with a  Federal Reserve which feels massive inflation in an environment of stagnant wages is a good solution. Actually they really don't care, their only concern is dealing with the massive debts of governments around the world and the best way to deal with it is to inflate the debt away. If I owe $15Trillion like the US and can pay it back with a role of toilet paper
]]><![CDATA[Eurozone Deal. Kicking the can a Day? week? few months? but no long term solution.]]>Mon, 31 Oct 2011 06:13:22 -0800http://thewealthcode.com/1/post/2011/10/eurozone-deal-kicking-the-can-a-day-week-few-months-but-no-long-term-solution.htmlA few quick points of the Euro-zone deal to put into perspective how futile the deal is.
First: Only private sector banks are required to share the 50% hair-cut. No public sector will have to accept the same terms and thus the total haircut is only 20% of the total Greek debt outstanding.

Second: Private banks will voluntarily have to surrender their bonds and get the 50% reduction. By making this voluntary, this does not cause a credit default, and thus the world stock markets have factored in this favorable outcome. 

The big problem is all the private banks take out Credit Default Swaps (CDS) on their debt, which is basically insurance in case Greece defaults, and the payments to them for a true default will be higher than the 50% haircut. So they will NOT tender their bonds to get the 50% payment and will wait for the true default.

Again, NOTHING HAS BEEN SOLVED. Only the can keeps getting bigger and bigger and our boot used to kick it is getting tired.

Until the next version of Quantitative Easing is announced, the markets will be on a roller coaster to hell. Sadely this roller coaster always ends up at the same place. A reset to lows and a re-birth. I believe that level will be around 3500 on the DOW/Gold adjusted chart. Currently we are at 7000, which implies a 50% further reduction from present values. That would be DOW 6000.

If you haven't read about the DOW/Gold adjusted chart, google it. This puts into perspective just how much we have lost in the last 10 years to inflation and loss of purchasing power....

As of Friday, 10-2
]]><![CDATA[Retest of August Lows necessary to confirm bottom. Be cautious over next three weeks!]]>Fri, 02 Sep 2011 03:38:45 -0800http://thewealthcode.com/1/post/2011/09/retest-of-august-lows-necessary-to-confirm-bottom-be-cautious-over-next-three-weeks.htmlTake Profits NowBy Jeff Clark 
Thursday, September 1, 2011 

If you took my advice three weeks ago to "buy stocks now," you've had a good month. Stocks are up about 8% since then, and every market sector participated in the rally. Now it's time to cash out... at least for a little while. We still have the positive influence of the presidential cycle. But the S&P 500 closed yesterday below its 20-month exponential moving average, which indicates a bear market. So we have conflicting indicators. When in doubt, it's a good idea to take profits.  Even if you think stock prices will be higher by the end of the year, there's good reason to be cautious for the next couple weeks. Let me explain...    For all intents and purposes, the stock market crashed in August. The S&P 500 collapsed 18% in just five trading days. Even though stocks have bounced back off the lows, the market is still in need of a retest to complete the typical "crash" pattern. Stock market crashes unfold in three distinct stages: panic, relief, and a tortuous retest of the lows. Take the action in 1987 as an example... 
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So far the "crash" pattern is playing out according to plan. All that remains is the retest. If it unfolds like 1987 did, the next few weeks could be rough. After all, September tends to lean bearish. It's been a fun three weeks, but go ahead and take some profits off the table here. We should have a shot at buying stocks again at lower prices a few weeks from now.
]]><![CDATA[When bad news is good news.... only in a bizarro world!]]>Tue, 23 Aug 2011 05:09:13 -0800http://thewealthcode.com/1/post/2011/08/when-bad-news-is-good-news-only-in-a-bizarro-world.htmlThis morning the Dow was up a modestly until economic data came in. Housing numbers slumped for the third month in a row and manufacturing index dropped expectantly. Both indicating a continued real erosion of our economy as we slide further into this depression. How does the stock market react to the bad news. A giant jump up of course. Taking on over 100 points to the upside. 


In this bizarro world, bad news is good news. Why?  Because on Friday Ben Bernanke is talking in Jackson Hole and the worse the news is, the better the odds he will come to the rescue and print more money. A sad reality we live in. Fundamentals mean nothing.


This country started as a manufacturing based economy, went to a service based economy, and has fallen to nothing more than a printing press economy. We live and die by the printing press of the federal reserve. ]]><![CDATA[SP fires President after downgrade of US Debt and Hires Citibank COO. A prime example of gagging the truth.]]>Tue, 23 Aug 2011 04:19:42 -0800http://thewealthcode.com/1/post/2011/08/sp-fires-president-after-downgrade-of-us-debt-and-hires-citibank-coo-a-prime-example-of-gagging-the-truth.htmlS&P Board Fires CEO For Telling The Truth, To Be Replaced With COO Of Citibank

Submitted by Tyler Durden on 08/22/2011 21:20 -0400

Following years of pandering to client demands, and assigning trillions of dollars in fixed income securities with whatever rating money bought (among other things, a factor to the credit bubble and its subsequent implosion) S&P finally tried to do the right thing and tell the truth. However in this case it picked if not the worst, then certainly the most hypocriticial credit in the world to expose - the US itself. Sure enough two weeks after the downgrade, someone made the phone call and the CEO Deven Sharma is no more. As for the kick square in the gonads: Sherma will be replaced with the COO of...you know it... the bank which demanded tens of billions in secret Fed bailout loans itself, Citibank, and whose existence is inextricably tied to America not seeing any more downgrades ever again.

