Bear Market

Deal Or No Deal

July 31, 2011 by · Leave a Comment 

The Daily Reckoning

–If you missed Friday’s YouTube update from Slipstream Trader Murray Dawes, do yourself a favour and go have a quick look now. Murray shows what might happen on the ASX/200 and the S&P 500 if a debt deal in the US is reached. You can look for the obvious rally. But he’ll show you where the key technical levels are for the coming days. Here’s a hint: 4450 and 1295.

–Murray’s analysis assumes some sort of debt deal will get done today, which is Sunday in the US. He also assumes, quite rightly, that in the long run it won’t matter. Not the long run 50 years from now. But the long run in which the US defaults on its debts anyway. Even if that does not happen in the next 24 hours, you can bet the farm that the US AAA credit rating is on borrowed time. And that is such a momentous event/subject that we will have to give more time to it tomorrow.

–For now, the All Ordinaries is at an 11-month low, as you can see from the chart below. Not that we know much about technical analysis (we leave that to Murray) but it seems like an important juncture. We chucked the chart in this morning to illustrate the pivotal battle of our time, in financial markets anyway: debt deflation versus easy money and loose credit. So what is it telling you? Read on…

Stocks in need of reflating
Stocks in need of reflating

–The August 2010 low in the All Ords corresponds to the launch of QEII, or the second round of Quantitative Easing from US Federal Reserve Chairman Ben Bernanke. The Fed announced in August of 2010 that it would buy over $600 billion worth of US Treasury bonds and notes in the coming months. Its aim (other than funding US government deficit spending) was to keep interest rates low in order to spur growth in the economy.

–The economy hasn’t responded. But the stock market sure loved it. The All Ords climbed by over 15% over the next six months. That’s two good years in a row, by traditional stock market standards, crammed into six months. By keeping the price of Treasury-linked credit low, the Fed fuelled inflation in stocks, at least until February of this year.

–By February, Europe’s sovereign-debt troubles resurfaced, this time in Greece. A bailout deal was reached. But the realisation that Europe’s banking system was stuffed with governments bonds as collateral, and that government bonds were…well…stuffed…clearly scared the big pants off the market. The forces of debt deflation marched again and stocks fell.

–Then the earth moved in Japan. It seems odd that the trifecta of disasters in Japan would be bullish for Aussie stocks. After all, Japan is a big consumer of Australia’s energy exports (thermal coal, LNG). But it’s not so odd if you understand the relationship between the Aussie dollar, the Japanese Yen, and Australian stocks.

–In short, the forces of credit expansion and easy money fuelled the rally in March. The Yen rose in the early days after Japan’s quake. The belief was that Japanese capital deployed overseas (where interest rates are higher than zero) would be repatriated back to Japan to pay for the cleanup and fund the rebuilding of quake-struck zones.

–That may have happened. But what definitely happened is that central banks in Japan, America, and Europe all agreed to intervene in currency markets to stem the Yen’s appreciation. A stronger Yen would have been a big blow to Japanese exports. And Japan had enough on its plate at the time.

–Thus, Aussie investors were again saved by the flood of easy money resulting from low interest rates in another country. The carry trades—where investors borrow at low rates in one country to invest in higher-yielding assets in another country—have been a huge boon to Australian stocks. As the Reverend Jesse Jackson might say, “If the money doesn’t flow, the stocks won’t go.”

–This may surprise a lot of Aussie investors. It’s commonplace to think that China’s resource demand is what supports Australian stock prices. But the chart above proves that’s not the case. Corporate earnings are directly affected by Chinese demand, of course. But the chart above suggests Aussie stock prices don’t trade on corporate earnings but on global money flows. And global money flows depend on whether credit is expanding or contracting.

–Which brings us to today. Aussie stocks may get a short-term bounce from a done US debt deal. But where will the money flows come from? Will they come from the lure of the strong Aussie dollar? And will they be sufficient to ignite stocks to a second-half rally? Or will the forces of debt deflation continue to grind down stock prices?

–This is not a set of questions that will be answered in a day. We expect precious metals to win over paper money. But the cancelling out of global debts is going to bring down prices for most financial assets, including some of those linked to commodities. If there’s no real demand underneath the financial demand for a commodity, it will fall.

–We’d ask the commodity doctor himself, Alex Cowie. But he’s off to Kalgoorlie for the Diggers and Dealers show. Hopefully he’ll be able to file a report for you later this week. An article in today’s Financial Review discusses the prospects for uranium explorers and producers in Western Australia. It says the state’s path toward uranium production has been “slowed” by Japan’s nuclear accident.

–Alex might agree and still be bullish on uranium. In fact, we’re almost certain he would. He wrote about uranium in the most recent edition of Diggers and Drillers. In that report he made the case for African-based producers and for uranium itself. He wrote:

“The market turned a cold shoulder to uranium stocks after Fukushima. Prices of most quality uranium stocks are less than half of what they were just five months ago. Meanwhile, the market for actual uranium is as strong as ever. The long-term uranium price is what matters. And it only fell by a fraction before quickly stabilising at $68/lb. The long-term uranium price is still higher than it was for most of last year, when uranium share prices were flying.”

–Alex now has two uranium recommendations in D&D.

–Finally, poor old Dick Durbin. The senior Senator from the State of Illinois is lamenting that the impending debt deal in Washington is the death of Keynesian economics. Durbin says…

Symbolically, that agreement is moving us to the point where we are having the final interment of John Maynard Keynes…He normally died in 1946 but it appears we are going to put him to his final rest with this agreement.”

–“Normally died”?

–In any event, the Huffington Post reports, “Durbin said the economy is too weak for major cuts in spending, a view that is shared by many economists.”

