I want to thank everyone for a lot of great feedback from the “gold vs. labor” updates.  They really hit a nerve.  I’ll try to put together an update tomorrow that answers a lot of the questions and concerns.

Today I want to go back to a concept that I began writing about over one year ago.  It’s this: DON’T focus on the equities markets, INSTEAD focus on the credit markets.  Why is this?  It’s because the economic deflationary spiral that we’re in was brought about intentionally by the international banks – through the purposeful destruction of credit.  Since credit = debt = money then this also results in the destruction of a vast amount of what we call “money”.

The equities markets are showing us several things – and many can easily be false indicators of a recovery.  First, they’re showing us “improved” earnings.  However, most people don’t realize that “improved” earnings are measured against “analyst” estimates.  These estimates haven’t set the bar very high as of late.  Also, many of these analysts are covering a great number of companies – and don’t really have the time to deeply understand the inner workings of a particular one.  Add on top of this that most analysts I’ve seen frankly aren’t very good at their job, and don’t understand how an economy truly operates and what drives it.

We also see the problem where corporations are announcing their “operating” earnings to the stockholders.  These are the earnings that can, and do, get heavily massaged.  Companies don’t need to worry as much about having their CEO thrown in jail over manipulated operating earnings.  They don’t have to meet certain GAAP standards.  In contrast, companies have another set of earnings documents that they file with the government SEC.  These are the “reported” earnings – and corporate officers can indeed go to jail if the government catches them in a big lie and the company was somewhat short on its payola (a.k.a. campaign contributions)…..that last bit was meant as a little sarcasm.

Another thing that is driving the false stock market rally is the fact that the FASB (Federal Accounting Standards Board) greatly “relaxed” the rules for proving the worth of assets.  “Relaxed” is another term for “made worthless”.  Banks are now allowed to pretend their loan portfolios are healthy – even though they have rotting garbage bursting out through the seams.  Does anybody remember how “hopeless” the banks were in January and February of this year?  Go back and look at some news articles from that time.  Now we’re seeing all of the banks repaying their TARP money and reporting record earnings and bonuses for their employees.  What happened?  Does anybody in this country care?  If they did then there would be a severe inventory shortage of tar and feathers.

The last thing driving the stock market is the fact that the Federal Reserve has been buying US Treasury securities to replace those that they sold after the Bear Stearns collapse in 2008.  They’re also buying hundreds of billions of dollars in Mortgage-backed securities and Agency debt.  Put simply, the Federal Reserve (controlled by the international bankers) is helping the international bankers to get major amounts of toxic loans off of their books.  Look for them to make an effort to sell these loans into the consumer-owned money markets at some point down the road.

You’ve heard the recent statements from those that are “knowledgeable”: “The Recession is Over!!! Hooray!!!”  And it is…..if you use their metrics to measure by.  What do I mean by this?  If we simply look at the equities markets and the commodities markets then our economy is now doing better than it was just prior to the Lehman Brothers collapse last September.  I created the following formula that measures stocks and commodities as compared to September 12, 2008:

Stocks and Commodities = 0.218352185 X [GOLD/((DXY + 18.47)/100)]^0.3333 X [OIL/((DXY+18.47)/100)]^0.3333 X [SP500/((DXY+18.47)/100)]^0.333.  DXY refers to the Dollar Index which measures our currency against six other foreign currencies.

Here is a graph of the formula:



Notice how September 12, 2008 had a value of 100.  We then saw economic conditions drop down to a 60 level, and hang out in that area until the beginning of March, 2009.  This is where the Financial Accounting Standards Board made its ruling that allows banks to lie, cheat, and steal.  It’s also when the Federal Reserve began buying US Treasury securities, Mortgage-backed securities, and Agency debt (Fannie Mae, Freddie Mac, etc.).  Everything has been a continuous climb upwards since then, and the above indicator is now above 100.  You can pretty much correlate the pronouncements in the media about the “recession being over” to mid-September on the chart when everything got back to a level of 100.

But you know what?  The above chart is worthless!  It doesn’t take into account what is happening in the credit market.  What would happen if we tracked a few of those indicators in addition to gold, oil, and the S&P 500?  That’s what I’ve done, and the result is what I have termed the Hamill Economic Indicator (HEI).

Here’s the formula for the HEI:

HEI = 2.015442506 X [GOLD/((DXY + 18.47)/100)]^0.2 X [OIL/((DXY + 18.47)/100)]^0.2 X [SP500/((DXY+18.47)/100)] X 3MTREAS^0.2 X 3MOIS^0.2.  DXY is the Dollar Index; 3MTREAS is the yield of 3 month Treasury Bills; 3MOIS is the 3-month Overnight Index Swap value.