As the FT reports, "The McGraw-Hill board made the decision to replace Mr Sharma at a meeting on Monday, where it also discussed an ongoing strategic review." Alas, this is nothing but a case study of modern corporate reality in America: if you are not with the status quo, you are against it, and you are promptly booted out of it: anyone who does not share the visions of one glorious future built on ponzi schemes, houses of cards, and games of three card monte, will be promptly suicided, either physically or professionally.

We expect that this flagrant example of how the powers that be will deal with any dissenters will instill the fear of god in anyone at either Moodys (or the French sycphants from Fitch) and nobody will ever again menton the words "US" and "downgrade" in the same sentence.

From the FT:

Deven Sharma is stepping down as president of Standard & Poor’s only weeks after the rating agency issued an unprecedented downgrade of the credit of the US, according to people familiar with the matter.

 Mr Sharma will remain as an adviser to S&P’s owner, McGraw-Hill, for four months and leave the company at the end of the year, they said.

Mr Sharma will be replaced as S&P president by Douglas Peterson, chief operating officer of Citibank, the banking unit of Citigroup, they said.

As for the official story:

People close to the company said the search for Mr Sharma’s replacement has been going on for six months, and was triggered by the split of its data, pricing and analytics business from its ratings business. The creation of that new group, McGraw-Hill Financial, reduced the scope of Mr Sharma’s oversight, they said.

So let us get this straight: in America when you dare to tell the truth, your career is over, while if you are a corrupt, lying, incompetent tax evader you not only get to be Treasury Secretary but likely will be on for life as long as you do the one duty you are entrusted with: pander to the interests of the Too Big To Fail financial institutions

We should be speechless but at this point we are well beyond the point of even caring.

The only question left in this entire farce is how long before S&P issues the following upgrade of the US:

"Great service, AAA+++ rating, immediate payment, would do business again!!!"
]]><![CDATA[Following Japanese Index point for point suggest 50% decline coming for SP500...]]>Wed, 17 Aug 2011 03:18:52 -0800http://thewealthcode.com/1/post/2011/08/following-japanese-index-point-for-point-suggest-50-decline-coming-for-sp500.htmlFrom Bloomberg UK:

This year’s tumble in U.S. stocks mirrors the Japanese selloff that began 11 years ago, an indication to hedge fund TTN AG that American equities may have further to fall.

The CHART OF THE DAY shows the pattern of gains and losses in the MSCI USA Index has followed the dollar-denominated MSCI Japan Index with an 11-year lag since 1990. While the U.S. gauge has retreated about 15 percent from this year’s high in April, the Japanese measure sank more than 50 percent during the slide that started in April 2000, data compiled by Bloomberg show.

“We may see a Japan 2.0 scenario,” Trung-Tin Nguyen, founder of Zurich-based TTN, said in an interview. “If U.S. markets continue to fall we might drift into recession, which led to deflation in Japan.”

Like Japan a decade ago, the U.S. is grappling with an expanding debt burden and slower economic growth. Standard & Poor’s cut America’s top AAA credit rating for the first time last week, while the Federal Reserve pledged on Aug. 9 to keep interest rates at a record low through at least mid-2013 to counter a weaker-than-anticipated economic recovery.

There is a bounce in here, but my best guess is that there is more downside work to come.

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]]><![CDATA[Dead Cat Bounce. Don\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'t be fooled by the quick rebound in the markets. The next leg down is coming!]]>Tue, 16 Aug 2011 04:00:10 -0800http://thewealthcode.com/1/post/2011/08/dead-cat-bounce-dont-be-fooled-by-the-quick-rebound-in-the-markets-the-next-leg-down-is-coming.htmlS&P 500 vs High Yield Credit Spreads

FRIDAY, AUGUST 12, 2011 AT 10:04AM

Whenever the equity market is having big moves to the upside or downside, it often helps to compare the move to trends in the credit markets, and more specifically high yield credit spreads.  When the equity market is rising, we should see spreads on high yield bonds contract, and vice versa when the equity market is declining.

With this in mind, the recent widening of spreads in the high yield market is a potential red flag.  According to Merrill Lynch indices, high yield spreads widened out to 739 bps yesterday and took out the highs from last Summer (727 bps).  At the same time, the S&P 500 is still 13% above its lows from last Summer.




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]]><![CDATA[Federal Reserve printing money faster than ever. Don't believe Quantitative Easing has stopped!]]>Thu, 11 Aug 2011 10:07:35 -0800http://thewealthcode.com/1/post/2011/08/federal-reserve-printing-money-faster-than-ever-dont-believe-quantitative-easing-has-stopped.htmlThis mornings 30 year treasury auction was a train wreak. Weakest purchases by foreign buyers EVER!


There are 3 groups that buy treasury's at the auctions. The direct Bidders, the indirect bidders and finally the FED.


This mornings statistics tell the whole story:


Direct Bidders (US Banks, and US parties) : 19.5%


Indirect Bidders (Foreign Central Banks, Foreign banks, ....) : 11.5%


Leaving a whopping 69% bought by the buyer of last resort. The Federal Reserve.


Can you say Weirmer Republic here we come.......

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