–Would those be the stupid economists? Or just the idiots?

–You would expect a politician like Durbin to be a pompous ignoramus. It goes with the job description of Senator. He’s spent the best part of his adult life living like a pig at the public trough, and lording his eminence around in the way that only a US Senator can manage (although Aussie Senators are warming up to the challenge, talking about the transformation of “the whole economy and society”).

–The global economy is weak because of too much spending, not too little. It was spending financed by debt, which has replaced income for the middle class of the Western world. The massive government spending of the last few years has poured more valuable capital into failed enterprises. It was only ever an attempt to subsidise privileged financial institutions.

–Durbin, like most politicians in the Welfare State, knows where his bread is buttered. He’s received over $1.2 million in official contributions to his campaign and political action committee from securities and investment firms, according to It’s natural that he’d argue for State support of an industry that funnels him money. It’s the way Washington works.

–What we have today is neither capitalism nor communism. It’s Corporatism, where the interest of Big Business and Big Government and Big Money are hopelessly mingled together. This system is broken. And it’s broke. The sooner we put it six feet under, the better. Until then, keep buying gold on the dips.


Dan Denning
Daily Reckoning Australia

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The Great Correction: 4 Years…and Counting…Still No Recovery in Sight

July 31, 2011 by · Leave a Comment 

The Daily Reckoning

I’m glad to be the last speaker. Nobody can come after me and tell you why I’m wrong about everything. Instead, I get to tell you why the other speakers were numbskulls. Besides, we all have a tendency to be most influenced by the last person we talk to. Or at least I do.

Wherever we go we tend to pick up the accents…and attitudes… of the people who are around us. We all know, because we’re all good contrarians, and this is something we can all agree on, that whenever everybody thinks the same thing, nobody is thinking. But that’s just what happens. We all come to share the ideas of the people around us…even without realizing it.

Right now, a 10-year US note yielding less than 3% is an illustration of this phenomenon. That gives that note a current yield that is actually – in real terms – negative. Consumer prices, as measured by the feds themselves – are going up at about a 5% rate, giving that Treasury note a current yield of MINUS 2% before taxes. After taxes, it’s nearly MINUS 4%. What kind of group-think causes that?

Of course, I don’t know if bonds will go up or down. I just know that when we see so many people are doing such an amazingly bizarre thing, it’s worth looking at it more closely.

My wife and I were driving up to New York from Washington a few months ago. That’s when I realized how easily we are influenced by whomever we’re listening to at the time. My wife is always trying to improve the family. So, she got a tape recording of Virgil’s Aenead for us to listen to on the drive. It’s the story of the founding of Rome by refugees from Troy, read by a BBC actor in a grave and booming voice.

By the time we got to the end of the New Jersey Turnpike we had been listening to the story for a couple hours. I was thinking in Virgilian terms. So, when Elizabeth suggested that I ask the tollbooth operator for directions, I just blurted out.

“We have long travailed over hardened black earth…

“And now we seek the northern tribes…those of the reddened sox…

“Who – with the gods’ help – crossed o’er storm-tossed seas to build great cities on the desolate coast among the savage Yankees.”

Without a pause…the woman at the toll booth fired back:

“Yeah…well you’re goin’ to Brooklyn.

“Ah…destiny has brought us hither!”

“Yeah…and if you don’t get movin’ I’m gonna call the cops.”

“Thank you oh sweet maiden, daughter of Venus and Minerva.”

The story of Rome is a great story. And Virgil’s account of its founding is very different from, say, press reports on the debt- ceiling hike or the coming of QE3.

The big difference is that Virgil thinks things happen for different reasons. There is more at work than just choices made by mortal man. Sometimes the humans in his story makes good choices. Sometimes they make bad choices. But that is not all there is to the story. There are the gods too…who are either jealous and treacherous, or generous and helpful. And there is something else – destiny itself. Fate. Or as the old Anglo-Saxons used to call it the “Weird.’ “Your weird is set,” they would say…meaning you’re your goose is cooked and there is nothing you can do about it.

I only introduce this idea as a thought…provocation. Not even a hypothesis. Just an analogy. What if the US were…well…like Rome?

No one knows what will happen. “It is not given to man to know his own fate,” as the saying goes. But it could be that there is more going on here than just a bunch of people trying to make the best decisions in a bad situation. Maybe destiny is involved too…and maybe that is why people all come to think the same thing at the same time.

If everyone thinks the US T-note is such a safe item that they’re willing to take a negative yield just to hold it…maybe it’s not safe at all.

And if destiny…or some huge historical force is involved…maybe the fight is hopeless. So why bother? Why get all bloody and dirty?

I know you all have to make investment decisions. So, I will try to bring this down to the practically level. The only place where I’m directly involved in giving investment advice or in taking it is in the Bonner Family Office. In a nutshell, I’m trying to figure out how to leave money to the next generation in a way that helps them…rather than destroys them. I’ve invited a few other families to help pay for it. We’re not taking any new members right now…but Will will be happy to tell you more about what we do later on.

The trouble with fighting is that you don’t notice a lot of things. You have to keep your head down. You have to stay focused on the fight at hand. And you have to believe in it…even when the facts don’t necessarily support you. That’s why zealots and believers are generally poor investors. They want to be proven right. They want their side to win…and they’re willing to back it with their money. They put their money where their mouths are, in other words. Sometimes both get whacked.

It’s all right to be a fighter when it’s only your own money at stake. You can do with it as you please. But if you are custodian for future generations, it’s probably better to lift your head and look around. You want to put your money on the fighter who is most likely to win…not the one you’d like to win.

