Financial Darwin Awards, Courtesy of The Daily Reckoning

Nice slide show by our friends at The Daily Reckoning - informative, and entertaining!

The Daily Reckoning's Unofficial Unauthorized Financial Darwin Awards

View more presentations from Agora Financial.

And a little while back, we reviewed their latest book, Financial Reckoning Day Fallout.

Nothing's Changed - Stocks Topping, Dollar Bottoming

Did the intermediate top in stocks occur earlier this week? We won't know for sure for many months, but it certainly COULD have been.

The rally has been running on fumes for month, yet still moving upwards despite the naysayers (such as myself), as the S&P pushed above the 1100 mark (raise your hand if you expected that when the S&P was bottoming at 667!)

Nevertheless, all good things must come to an end eventually - and while this rally has been an impressive one, it's magnitude has occurred completely within the normal confines of a bear market rally.

A couple of weeks back, we compared the 2009 rally with the 1930 stock market rally, and found a lot of similarities. Of course you can find similarities in anything if you look hard enough, but my point was that whether or not this rally was for real was still "to be determined", as thus far it's done exactly what it was supposed to - make everyone think that it was OK to get back in the waters.

Remember earlier this year when stocks were again "risky"? Not anymore! Every drop is once again a buying opportunity. Which is exactly when things get the most dangerous.

For fellow "armchair stock market technicians", The Daily Reckoning's Eric Fry cited "a very serious negative divergence" pointed out by options expert Jay Shartsis:

"The new Dow highs have not been confirmed by the widely-based Value Line (over 2300 stocks)," Shartsis points out, "and divergences between these two indices have marked important turning points in the market in past years. This divergence, in my opinion, trumps the still bullish sentiment data and calls for a stock thrashing dead ahead.

"Traders should also note that a head-and-shoulders top is building on the Value Line Index," Shartsis continues, "with the right shoulder top lower than that of the left - an extra bearish element. At the current 2,138, the Value Line is about 4% from a new high and it doesn't look like it is headed back to that level any time soon."

Source: The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

What's the script when stocks turn down? The market gave us a sneak preview last year - it's everything else down too, dollar up!

Now may be an interesting time to pick up some cheap put options on the S&P, especially some of the "black swan" variety, in case this downturn has some umph behind it!

Ed. Note: On Sunday we reviewed Financial Reckoning Day Fallout, the latest book by the authors of The Daily Reckoning.

Scary Chart of US Consumer Credit...Yikes!

To say that consumer credit is contracting in the United States may be a bit of an understatement!

Can you spot the trend in consumer credit?

Contracting credit is the crux of Robert Prechter's deflationary thesis - something we've been discussing at length in this space.

How about another haiku to summarize?

Credit's going poof

As gold rockets through the roof

Did I miss something?

This chart was originally published in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Get Ready for 19 Years of On/Off Deflation If History Rhymes

We keep hearing how US households are paying off their debts. The important question is - how much debt is left to be paid off?

For some insights into how much painful deleveraging may be left - I'd like to share what Bill Bonner wrote in today's Daily Reckoning (an excellent free email newsletter by the way):

***

Harvard professor Ken Rogoff says it will take 6-8 years for households to reduce their debts to a more sustainable level. Let's see. We reported on Friday that the big upswing in credit over the last 60 years added about $35 trillion in excess debt to the system. But not all of that is private debt.

Taking the period of the bubble years, in 2000 total debt in the United States came to $26 trillion. Now, it's twice that amount - $52 trillion, of which $38 trillion is private...or more than two and-a- half times GDP. At this level, the private debt absorbs roughly one out of every seven dollars in consumer earnings - in interest and principal payments.

If the private sector undertook to reduce debt back to 2000 levels, it would mean eliminating all the debt accumulated during the bubble years - or about $19 trillion. How long will it take to pay down, write off, inflate away and otherwise shuck $19 trillion? Well, inflation is running below zero - so that is not now a source of debt reduction.

Between write-offs and pay-downs, about $2 trillion has already been cut - over, very roughly, the last 2 years. At least the math is easy.

At that rate, it will take 19 years.

Now, let's go back and look at the Japanese. How long have they been deleveraging? Gosh all mighty...19 years. From 1990 to 2009.

***

For more on deflationary possibilities, here's a case study we did last week on debt deflation.