Bringing in a few indicators that tie directly to the credit market helps to show just how bad of shape our economy is truly in.  Here’s the graph:



Like the first graph, this one begins with a value of 100 on September 12, 2008.  However, it shows that credit is continuing to be destroyed – and our economy is FAR away from recovery.  The Hamill Economic Indicator for today is a mere 25.86!  Also, notice how things have been gradually getting worse again since the end of July, 2008.

This chart should help you to see that our government is not being very “factual” with us.  It also helps to show why the Federal government is pulling out all of the stops to create more debt.  The Hamill Economic Indicator shows a devastating deflationary spiral occurring.  The government tried to pull out of it with the huge stimulus bill that was passed at the beginning of the year.  It did have a false-positive effect for awhile, but now you can see how it has failed.

Here’s another chart that breaks out how the individual indicators have behaved since the Lehman collapse:



We can see that gold performed well.  Oil and the S&P 500 performed somewhat well.  And the rest was a catastrophe, especially short-term US bonds.  Does this mean that everyone should go buy gold?  Not in my opinion.  My chart took into account the devaluation of the US dollar, thereby making those items that are based in dollars go up in value.  I fully expect the US dollar to hit the low to mid 90’s as we move along – not being surprised if it breaks 100.  This is COMPLETELY opposite of what most other economic theories postulate within the Christian community.  However, when you truly understand the concept of labor and debt in an economy then you can see where the US dollar will strengthen when deflation gets worse, not weaken.

People need to understand that the International Bankers and the Federal government are at two opposite sides of the spectrum when it comes to deriving their power.  The Federal government can ONLY derive power through inflation of the economy.  The International Bankers derive their power by having their debt slaves build wealth for a period of years – and then collapsing the credit that was used to help build that wealth so that they can steal the underlying wealth from the debt slave.

Everyone thinks that the Federal government and the Federal Reserve are partners in crime.  This isn’t true.  The Federal Reserve (controlled and run by international bankers) has complete power over the economic policy of the United States.  When it comes to the subject of economics, our President is just a sock puppet.  This is why we see him “imploring” (a.k.a. begging) the international bankers to begin creating new debt again instead of collapsing it: Obama implores top bankers to increase lending

Let me give you my best guess as to what’s going to happen.  IF Congress is successful in passing the new health care bill (which I believe they will be) then the government will have the ability to create HUGE sums of new debt, and will succeed is delaying our country’s economic collapse for the time being.  IF Congress fails to pass the new health care legislation then our country’s economy will accelerate downwards into a fully-recognized depression.

The Federal government needs to create huge amounts of new debt if their power structure is to survive.  Every time that you hear about a new government program for tax credits and/or rebates you need to be thinking this: “The government is trying to get me to go into more debt.  They don’t want to help me – they just want my debt to be created.”

This is where there are fantastic opportunities for those with cash.  If the government is going to give a tax rebate on new windows and insulation then pay cash and enjoy the reduced costs.  Just don’t go into debt to buy those things – it will just put you right where our government wants you.

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Watch for these indexes to drop:

Chinese Shanghai Composite Index: 3,302.90 (change of 1.10% from July 20, 2009 base value of 3,266.92)
Shenzhen Stock Exchange Component Stock Index (SSE): 13,940.44 (change of 4.18% from July 20, 2009 base value of 13,381.22)
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Here are today’s numbers for the economic indicator:

1) Gold = $1,126.40
2) Dollar Index = 76.35
3) Oil = $69.51
4) S&P 500 Index = 1,114.11
5) 3-month Treasury Bill yield = 0.02
6) 3-month OIS = 0.17

HEI = 25.86

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Here are the numbers for the day:

Dollar Index adjusted indexes:
Dow = (10,501.05) x (0.7635) = 8,017.55
S&P 500 = (1,114.11) x (0. 7635) = 850.62
Nasdaq = (2,212.10) x (0. 7635) = 1,688.94

3-month Treasury: 0.02

2-year Treasury: 0.85

10-year Treasury: 3.55

30-year Treasury: 4.48

2-yr vs. 10-yr Spread (Target > 273): 270 basis points

2-yr vs. 30-yr Spread (Target > 369): 363 basis points

3-month LIBOR: 0.25

3-month EURIBOR: 0.72

3-month OIS: 0.17

TED Spread: 23 basis points

LIBOR/OIS Spread: 8 basis points

Dollar Index: 76.35

Volatility Index: 21.15

JPY-EUR Exchange Rate (Target < 115): 130.0264

JPY-GBP Exchange Rate (Target < 145): 144.7318 (Danger Zone)

JPY-USD Exchange Rate (Target < 90): 88.731(Danger Zone)

USD-EUR Exchange Rate (Target < 1.25): 1.4654

USD-CNY Exchange Rate (Target > 7.0): 6.8282

Warmly,

Brad

Comments or questions?  brhamill@hamill.com