In our family office, we are neither fighters nor flee-ers. We try to be careful observers. We’d rather get a good seat ringside, where we can see where the blows are landing…but not too far from the exit. Right now, we hold a lot of our wealth in cash. Not that we are tempted by a lot of the investment advice I’ve heard hear this week. But cash is like a seat by the exits. You don’t want to sit there all the time. Too drafty. But it comes in handy if there’s ever a fire…at least we won’t get trampled trying to get out.

Most of the speakers you’ve heard from at this conference are fighters. They think they can either turn the country around…like Addison…or that the US will turn itself around, like John Mauldin…or that new technology will make us all rich and help us to live as long as Methusela, so we won’t care.

But suppose the US really is like Rome? These guys can fight all they want. The Empire has its own destination in mind. And it will get there in its own sweet time.


Bill Bonner
For Daily Reckoning Australia

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Obama Says Debt Deal Reached, America To Avoid Default, Or "Hank Gave Us A 3 Page Term Sheet; Boehner Gives Us A 7 Slide Powerpoint"

July 31, 2011 by · Leave a Comment 

Zero Hedge

In a much anticipated statement, Obama just announced that he has struck a deal with Boehner on the debt and the deficit, which will allow the US to avoid default. And also, as Reuters adds, Obama said that spending cuts included in deal to raise the debt ceiling will not happen so quickly that they will drag on the fragile U.S. economy. In other words, there will be no cuts for the immediate future. But there will be a single $2.4 trillion debt ceiling raise (based on a Joint Committee green light, LOL) just as Obama desired. And of course, there will be no tax hikes. Bottom line: there will be about $40 billion in actual, real spending cuts until the next, $16.7 trillion debt ceiling limit is hit some time in Q1 2013, at which point it will have to be raised to $20+ trillion. But no really, they are cutting spending and all that.

Just as Zero Hedge predicted all along.

Now comes the brief relief rally.

Then comes the hangover.

More from the AP:

Ending a perilous stalemate, President Barack Obama announced agreement Sunday night with Republican congressional leaders on a compromise to avoid the nation’s first-ever financial default. The deal would cut more than $2 trillion from federal spending over a decade.


Default “would have had a devastating effect on our economy,” Obama said at the White House, relaying the news to the American people and financial markets around the world. He thanked the leaders of both parties.


House Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck, officials said.


No votes were expected in either house of Congress until Monday at the earliest, to give rank-and-file lawmakers time to review the package.


But leaders in both parties were already beginning the work of rounding up votes.


In a conference call with his rank and file, Boehner said the agreement “isn’t the greatest deal in the world, but it shows how much we’ve changed the terms of the debate in this town.”


Obama underscored that point. He said that, if enacted, the agreement would mean “the lowest level of domestic spending since Dwight Eisenhower was president” more than a half century ago.


Senate Democratic leader Harry Reid provided the first word of the agreement.


“Sometimes it seems our two sides disagree on almost everything,” he said. “But in the end, reasonable people were able to agree on this: The United States could not take the chance of defaulting on our debt, risking a United States financial collapse and a world-wide depression.”

As highlighted in a presentation just released by Boehner, here are the key point of the completed framework:

Emerging framework has three main features:


(1) cuts government spending more than it increases the debt limit;


(2) implements spending caps to restrain future spending;


(3) advances the cause of a Balanced Budget Amendment


Framework accomplishes this without tax hikes, which would destroy jobs, while preventing a job-killing national default.

For those who are interested, Boehner’s whopping 7 slides on the proposed deal can be found here.


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China’s Answer To Inflation: SkyNet – Foxconn Plans To Replace Workers With Millions Of Robots

July 31, 2011 by · Leave a Comment 

Zero Hedge

SkyNet has taken over the market, it now appears poised to make labor and wages redundant (and while we hardly welcome our new robotic overlords, we doubt anyone would shed a tear if the House and Senate replaced its 535 corpulent windbags with a bunch of Johnny 5s engaged in binary colloquies). The world’s biggest non-debt based slave-driver, Taiwanese technology giant Foxconn, also known as the place where all of your iPhones, Pads, etc, are made, has just announced that it will deal with rising wages by doing what US-based quants have figured out years ago: outsource it all to robots. About a million of them. The irony is that the last time we looked at Foxconn, we asked: “what happens when this million realizes it can only buy half a McRib sandwich with the money it makes, courtesy of the primary US export to China, and demands a pay raise. What happens to Apple margins then?” We now have our answer. Per Xinhua: “Taiwanese technology giant Foxconn will replace some of its workers with 1 million robots in three years to cut rising labor expenses and improve efficiency, said Terry Gou, founder and chairman of the company, late Friday. The robots will be used to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers, said Gou at a workers’ dance party Friday night.” As a reminder, with over 1 million workers, Foxconn has enough people on its payroll that if mobilized would be the 5th largest army in the world, and just after WalMart in total number of employees, albeit instead of spread out around the world, are all concentrated in one small space.


The company currently has 10,000 robots and the number will be increased to 300,000 next year and 1 million in three years, according to Gou.

Foxconn, the world’s largest maker of computer components which assembles products for Apple, Sony and Nokia, is in the spotlight after a string of suicides of workers at its massive Chinese plants, which some blamed on tough working conditions.

The company currently employs 1.2 million people, with about 1 million of them based on the Chinese mainland.

What happens when other Chinese companies, flush with CapEx-beckoning cash decide to do the same, and engage in a worker-for-debt swap? Sure margins will surge, Chinese imports will drop in price, but what about the imminent wave of discontent courtesy of tens of millions of laid off workers replaced with machines?

