Annuitization of your 401k

If deficit spending and debt issuance is not curtailed, investors could find their 401k commandeered to fill the void.

But there is also a chance that they could rely on a new form of bond — an “R bond” - as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.

Why the need to create R bonds when Treasuries exist? Moreover, why do Americans need retirement annuities when social security already exists? Why create redundant markets and programs...unless...something jeopardizes their existence.

If it looks like something is wrong, something probably is wrong.

This is why the action or technical war in the bond market is so important. A technical breach in long bonds could unleash a wave of selling, a systemic shock, let's not call it default, that will carry broad economic and social consequences. Clearly, those in charge are aware of the burgeoning risks.

Source: pionline.com
Source: brookings.edu

Gold Stock Review

Strong hands continue their attempt to drive out the weak in the gold stocks (and gold) on worries that another sharp decline in equities is imminent. Even if that is the case, does it matter?

Does the trend in equities, S&P 500, set the direction for the gold stocks? While the gold stocks and equities tend to move in the same direction over the long term, the strength and direction of that correlation can change with economic conditions. For example, long-term asset correlations illustrate how the gold stocks and equities can move inversely during depressions such as 1929-1942. The strength of the long-term correlation can weaken during periods of devaluation such 1968-1980. Both of these periods are characterized by dollar devaluation. The constant between the two periods is the strong correlation, greater than 0.80, between gold and gold stocks.

Fear, however, tends to give little consideration to historical facts. The assumption that naked shorts will alter the historical correlation between gold and the gold shares in 2000-2025 is a big one.

The downside force in the gold stocks continues to weaken. The test and close above the breakout gap on shrinking volume are bullish setups. There could be few or many of them. The intensity of fear right now favors the latter.

Amex Gold Miners Index ETF (GDX)


Quick look at TRE shows shrinking volume at neckline support. The window of time is also open. Buckle your seatbelts. TRE's tape is growing in size. This suggest an increase in violence and emotions going forward.

Tanzanian Rty Explr Co (TRE)


Source: Definition of correlation

Long Term Asset Correlations

1925-Present:


1929-42:


1968-80:

Consumers save more, spend less: study

The rate of U.S. household consumption is likely to fall from its current level, causing the saving rate to rise to about 6 percent of disposable personal income from nearly 5 percent in 2009, the study found.

The next expansion will be sown from the seeds of current and future savings rather than devaluation. Unfortunately, currency devaluation discourages savings by penalizing idle cash (cash being devalued). This makes economic depressions, defined as periods of reduced consumption and increased savings, long and difficult.

Personal Savings to Income Ratio:


Source: reuters.com

Struggling towns printing their own cash

In an echo of the Great Depression, local currencies with their own special flavors are popping up all over in attempts to give commerce and communities a lift.

In most cases, these communities are simply looking to boost local commerce. The currency has to be spent in town, obviously, because it's worthless anywhere else. But a growing distrust of the U.S. dollar is also at work.

A human interest story that also hints at growing distrust of money and those that manage it.

Fewer banks imposing new loan hurdles; demand low

Even though banks aren't imposing new restrictions on most loans, they aren't ready to ease the tough loan standards put in place during the financial crisis. Banks "have yet to unwind the considerable tightening that has occurred over the past two years," the Fed said.

Reminds me of the old phrase, you can lead a horse to water, but you can't make it drink. People, like horses, will only do what they have a mind to do. The real world, unlike spin, obeys the constraints of income, debt levels, and confidence in one's ability to maintain that income and service the debt. People will not borrow, regardless of the standards, if they feel that it jeopardizes their existence. The year-over-year changes in key credit series at commercial banks reflect this growing concern.

Source: finance.yahoo.com

Personal incomes, consumer spending up in December

Personal incomes rose more than expected in December and consumer spending increased for the third straight month, helping the economy slowly recover from the worst recession in decades.

Today's personal income (PI) trend, in terms of both velocity and acceleration, look extremely tame in comparison to the 1930's Great Depression.

Long Term Personal Income Trend:


I warn you not be lulled into a state of apathy by the illusion of statistics. Personal income, like most government statistics, has been altered many times. These alteration are called data revisions.

As a rule, data revisions tend alter the present relative to the past. In other words, the revisions alter the calculation of the data - usually no more than 5 years. Thus, data revisions tend to adjust the front end, either up or down, without change to the back end. The bias of altering the present relative to the past is one of the core drivers of economic spin or MOPE.

For example, the last data revision to PI occurred around 2007. It came at a time when the series began displaying a sharp deceleration. The statisticians simply revised the data from 2004 and turned red into black without much fanfair - except for a quick note to Jim from me on jsmineset.com.

Personal Savings As A $ of Personal Income: Before and After Data Revision from 2004:


Consumption relative to income, as illustrated by the Real Funding Pool chart, remains historically distorted. Savings and investment, not consumption, will fund the next expansion. As savings builds, it must come at the expense of consumption. Unfortunately, nearly 70% of GDP comes from consumption. If Americans are encouraged to consume less and save more, GDP would decline without significant increases investment, government consumption, and/or net exports. You don't see many elections won on the platform of declining GDP, so don't expect many policies to encourage savings over consumption.

Personal Consumption As A % of Personal Income or "Real Funding Pool":


Source: finance.yahoo.com