Current Trading Ranges of US Markets

This is a free edition of the Technical Indicator, a financial newsletter, and rather backs up what I've been saying on my High Yield Times blog. It looks at the short-term trading ranges of the major US stock markets.

The S&P 500 February high of 1,104 matches perfectly with the 50-day moving average at 1,105. We are now just 10 points away from this and a break-out will obviously be bullish. Note that the 200DMA has not been tested and is now at 1,025 and rising up to the recent market support at 1,044.

As I myself have said, the 50DMA and 200DMA are currently sandwiching the market and a break in either direction could signal the start of a new trend. All the media talk of a 'correction' is just to stop investors panicking about another crash, however, this may indeed be a mere correction, so long as that 200DMA holds firm.

The Technical indicator also looks at the Dow and Nasdaq charts, which have a similar shape to the S&P 500.

How to Compare Bond Fund Yields

The idea that investing in stock markets is more profitable than bonds has been thoroughly trashed in recent year. Many people are therefore taking a keen interest in bonds again. However, trying to compare different bond funds can be daunting as there are so many different ways to measure yield and income. However, there is one common measure, known as the SEC Yield. This assumes that all the bond holdings are held till maturity. The calculation is therefore unambiguous and the investor can compare like with like.

The SEC yield is better than historical data at estimating future income yield, said Ken Volpert, head of Vanguard Group's taxable bond group and co-manager of Vanguard Total Bond Market Fund. "It's a close approximation to the net yield-to-maturity of the fund, which is what we as bond investors think about," he said. [MarketWatch]

However, in trying to rake back quickly any recent losses, it may be tempting to head for the highest yielding funds. But be careful when making comparisons to also take a look at the fund's rating as high yielding bonds often come bundled with high risk.

Three Government Reports Point to Fiscal Doomsday

"When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action.

Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty.

But when they have full knowledge of an impending disaster … they have proof of its inevitability in ANY scenario … and they so declare in their official reports … but STILL don’t lift a finger to change course … then they have only one remaining claim:

INSANITY!"

So says Martin D. Weiss. Three separate reports were published mid 2009 - from the Fed, the Treasury Department and the Congressional Budget Office (CBO). They all paint a gloomy picture of the US heading for either disaster... or catastrophe.

The Long-Term Budget Outlook from the CBO paints a dire picture of exploding debt, reduced national saving, lower domestic investment, depressed income growth and economic growth, the potential for government insolvency leading to enforced higher interest rates and an inability to finace these. Phew!

OK, these are all fairly dry technical reports that most people are unlikely to want to read over breakfast, but the corporate media does nothing to inform the public of what is really going on. There are hundreds of intelligent, articulate and well-informed commentators outside the propaganda media.

Government Statistics: The Emperor's New Clothes

How can government statistics keep showing improvements while the real economy keeps getting worse? US GDP apparently rose 5.7% in the last quarter of 2009 after a 2.2% rise in the third quarter. Quite astonishing considering that the number of people employed also dropped by 1.2 million. What the general public now have to grasp is that GDP is a very bad measure of the health of the economy. Indeed, in general, every social statistic is only useful until someone figures out a way to manipulate it. In the case of GDP, this statistic does not distinguish between productive and unproductive spending - it lumps together commercial activity and government spending. The recent rises are therefore just the manifestations of government spending such as the bailouts and the stimulus package. It is rather like a person dipping into their savings to finance their lifestyle and claiming that as extra income rather than as an expense.

The corporate media also like to point at the recovery on Wall St as a sign that things are improving. Firstly, the Dow is full of multinationals so has little to do with the health of just the USA - all of the Dow companies are in various global indices, such as the FTSE Multinationals. Secondly, the looting of public money by Wall St banksters continues with the population seemingly impotent to react en masse. I'd wager that European countries will see much more social unrest than the USA. The manipulation of the stock markets has been amply recorded. The pump and dump strategies that have led to two major bubbles and hundreds of short term bouts of effervescence are ways for Wall St insiders to try to claw back money they have lost. Investors should just look at the numbers and either ignore the news totally or assume it is just part of the entertainment industry.

The solution, according to EIR is to call the bankers' bluff, close down the Fed and show the world that the emperor indeed has no clothes. As the article says, this is the scenario that haunts the banksters and this is why so much government spending is going into the military and police so that the oligarchs can protect themselves if the people ever summoned the guts to start another revolution. I suspect a miraculous solution will be presented to the public just as the sound of gunfire starts to fill the air. A new world order with a new world bank, a new world currency and a new warm cell.

The Emperor's New Statistics by EIR.

Financial Wisdom Becomes Investment Lies

Investment advice is full of mantras that are repeated over and over again and thereby becoming 'truth', at least in the eyes of investors. These last two decades, with two booms and busts, have blown to pieces so much market wisdom that it is shameless that advisors have not turned bright crimson.

Shares outperform bonds: wrong, unless you look at a 30-year timeline.

Government bonds are safer than corporate bonds: wrong, just look at municipal bonds and the current sovereign debt crisis unfold.

Value stocks are safer than growth stocks: wrong, they're not called growth stocks for nothing.

Diversification will protect you: laughable!

"Investing lies we grew up on" goes on to discuss the slippery subject of risk, what it means and how to manage it. All very nice, but for the average investor seems to add a further unknown unknown to the cacophany of market noise. In essence, the buy-and-hold strategy promoted by fund managers sucks big time - though not for those fund managers - and the passive investor has been passively taken to the cleaners. In my opinion, some form of active investing, however basic, can help the neophyte investor navigate these very turbulent seas.

Who is in Charge, Governments or Bankers?