Is it time for another dystopian Philip K. Dick-esque novella looking at our increasingly roboticized future? Or do we all know by now how it ends?

More articles from Zero Hedge….

The Fiat Crack Addict is Convulsing and Headed Straight for The DTs

July 31, 2011 by · Leave a Comment 

Zero Hedge

The Fiat Crack Addict is Convulsing and Headed Straight for The DTs


Cognitive Dissonance


For years I have seen strong parallels between the self destructive gyrations of the terminally addicted and the nation states of today who are all following similar paths to self immolation. I suppose I shouldn’t assume that the reader is in agreement with me that the world’s economic and social systems are in deep trouble and headed for a disastrous fall. On the other hand if you don’t agree with this assessment, it seems odd that you would be reading this in the first place. So for the sake of brevity (something I usually avoid at all costs) let’s agree that the issues we are facing are unprecedented in this so-called modern economic era and move on.

Those who have never been, or are not currently, addicted to drugs, alcohol or any other addictive substance or state of mind, can never quite comprehend what addiction is really all about. Take alcohol for example. If you have never experienced the absolute inability to stop after just two or three beers, or two or three drinks, the idea of being completely and utterly unable to stop drinking until you are thoroughly drunk or passed out is simply beyond comprehension. “Just stop for crying out loud. What the hell’s wrong with you?”

Oh sure, we might be able to ‘understand’ addiction, meaning we can indulge in the intellectual process of imagining what it is like by putting ourselves in their shoes. And no doubt this does bring about a greater understanding. But to truly comprehend the total body, mind and spiritually destructive experience of being thoroughly addicted is simply impossible for those who are not, or have never been, addicted. Period! Full stop! If you were to spend some time talking to people who were at one point or another completely engulfed by their addiction and who now have substantial recovery time under their belt, I would wager most of them would agree with my assessment.   

Not being able to comprehend holds true for many other ‘normal’ life events as well, though we don’t think about them in quite the same way. For instance, it is simply impossible for me, a male, to comprehend what it is like to be pregnant and to bear a child. There are some things that must be experienced firsthand in order to comprehend them. I can possess a tremendous amount of empathy for those who are pregnant and/or have given birth and I may even have a sincere and genuine desire to know what it is like. But in this case, unless I actually become pregnant and then give birth, something I cannot physically do, I just can’t comprehend in any meaningful or substantial way what pregnancy and childbirth is all about.

And I deliberately use the word ‘comprehend’ here rather than ‘know’ or ‘understand’ because the level of internalization and embodiment implied when using the words ‘comprehend’ or ‘comprehension’ is easily an order or two of magnitude greater than when merely saying that I understand something. If I am a male obstetrician, it is very likely that I understand quite well what it is like to give birth, but I can still never comprehend it. However, if I am any female who has given birth before I can both understand and comprehend the process and experience.

In this usage the difference between understanding and comprehending is as stark and self evident as night and day. And if you don’t believe me, ask the mothers around you for their opinion. I suspect they will be more than happy to oblige and will diligently fill you and me in on the details of our male (and childless female) ignorance.

I press this point in order to further this article’s line of reasoning, one that is not just missed, but often not even seen by the majority of us who are not addicted or have never been so. While we dismiss the antics of the Ponzi masters and their financial, political, corporate and military henchmen as [take your pick] crazy, out of touch, corrupt, conflicted, in denial, evil, in bed, bought and paid for, maniacs etc., in truth many of us are often completely flabbergasted by their seemingly self serving but ultimately self destructive behavior.

We can easily ‘understand’ what it is they are doing and even how they may and do benefit from their behavior. But at the same time our heads can never quite get around what it is they do and why they do it. It is foreign to us, it’s just not something we would ever really consider doing ourselves, regardless of the monetary or social gain. It just does not compute and I think this is one of the reasons why so many people tune out and turn away. The vast majority push it all aside in disgust or pass it off as just the children rough housing again, reason enough to just ignore them and hope they’ll eventually settle down.

I don’t wish to get into an in-depth discussion about the causes of addiction or if it is a disease or not, if it can be ‘cured’ or simply suspended or abated or any other of the controversial issues revolving around addiction. I think we can all agree that addiction does exist and it can strike just about anyone in any social and economic class. And the odds are pretty high that you, dear reader, are either addicted yourself or, far more likely, you have or had family, friends or acquaintances who are or were addicted.



If you feel none of this applies to you, just wait a little while longer because the odds are very much in my favor that you will eventually fit within this description. While you are waiting, can you think of anyone you know who smokes? If you can, add them and yourself to my grouping above because most certainly smoking is an addiction, just like drugs and alcohol. Only smoking is more socially acceptable (thought that is rapidly changing) and more importantly perfectly legal, at least in private. In fact, in some respects addiction to nicotine is worse than some drugs and alcohol for a multiple of reasons. Go talk to someone who hasn’t has a cigarette in 8 hours and see what they have to say on the matter.

However I would like to expand, at least for some, the definition of addiction and addictive behavior. You may remember the first sentence of the second paragraph where I said in part “or any other addictive substance or state of mind”. It is the ‘state of mind’ that most people don’t consider when listing addictions and this is a serious omission, deliberate in many cases, for to accept a wider characterization would force many to include themselves in their condemnation.

Few would disagree with me if I said that some people are addicted to gambling, sex, food or pornography. But would you also consider excessive use of the Internet or texting or work or even exercise as addictions, because I do?  There is also obsessive compulsive disorder or those who self injure and the Hollywood tabloids are more than happy to point out those who are addicted to plastic surgery or weight loss. Some addictions are more destructive than others, but still remain addictive behavior because (self) destruction is not one of the measures I use to identify addiction. It is primarily a state of mind that is often, but not always, enabled by addictive substances.

