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Findings & Forecasts 02/01/2012

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by Patrick Wood

Economy

In Q4 2011 core eco­nomic growth, adjusted for inven­to­ries, grew at a mere 0.8 per­cent, com­pared to 3.2 per­cent in Q3. While still pos­i­tive, this is a dra­matic slowing of eco­nomic growth, and far from the opti­mistic spin pro­duced by Obama’s economists.

The housing market gen­er­ally reflects overall eco­nomic activity: The Case-Shiller 20-city com­posite home price index slipped 0.7 per­cent in November (month-over-month) and 3.67 per­cent year-over-year. There have been no rev­e­la­tions since November that housing has picked up.

The Baltic Dry Index con­tinues to col­lapse at an alarming rate. In the month of Jan­uary alone it has given up almost 63 per­cent of its value. Today’s reading was 680, just 17 points above the 12/05/08 low of 663. After that, the BDI lev­i­tated back to 4661 by 11/19/09 and has mean­dered lower until December when it really col­lapsed. From the 11/19/09 peak, it has given up over 85 percent.

Another index, HARPEX, tracks ship­ping rate charges for inter-modal con­tainer ships. Con­tainer ship­ping traf­fics mostly fin­ished goods of one kind or another. During an eco­nomic slow­down, one would expect a drop in raw and fin­ished goods, which is exactly what we see here.

This chart shows cor­po­rate profits as a per­centage of GDP (Gross Domestic Product)

This chart shows wages as a per­centage of GDP.

Do you see a problem? While cor­po­rate profits have risen steadily since the mid-1980’s, per­sonal wages have been tanking; in other words, America’s work­force has been screwed to the wall while cor­po­ra­tions are still making billions.

This is the direct result of cor­po­ra­tions using dirt-cheap labor in coun­tries like China, India and Mexico. This is the inevitable result of glob­al­iza­tion. If I could see this 30 years ago, why couldn’t anyone else see it?

Answer: Greed. The cor­po­ra­tions, of course. But con­sumers are just as guilty because they want every­thing cheaper, on sale, dis­counted, marked down, etc. They trample each other in Wal­mart at Christmas to get the cheapest toys made in China with near-slave labor. They wait days in line to get the latest iPhone or iPad from Apple, all of which are made in China. Buy Amer­ican? Heck no… too expensive.

This short-sighted lunacy is destroying our country. It’s the epitome of cut­ting off your nose to spite your face.

The latest trade deficit num­bers are in for November 2011 — rising back to $43.3 bil­lion. Exports decreased and imports increased. To clarify, the U.S. bought $43.3 bil­lion more goods from for­eigners than they bought from us. On an annu­al­ized basis, this amounts to over a half-trillion dollars.

No politi­cian talks about the trade deficit because they are all Free Traders, including Ron Paul. If we could just “level the playing field”, they say, then we can com­pete suc­cess­fully, exports will rise and the deficit will dis­ap­pear.  This is a pipe-dream. And the reason is in plain sight: How can Amer­ican workers ($23.24/hour) com­pete with Chi­nese workers ($2.00/hour)? Answer: They can’t! Duh. [Note: $2.00/hour is the highest hourly rate paid in China; most are paid much less.]

There is only one GOP pres­i­den­tial can­di­date who favors the imme­diate instal­la­tion of import tar­iffs — Gov. Buddy Roemer. But, if you think Ron Paul is frozen out of the main­stream press, then Roemer is in an Alaskan deep-freeze. The GOP wants nothing to do with him.

But, think what would happen if a 30 per­cent tariff was imposed. Imports would plummet in the first month. People would scramble to find local sources for all kinds of goods. Fac­to­ries would have to be quickly built and put into pro­duc­tion. People would go back to work. Our own (mas­sive) oil and gas deposits would have to be drilled and put into pro­duc­tion. Profit mar­gins of cor­po­ra­tions who prey on America would tank overnight.

On the other hand, for­eign nations and global cor­po­ra­tions would quickly want to go to war with us (e.g., China’s economy would crash overnight). Wal­mart shop­pers would rise up in mass protest even as Wal­mart itself would be threat­ened with bankruptcy.

His­tor­i­cally, the pres­ence of tar­iffs is what forced America to create industry. Article I, Sec­tion 8 of The U.S. Con­sti­tu­tion states that Con­gress shall have the power ‘To reg­u­late Com­merce with for­eign Nations.” When tar­iffs were stiff, America pros­pered. A gradual change in polit­ical phi­los­ophy was seen between about 1880 and World War II, but a rad­ical change came in 1947 when the glob­alist crowd estab­lished the Gen­eral Agree­ment on Tar­iffs and Trade (GATT). GATT later became the World Trade Orga­ni­za­tion (WTO) in 1995. As Con­gress abdi­cated its role to pro­tect America, the global elite seized con­trol of trade policy… and the rest is history.

“Men are qual­i­fied for civil lib­erty in exact pro­por­tion to their dis­po­si­tion to put moral chains upon their own appetites.” — Edmund Burke

Pol­i­tics

The choice is now between Romney and Gin­grich, both life-long glob­al­ists. Either would con­tinue the work of glob­alist pres­i­dents before them: Carter, Bush, Clinton, Bush and Obama. I’ll leave Reagan out of it, but only because it was his vice-president George W. Bush who mostly drove the New World Order agenda during the Reagan years.

From the cur­rent view, I can see no reason that Obama will not walk into a second term. Should any serious third-party can­di­date emerge, he/she will will only leave more votes for Obama.

Market

Today’s strong rally in stocks sets up some inter­esting options. Overall, the weight of market inter­nals and wave struc­ture indi­cate that a top­ping process is in progress; just how it ends is still up for grabs.

The most recent decline in stocks looks more like a 3 wave cor­rec­tion than an 5 wave impul­sive decline. This could change with an imme­diate reversal to the down­side, but if true, the impli­ca­tion is for a modest new high as wave 5 is com­pleted. The next few trading hours will tell the story.

Gold is in the same pat­tern as well. The recent decline looks like a 3 wave move more than the start of a 5 wave decline. If higher prices are in store, we could see $1,800 or slightly higher.

The inverse of stocks and gold is the dollar, which does not appear to have found a bottom in its cur­rent cor­rec­tion. The trend is still clearly up on a longer term basis.

When these asset classes reach their respec­tive limits, sig­nif­i­cant direc­tional turns should be seen.

 

 

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