Great Essay on the Threat of Hyper-Deflation

Yesterday in our weekly column, we kicked around the possibility that the hyperinflationists are wrong...or at least early to the party.

My piece was also picked up by Seeking Alpha, and you should check out the comment stream from livid gold bugs and monetary purists!

I get a kick out of folks that truly believe they "know" what's going to happen in the world of finance. In reality, we've all got something in common - none of us have a damn clue! I've learned to enjoy the banter between various opinions, and try to factor all reasonable points of view into my outlook. If there's one thing that can lead to ruin, it's being wed stubbornly to one point of view.

On that note, yesterday was fun, as we jumped sides and started waving the flag of the deflationists...much to the consternation of the commenters over at Seeking Alpha!

If yesterday's piece was up your alley, here's another deflation argument that's a beauty - courtest of Bill Bonner at The Daily Reckoning. I think Bonner's essays are works of art - the guy can absolutely write, and his contrarian views are always extemely intriguing. Here's a quick excerpt, with the full essay here:

Deflation is the immediate problem. Our guess is that it will be deeper and more vexing than even they believe. The feds’ money machine is broken. They can add reserves. But they can’t turn the reserves into price inflation at the consumer level. Result: deflation…maybe hyper-deflation. But far from eliminating the danger of hyperinflation, falling prices practically guarantees it. In other words, it’s not inflation we worry about; it’s the lack of it.

Related reading: Is Deflation "So 2008"? Hyperinflation Trade Looking Crowded

Economic Analysis is for Turkeys

A hysterical and insightful turkey analogy in today's Daily Reckoning:

"Until today or tomorrow, the typical turkey enjoyed a fairly decent life," commented our friend Nassim Taleb, in Zurich yesterday.

"You can understand how fraudulent most economic analysis is," Nassim explained, "just by looking the life of the turkey. The animal is fed for 1000 days...and then it is killed. So, if you plotted out the turkey's life on a chart, it would look great for 1,000 days...each day, the food arrived reliably, and each day, the turkey gained weight. The turkeys would look around and say they were enjoying growth and a bull market.

Momentum investors would see it as an opportunity. The quants would run linear regressions on the data and prove that the risk was minimal. "

Ben Bernanke would describe the turkey's life - with no setbacks - as the product of a "great moderation." Turkey stockbrokers would assure their clients that nothing had ever gone wrong in the turkey's life. Turkey econometricians and theorists would come up with explanations for why the turkeys' growth would continue forever and they'd pat each other on the back for having finally mastered the "turkey cycle." Turkey politicians would run for re-election on the grounds that they had helped create a better world. And turkey economists would project further weight gains...until the turkey was the size of a hippopotamus

Then, come Thanksgiving, and all of a sudden, something goes wrong. Alas,

all the turkeys' theories, models, and conceits were for the birds.

"Rare events can't be modeled," Nassim continued. "Because they are too rare. You can't get a statistically reliable sample. Alan Greenspan recently explained that he 'had never seen anything like this before.'

Well, of course he had never seen it before. It never happened before.

"Because these events are so rare, they are also completely unpredictable...and usually much worse than you can expect. Like Thanksgiving Day for the turkey."

China Discovers Credit Cards

Oh man - if you thought the US could create a credit bubble, you ain't seen nothing yet.

The always entertaining Mogambo Guru of the Daily Reckoning comments that an increase in Chinese citizen credit card usage "is also in line with government goals."

This is a country that saves a huge percentage of their income, and has very little debt, so there is no shortage of dry powder raring to go. These people are not going to give up the amazing progress they've achieved over the past 5-10 years.

No matter what fate awaits the US, the commodity bull market is alive and well.

Daily Reckoning article: Commodity bull run in early stages

I find it's always good to check your assumptions periodically. It's even better to check them again. And better yet to recheck them one more time.

I have a long term belief that the commodity bull still has years to run. And it's refreshing to step back, look at the big picture (especially on down days), and realize that no, yesterday wasn't the absolute top of the bull market.

For a quick refresher, check out this solid article by Puru Saxena for the Daily Reckoning, outlining why the commodity bull has plenty of room left to run.

Daily Reckoning: Peak Food

Great essay (as always) by Bill Bonner in today's Daily Reckoning.

Very interesting that corn stocks are still near a 33-year low, even with the "high" corn prices over the last year. Even the bumper harvest of last year couldn't low down the rising prices - too much of it is going into gas tanks.