The list is shockingly long and growing by the week. And many of these do not involve an obvious physical dependency, at least not in the traditional sense of drugs and alcohol. It is not that these addictions are ‘different’ as much as they are more pure, if such a word could be used in this context. Talk once again to those recovering alcoholics and addicts and many will tell you that long after the physical dependency was flushed from their system, but still early in their recovery, there remained a ‘craving’ to fulfill their addiction. Their state of mind still existed in the addicted state and it is this that truly tormented them.

Thankfully for many who are in long term recovery, the compulsion subsides and might even disappear, though many tell me that occasionally and out of the blue the urge will suddenly flash back, similar to a sudden and sharp phantom pain of short duration and uncertain location. But my emphasis remains on the state of mind here because there is still some more definition expansion I wish to explore. Clearly while actual substance abuse can and is an integral part of many addictions, it is not a prerequisite for many others.

It seems to me that other states of mind might also be considered addictive, though many will try to bargain down from this frightening term and settle at the more emotionally and socially comfortable ‘excessive’, ‘obsessive’ or ‘obsessed’ to describe the following afflictions, primarily because they represent the core personal, business and governmental practices of Americans, America and the world.

It is quite clear and in my view irrefutable that some people, usually very rich and powerful but not always, are addicted to power, money and control in all its forms, including greed, hoarding, fear mongering, war, terror, oppression, manipulation, mind control etc. Again, the list is endless depending upon how fine you wish to slice the apple, which by the way was Eve’s obsession.


Debt Cocaine

(h/t image provided by williambanzai7 @ #0000ff;”>


I wish to highlight ‘control’ here for it can be argued that when speaking about addiction everything flows from and towards the need, or rather the compulsion, to control. This includes the need to seek even more control after one has failed to achieve a certain perceived level of control, the hallmark of any addiction. This brings me to a listing of the symptoms of the insanity, which at its heart is what addiction is all about. Think about what’s going on today in the political and financial world as you read the following and consider some of the more obvious similarities and connections.

The central element of addiction is control, or more accurately the complete lack of control. When speaking of substance abuse, but also in more general terms about any addiction, some is not enough and one is one too many. While in the throes of their addiction, rarely will the afflicted admit they have lost control. It is only later, after recovery has begun and the cobwebs begin to clear, will many admit that not only did they lose control long before it became apparent to everyone else, but that they were always just as shocked and surprised by their actions as everyone else was. They never understood, despite their very real desire to regain control, why they were never able to.

It stands to reason that if one has lost control, but doesn’t wish to admit it, that denial would be the process used to get through each day of increasing insanity. But I’m not talking about your average garden variety level of denial here. No, I’m talking about supercharged balls-to-the-wall 31 flavors of denial. This is about denial piled upon denial layered with even more denial so deep that the recovering person will spend years, even decades, digging out all the dead carcasses as they come to grips with the former disaster they called life before recovery. Denial so deep in fact that first they denied, then they denied they ever denied until finally they forget there ever was any question about denial in the first place. Wrap all this up and then take it to the tenth power and you begin to ‘understand’ what we are talking about here. This is not an exaggeration.

A subset of denial would be rationalization, justification and bargaining. Even though the addicted will never admit to his or her addiction, the truck loads of problems they create still must be dealt with, though I use the term ‘dealt with’ here extremely loosely. Whatever the flavor-of-the-day problem is, one iron clad rule always applies. It is never the addict’s fault. NEVER! The addict projectile vomits personal responsibility as if Ipecac is being swallowed on a continuous basis. This actually makes perfect sense because to admit personal responsibility for the problems of the addiction quickly leads to the addiction itself. So the addict will use any and all excuses in the book to deflect blame and responsibility.

Narcissism and naval gazing are natural outgrowths of the addict’s inability to come to terms with his or her own addiction. An entire fantasy world and often several that interlock and supplement each other are created and constantly managed and massaged in the mind of the addicted. And it is here where they engage in fantastical blame shifting and justification that truly boggles the mind of those caught up in the tsunami wave of destruction and disaster that originates within the addiction. Incredibly, while to the saner outsider (keeping in mind that everything is relative in the world of addiction) the constant barrage of lies, excuses and finger pointing have long ago moved into the absurd, to the addicted it all makes perfect sense because you and I are the problem, not them.   

This all inevitably leads to lying of such intensity and magnitude that a professional liar would blush in shame, having finally met someone worse (better?) than him or her. Stated as simply as possible, during the latter stages of the addiction, the afflicted becomes a pathological liar, a thief and a cheat. When consumed by the addiction, nothing else matters and no one else warrants any more attention or honesty than is needed to get to the next bottle, fix or emotional relief. An addict in the end stages of their death by suicide has a laser like focus of attention upon themselves and their needs that would put physicists and mathematicians to shame for their inability to match the addict’s level of single minded effort and concentration.



At this point, the insanity has completely taken over and the addict would sell their first born if they could for a few more hours of relief. And this is where most people are lost in their understanding because long before it is obvious that the addiction has all but destroyed the afflicted, for the addict it is all about dulling the pain, having long ago lost the ability to feel genuine pleasure. At this point, relief is nothing more than the temporary dulling of the physical pain while the inner demons are quieted, but not silenced, once again. While there is no place to hide and nowhere to run, there are a few sweet hours of oblivion and numbed forgetting.