A long and interesting article has been published by Bill Mitchell entitled "Who is in charge?" It comes in the wake of further sovereign debt problems, most imminently with the so-called PIIGS of Europe. His message is that the classical monetarist knee-jerk reaction, promoted by the corporate media, has become ingrained in people so that both the public and the experts can no longer see that it is indeed just a construct - and a false one at that. Mitchell is promoting his modern monetarist theory (MMT) in which he shows that the idea that government finances are somehow analogous to our personal finances is wholly wrong. If a government has genuine sovereignty, that is, control of its currency, then the idea that it can somehow be bankrupted by the bond markets is false.

Mitchell sees this as one of many economic 'intuitions' that the public has been led to believe. Like I said, it is a long post and I'm no economist, but I am a mathematician so those formulas don't scare me! However, the message seems clear: "Where might we start exposing faulty intuition which allows policy makers to devastate their populations via fiscal austerity packages at the height of a near-depression?"

Well, one thing is the propaganda that if governments just print more money then inflation will rise. What the public is not told is that this convenient see-saw only applies when an economy is near 100% capacity and full employment. But the conviction that printing money is bad has led governments to issue bonds instead, using the temporary income from their sale to finance their spending. But such loans have to be paid back, usually by issuing yet more debt and thereby getting governments into the cycle of indebtedness to bankers. Up to this point it does all sound very similar to our personal finances, should we choose to live a life of indebtedness. However, unlike citizens, a government can create more money. Ironically, this makes the government merely in debt to its central bank rather than to the public (or rather private) bond markets. Mitchell seems to me close here to blaming the economists and the bankers that run government central banks almost as much as those who work for private banks. The Federal Reserve looms large in this debate as having the powers of a central bank yet being a private operation - the Federal Reserve is about as 'Federal' as Federal Express.

By promoting the idea that governments have to issue bonds so that the bond markets can keep a wary eye on government spending is thus a piece of monetarist ideology and not a law of nature. "But the mainstream have such an ideological obsession against government command of resources to pursue a socio-economic program (because such programs are “wasteful”, “inefficient”, “roads to no-where”; “undermine incentives”; “enslave free people”, etc) that they realise they can pull the emotional strings and invoke this faulty intuition in the public."

And here we come to the title of the article: who is really in control here? And as important, what are governments really for? There are many reasons for people to keep an eye on the activities of their government, but for a sovereign nation to tell its people that it is effectively being controlled by private bankers with no interest in their well-being , well, nobody is going to do that. Instead they hide behind false monetarist policies.

This clash of capitalism and sovereignty was bound to happen. The aim of corporations is to grow, the aim of governments is to (supposedly) look after their people. Capitalism accumulates whereas governments redistribute. According to Mitchell, those governments that still control a sovereign currency are lying to their people when they present a false choice between hyperinflation and austerity. The problem that has surfaced in some European countries is that, having joined the Euro, they no longer control their own currency. But the other problem is that governments are being forced to support bankrupt private corporations. The money being created by the likes of the Fed seems to be largely going into filling unquantified losses of private operations. Thus money is being printed but is not going into the economy and hence not stoking up inflation. According to Mitchell's model, in this time of economic slowdown, pouring money into the economy would still not lead to the dreaded inflation but it would relieve the pain and misery of an oncoming depression.

7 US States That Are Sicker Than Europe's PIIGS

The unflattering acronym PIGS, or PIIGS, is starting to take hold as we enter a new sovereign debt crisis in Europe. Now,

PIGS = Portugal, Ireland, Greece and Spain;

PIIGS = Portugal, Iceland, Ireland, Greece and Spain (Iceland is not a member of the EU but is likely to join by 2012);

we could even end up with PIIIGS, which would include Italy.

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Investors Crawl Back Into The Market - Don't Do It!

"U.S. stock investors, reeling from four straight weekly losses, are entering the coming week's market torn between confidence in the global economic recovery and fear that foreign governments' actions will bring the rebound to a sudden halt." [MarketWatch]

As is often the case, the best part about MW is the comments section. This is a highly manipulated market and investors are best to ignore much of the news and concentrate on the numbers. Friday's pump in the last hour of the US markets was a return to one of the features of last year's market slump. Just look at this 6-month graph of the SP 500. The market has fallen through its 50-day moving average (now at 1,110) and we are likely to see a testing of the 200-day moving average (at 1,020) sometime this month as options expire. The above article seems another bit of pump-and-dump inspired propaganda. To blame other governments for getting sucked into a 'Made in the USA' monetary collapse seems churlish at best.

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20 Reasons Why The Global Debt Time Bomb Will Explode Soon

Paul Farrell seems like one of the few columnists allowed to be down-beat at MarketWatch. His latest doom-laden epistle lists 20 very good reasons why the global economy is going to go bang any time soon. He is not the only one, as he cites both Bloomberg and Forbes publishing similar articles.

The number one reason is the huge amount of debt being accumulated by governments, or rather, by their central bankers who then pass on the debt to the taxpayers. Historical research has shown that once debt reaches 90% of GDP then a country is in serious danger of defaulting and its economy shrinks - switch off the hot air and the balloon quickly shrivels and gravity takes over.

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Are You Really Unemployed?

Are you really unemployed? I mean, perhaps you don't have a job but that's no guarantee that you're included in the official government statistics. Today we've had another round of confusing job statistics from the USA. Yes, it's difficult to get an accurate snapshot of a huge economy every month, and yes, the figures do eventually get revised to something approximating the truth (although such revisions never make headline news), but even this official truth is designed to paint the rosiest possible picture.

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