By John Galt

November 4, 2009

Today the media celebrated more grandiose economic news.  First, they proclaimed the great news that Government Motor’s sales increased 4.7% month over month. Since year over year numbers are not important now because they do not look so hot and you can not compare a “private” GM to a “Government owned” GM now, let’s ask the question:

If you fall down a 100 foot deep well, climb up 4.7 feet to try to save yourself, does this mean you are saved?

Uh, no, you still have another 95 feet to climb and guess what? Japan, the EU, South Korea and the Obamanation just happen to be pouring slippery doses of competition and tax oil down the sides to insure you fall back to the bottom. When you hear the economic data, let us keep it all in perspective, please.

What do I mean by that? The Manufacturers’ Shipments, Inventories and Orders report from the Department of Commerce (Links to PDF of report) for September was widely reported as a 0.9% increase. For the seasonally adjusted numbers month over month that is true. But in reality, the first table for Manufacturers’ shipments year over year was down from last year’s deep in the recession abysmal number without seasonal adjustments by 14.5%. Thus once again, when you start to dig into the numbers and look at the big picture, it is not as good as you think. If you think that headline number is bad, there is worse news: Machine orders, down; Iron and Steel manufacturing, down; Material Handling equipment, down;  Computers, down;  Semiconductors, down; Automobiles and Light Trucks, down; Non durable goods, down hard. You see where I am going?

Despite the popular Bubblemedia take on the reports, once you dig down, what matters, what moves America forward, what manufacturing we need to restart our economy is declining still. Thus why I think Friday’s unemployment report could put a nail in this bear market rally’s coffin once and for all. If you look at the charts below of the Wilshire 5000 and IWM (Russel 2000 ETF) you will see why I’m now bearish and think the divergence of dollar weakness with equity weakness could become the new theme in the weeks ahead. For comparison’s sake, first my dollar theory as the UUP tanked after a brief rally going against all technical indicators and compared with gold via the GLD ETF:

The two huge volume spikes confirm Gold’s move and despite the need for a respite, geopolitical events and gold’s India party have overtaken the inactivity of the Fed and ECB to prevent such a move. Next the consequences of smart money not believing in this “Obama Economic Miracle” being reflected in the non-internationalized small business indexes of the Wilshire 5000 and Russell 2000:

I think by Monday of next week, the 50 DMA flattens out and rolls over moving south for a while. Just like the IWM:

Although the volume on the IWM seems to be increasing as the selling does, we have not seen any final capitulation despite the intensity of recent selling. I figure we roll over on the unemployment data and could see a rather dramatic sell off in mid and small cap equities by week end.

So keep climbing up the well walls and if you’re lucky, or starving, or thirsty, maybe one of those Indian gold buyers will toss you a smoke.

By John Galt

November 4, 2009

Well, I think China is the one who might want a smoke now.

You see, India, today, enjoyed the ultimate in the equivalent of geopolitical sex. How good is it to be India today? Let’s check out the headline from the Wall Street Journal tonight:

India Buys 200 Tons of IMF’s Gold Allotment

Move Seen as Effort to Diversify Reserves Away From the Dollar

Whoops. That wasn’t supposed to happen. And how China could not have possibly seen this coming and liquidated their positions in the futures as soon as the news leaked out mid-day indicates that they did not expect it, were shocked by it and now have to decide to either commit to the remainder of the IMF gold sale (about 50% is left) or to allow other BRIC nations to fill the void. Just a sec, India is taking another draw on that stick…..exhale, ahhhhhhh…..

So how bad did India screw China today? Let’s check out the charts….

China which is normally an aggressive investor paused thinking as I did that dollar strength would return on a technical basis and that gold would weaken. Well, so did a lot of other folks but apparently the geopolitical world is shifting overnight.  In one day with this announcement, India was able to screw over all of its historical enemies, the Arabs and radical Muslims of the OPEC infested Gulf and China. Take another draw on that coal New Delhi, you’ve earned it.

In one day, the Indian central bank and government put a FLOOR under the price of gold all but insuring that the 50 DMA is intact now for the short and intermediate term and the 22.6% rally in gold could well explode into a 35% plus annual move if not more considering the instability with the Iranian situation and the serious instability located in the D.C.-New York/Wall Street corridor. They blew up every dollar long that wanted to make a serious move to squash the commodity rally, revived Dr. Copper to validate its recent moves and now forced a potential panic in the coming days and weeks forcing a dollar liquidation and panic to buy gold as rapidly as possible to lock in the price above the new floor (I project that at $1016 to $1030 as the lower end of the range now for at least five months barring a shocking development). “Cough”, watch out for that second hand smoke. How did that taste ChiComs?

Understand also that the FOMC of the Federal Reserve reveals their wisdom tomorrow but this move indicates that the emerging world voted today:

We don’t want your stinkin’  dollars.

So be patient if you’re Dell barfs, your delivery is late or your computer gives you a blue screen because that coughing sound is your customer service rep in Mumbai exhaling one of those evil over-taxed American cigarettes Americans used to enjoy after sex back in the old days. The nation of India got everything it could ever dream of and more; like a stable base of insurance to assure their nation’s survival as the Fed and our corrupt financial and political system elects to destroy our currency to avoid the hard choices.

Hell boys and girls down there, light up one for me. It’s not politically correct to celebrate being smarter than the rest of the world or enjoy oneself in America any more.