This is why it always takes more and more to get somewhere close to the extreme high s/he once experienced, be it physical, mental or emotional. As s/he slips ever closer into the welcoming arms of death and the end of the pain, there is no longer any chance of ever again reclaiming that long lost ecstasy, something the addiction inside has been chasing since the very first high. All there is left is nothing more than some numbing of the pain as the addict kicks the can of withdrawal down the road once more. Soon enough even the road and the can will disappear, but not before everything gets exponentially worse. We ain’t seen nothing yet.

Don’t think for a moment that I’m just talking about substance abuse here. Consider those power and money hungry people who want more and more and are never satisfied with 95% when 96% is still available. It is not the quantity that matters because the rush from the control and power is no longer fully realized or experienced since long ago they became desensitized and essentially dead to the world you and I occupy.

Thus their destructive actions don’t really apply to themselves any more since they no longer live in the same reality as we do. It is so much more than them thinking that they can just hunker down and avoid any blowback. It’s all just the cost of the business of their addiction. Bottom line, blowback or adverse consequences are immaterial to their distorted and horribly twisted thinking and risk weighting mechanisms in much the same way it is not about winning or losing to the addicted gambler, but the action itself that is sought out again and again. It’s the juice man and each shot in the arm is less effective than the last.

And so all these symptoms, along with many more I haven’t mentioned, coalesce into the need, the desperately obsessed need, to do ANYTHING to get what they want. This is in fact the supporting mechanism for the accelerating addiction and the underlying justification that leads all addicts to eventually engage in abuse not only of themselves, for this is a given, but of everyone and anyone who is captured by the insanity’s black hole gravity well. Suffice it to say that there is always mental and emotional abuse administered by the addict. Again, this is a given simply by the very nature and progression of the addiction.

But very often we also witness the devastating physical abuse rained down upon those closest to the insanity, though this is strenuously denied by the addicted while they are deeply engulfed within their own consumption. The abused are often dragged into the insanity kicking and screaming all the way down into the black abyss until eventually they are also afflicted by an equally devastating offshoot of the insanity. I am, of course, speaking of the enablers who are often just as conflicted, confused and codependent as those infected with the full blown addiction.



(h/t image provided by williambanzai7 @ #0000ff;”>


This leads us directly into the final chapter of this comparison between the addicted individuals, along with their enablers living within the general insanity, and the country and world as an addicted entity run by the power and money hungry addicts and their enablers. Here I wish to focus on codependency, a word that has gotten a bad rap because it is often seen only in a negative light. In a healthy world, codependency means relying upon one another for the mutual benefit and growth of all. It is a synergy that produces more than the sum of its parts and its presence is a sign of a thriving, energetic and wholesome system in which humans most certainly can participate. 

Sadly, codependency in the context of the addicted and their enablers is defined as the mirror opposite of how it is found naturally on our blue planet. The addicted become black hole vampires, sucking in all available energy from their victims in order to consume more physical and psychic life force than they produce. Under these circumstances codependency produces much less than the total input values and is of no intrinsic value to anyone other than the consuming addict. It is not a dance of synergistic creation, but rather the raw sucking sound of parasitic consumption and partially digested excrement.

Nearly all of the symptoms exhibited by the addicted are also symptoms of the codependent enabler, though they are often subservient to, or mirror images of, the addicted. Just as the addicted are consumed with the need to control in their never ending quest to reach the lost ecstasy, the codependent enabler is consumed with trying to control the addicted spouse, child, friend, co-worker or whoever it is they are locked into the death spiral with.

In effect the codependent enabler is attempting to manage something he or she has absolutely no hope of ever controlling, since the object of their attempt to restrain, the addiction itself, can never be controlled by the addicted let alone the enabler. This vicious cycle of repeated attempts to control, then abject failure to control, followed by even more attempts to control is the very definition of insanity. And it is rocket fuel for the addicted, which without his or her cadre of codependent collaborators would quickly flame out, then flash crash and burn. Thus it is the codependent enabler that provides the sustaining life force of their very own slavery because once they embrace the vampire they are often destroyed by the very same vampire.

At this point the reader must be asking themselves an obvious question. Why doesn’t the enabler run for his or her life, putting as much distance between the life sucking vampire and themselves as they can? But the ties that bind them together in this dance of death were made many years in the past, when life was much better and the relationship was actually productive and enjoyable.

After several decades of deepening cross connections, be it children, money, mutual friends, love, sex, power or influence, promises of an easy retirement, whatever, the allure of what was once good is the bait that keeps the codependent enabler enticed and enthralled. In effect the false promise of a return to the good times of the long ago lost life act as the enabler’s own elusive lost ecstasy which can never again be reached. So now we have both the addicted and the enabler jousting at similar fantasy windmills on the hill while driving each other insane in the process.

Mix in a healthy dose of physical abuse handed out by the addicted upon the codependent enabler, which supplements and cements years of guilt trips and carrot and stick control techniques, and you have one massively effective cluster fuck of mutual assured destruction writ large. Both parties in this macabre death ritual long ago lost any ability to see with rational or sane eyes what they are doing to themselves and each other or what they have become.

Thus everyone is trapped on a runaway train that is rapidly approaching terminal velocity and where the desperately panicked conductor/enabler screams unintelligible and conflicting instructions from the careening caboose to the brain dead and hopelessly addicted engineer. The very same engineer mind you who is slavishly captured by his or her own addiction and pays just enough attention to the conductor to keep him or her from jumping from the train in a last frantic bid to survive.

Caught between these two self destructive forces are the terrified and helpless children strapped into the swaying and lurching passenger cars, true victims who can only hang on and hope they survive their frightening ordeal. Of course they are all in training to fill their future roles as either hope junkie conductors/enablers or consumed addicted zombies walking the path to self destruction.

The Connections Are Obvious

How can we not see the obvious connection between the word images painted above and our society in general and our leadership and all of us specifically unless we just don’t wish to look? This nation and our financial, corporate, religious and political leaders are the seriously addicted engineer desperately trying to stave off the death throes of the DT’s (Delirium Tremens) by consuming more and more fiat in a losing battle to cheat death one more time. And as much as our egos scream out in protest that we are all just helpless victims and thus those frightened children trapped on the train to hell, in fact it is our own children that belong there for we are the conductor/enablers whether we wish to admit it or not.

If nothing else this illustrates the abject futility of hoping our addicted leadership will change their ways if only we give them additional time, money, support or more (hangman’s) rope. They will not change unless and until they see the need to change and they become willing to exert as much effort in realizing that change as they did in perpetuating their addiction. If they haven’t done so by now then they will not do so in the future.

Just as important, if not even more so, is the sobering fact that we cannot control the insanity simply because we are an integral part of the insanity. The train is out of control and we can neither regain control by shouting or pleading with the engineer to stop or by passively hanging on and falsely hoping that the addled engineer will suddenly snap out of it and slow down. This is our own enabling fantasy and it binds us to the insanity as completely and seamlessly as the addicted. We must remove all support and let the stinking mess collapse or we must remove the engineer from the controls and take over. This madness will not cure itself. 


Cognitive Dissonance

?Train Wreck

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Boehner Balking?

July 31, 2011 by · Leave a Comment 

Zero Hedge

Oops. From Washington Wire again: “House Speaker John Boehner (R., Ohio) appears to be balking at the debt ceiling deal that Senate Democratic Majority Leader Harry Reid of Nevada has signed. Mr. Boehner is concerned about provisions in the deal that could lead to sharp cuts in military spending, say people familiar with the situation. House aides have warned that just because Mr. Reid has signed off on the deal doesn’t mean the deal is done.” From limit up to limit down in one easy (yet unconfirmed) headline.

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First Prints Are In: Risk On, Gold Off… At Least For A Few Minutes

July 31, 2011 by · Leave a Comment 

Zero Hedge

The first prints are in and the relief kneejerk is here, as much expected. ES prints +17 at 1306, USDJPY jumps, although the fade is already there, while the Franc is dripping lower although we expect the same fade to come to it soon. Obviously gold is off, by just about 1% to levels last seen… five days ago.  We wonder how long until the vacuum tubes realize that with the debt ceiling raise, Obama has just given Bernanke the green light to monetize up to $2.8 trillion in brand spanking new pieces of one-ply US debt. In other news, a Reuters blast just announced that a Senate vote on a debt deal is “highly unlikely” before Monday, confirming that the market will now have to price in what is effectively becoming TARP 2, with the same potential dire consequences to the market if it is wrong as it was last time around. Overall, we expect the computers to create their self-referential momentum buying sprees until such time as the big boys come in and start offloading the big blocks.


USDJPY – retraced entire post kneejerk euphoria.


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The Market Ticker – Republican "Mainstream" Self-Destructs

July 31, 2011 by · Leave a Comment 

By Karl Denninger, The Market Ticker

Well here’s Boehner’s "compromise"; what it does is:

  • Lie once again about "cutting spending."  It does no such thing.  It increases spending – every year.  Bogus and outright-fraudulent "baseline budgeting" means that if they intended to boost spending $300 billion but only increase it $200, that’s a $100 billion "cut."  If you ran your household like this you’d be broke in a week.  For the US, it will take a bit longer.

  • No tax increases.  That’s nice, but let’s not forget that while the Democrats scream about the "Bush Tax Cuts" the FICA tax cut was theirs.  Obama signed it.  You cannot keep reducing income and increasing spending forever.
  • The cuts, fraudulent though they are, aren’t even real anyway – and not binding either. There’s nothing before 2013, which means a downgrade is almost certain.  Further, raising the debt ceiling now for the whole among but allegedly finding the "cuts" over 10 years is an outright fraud by a ratio of 10:1.
  • A 2013 timeline for actual changes means nothing, since the next Congress is not bound by what this one does. Period.
  • Sequesterization didn’t work in 1997.  It won’t work in 2011 either.
  • We failed to get to $4 trillion.  That’s what S&P said they needed, and they said they needed to see that within the next three years. Now we find out if S&P has any balls.

We also get to find out if the so-called "Tea Party" is worthy of the name.  Yeah, I posted that my opinions change when facts do, and they appeared to.

Boehner needs to be ejected from Congress in the next election, and the remaining "mainstream" Republicans must go with him, along with any claiming to be "Tea Partiers" who vote for this abortion.

All of them.

In the meantime, kill this bill and by doing so balance the budget in three days.

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The Market Ticker – Ding Dong: Government Calling

July 31, 2011 by · Leave a Comment 

By Karl Denninger, The Market Ticker

My kid’s already heard this speech.  Her response (in a restaurant with a couple of her friends)?  "F that."

When she said it she looked at me like "is Daddy going to get mad that (1) I used the "F" word in public and (2) I think I just told him he’s not going to get any Social Security?"

I told her it was ok – that I was not only well-aware that I wasn’t going to get any Social Security or Medicare, but that I was not a rat bastard – like everyone who thinks they’re owed Medicare now, having paid in one fifth of what they claim they’re entitled to in benefits.

Then again, I have respect for and love my kid, and don’t consider her – or her children that she may eventually choose to have – my meal ticket.

How about you?

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The Market Ticker – Is It Time To Pour Some Tea?

July 31, 2011 by · Leave a Comment 

By Karl Denninger, The Market Ticker

One has to wonder.

Coburn has been called a "Tea Party Turncoat", but is he?  How about Jim DeMint?

As I’m sure followers of my articles are aware, I’ve been extremely critical of what appeared to be a direct change from fiscal responsibility or anything like it (never mind cessation of knobbing the banksters) right into "GGG" – the shop-worn and tired "Guns, Gays and God" nonsense.

Well, perhaps some who claim to be "Tea" have realized that there’s no future in "GGG" if you try to use that as a sop for what you were elected to do?

Hmmmm….. maybe.

I have often said that when the facts change so do my opinions.  And it appears that perhaps – just perhaps – my opinions need to be revised, at least for a few Senators and Representatives.

Let’s start with Steve Southerland.  I’ve been very critical of him, going after him full-bore after what I considered a shameful and intentionally-misleading "presentation" he gave in Destin with Jeff Miller. He’s my "Critter" in DC, replacing the utterly worthless Alan Boyd this last election. 

But he voted no on the Boehner bill.  While he did not completely explain what he would vote for in his press release, he did say this:

I believe Speaker Boehner deserves credit for crafting the best solution he thought possible after enduring months of stonewalling and political parlor tricks from the President and Senate Democrats.  However, I am concerned that the House Budget Control Act hands President Obama a $900 billion debt limit increase without the guarantee of a federal balanced budget amendment or the trillions of dollars in spending cuts and caps necessary to protect Americas AAA credit rating.  

Close enough for now.

Then there’s Coburn, who I Tickered earlier today.  His speech on the Senate floor needs to be heard by every American.  He’s spot-on and nobody in The House or Senate can honestly refute a word of it.  Kerry, who tried, simply made a fool of himself.  Click that link and watch it for yourself.  Yeah, he has been wrong before – TARP, for example.  But we all have erred and if we refuse to forgive sins when people’s actions change, we go nowhere as a country – or as individuals.

Finally, we have DeMint, who the AP is reporting on:

But unlike the fractious movement as a whole, DeMint is specific and focused on what change, exactly, he wants: passage not just a vote of a balanced-budget amendment to the Constitution. Without it, he says, no consideration should be given to raising the nation’s borrowing limit. Even, he says, if the country runs out of money for paying all its bills after Aug. 2.

There it is.  The correct position, in my view, and exactly what those who originally began sending Tea Bags and otherwise raising hell have all been about since the beginning (myself included) – no more government "hot checks" and games.  No more "baseline" budgeting that would land you in prison anywhere except in Congress.  No more claims of "cuts" when they’re spending increases.  No more bailouts, which are simply more "hot check" games.  And no more providing services we are unwilling to fund with current tax revenues.

I’m sure I’ve missed a number of Senators and Reps in here and I can’t possibly cover them all individually – after all, there were other "NO" votes in The House.  Among them were Michele Bachmann and Connie Mack.  The full list of Republicans who voted against, all of whom can be presumed to be demanding an actual balanced budget, is:

Justin Amash (Mich.), Michele Bachmann (Minn.), Paul Broun (Ga.), Jason Chaffetz (Utah), Chip Cravaack (Minn.), Scott DeJarlais (Tenn.), Jeff Duncan (S.C.), Trey Gowdy (S.C.), Tom Graves (Ga.), Tim Huelskamp (Kan.), Timothy Johnson (Ill.), Jim Jordan (Ohio), Steve King (Iowa), Tom Latham (Iowa), Connie Mack (Fla.), Tom McClintock (Calif.), Mick Mulvaney (S.C.), Ron Paul (Texas), Tim Scott (S.C.), Steve Southerland (Fla.), Joe Walsh (Ill.), and Joe Wilson (S.C.).

While there are still plenty of liars in Congress, including people like Jeff Miller (R-FL-1) who claim to be a "fiscal conservative" yet voted for Boehner’s fraudulent claim of "cuts" it also appears we have a few people who claim to be "Tea Party" affiliated and/or fiscal conservatives who have found religion.

I don’t care where they found it or why.  Maybe they read all the Tickers I’ve been faxing to them the last couple of weeks; some have gotten a whole load of them.  Maybe they sat down with Excel, as I’ve challenged everyone in Congress to do for four years, and simply run the numbers.  Some of them recently got a targeted "care package" coordinated by myself, Steph’s FedUpUSA and Bill Still, addressed and sent by a cadre of Patriots on Tickerforum who all deserve a standing ovation for their efforts – and maybe those Congressfolk actually read and viewed the material.  Maybe they heard a voice in a "burning bush" or maybe they woke up in a cold sweat and realized that all the lies, obfuscation and games were running out and their political necks were headed for the guillotine known as the "Ballot Box" next year. 

Whether their enlightenment came in a church, in a field, reading Tickers, watching videos and reading printed letters, waking in a cold sweat, praying on their own or with others in the House as it was said some of them were doing before the Boehner vote, it doesn’t matter.  What matters is that it happened and that there is a small but growing group of Senators and Representatives who have had their "Come to Jesus" experience on what we must do as a nation.

If you’re a person of prayer, now is the time.  To stiffen these men and women’s backbones and enlarge their gonads.  Pray that a love of true freedom, fiscal reason and responsibility ring like brass church bells and their resolve not fail.  That the truth – the cold, hard mathematical truth that cannot be avoided and must be faced be explained to the American people head-on.  And that the very public and essential debate be held by and with the American people on exactly what services we are willing to pay for with taxes in the present tense, dollar-for-dollar, and that the Federal Government be cut back to exactly that size and not one federal employee or department beyond it.

Winston Churchill once said that "Americans will always do the right thing ….. after they have exhausted all of the alternatives."

Well, we’ve exhausted all the alternatives.

It’s time.

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