The Bitter Medicine for the States. On a map, it appears that the United States is made up of 50 states. The fiscal reality is that we have 20. Portugal’s, 15 Italy’s, 10 Irelands, 3 Greece’s, and 2 Spain’s.

In Q1, state and local GDP shrank by 3.8%, chopping growth at the national level by 0.5%, the sharpest drop since that last year from hell, 1981. States are shoveling money out of the economy nearly as fast as Obama is shoveling it in. During the bubble, the states thought incomes were higher than they really were, were richer than they really were, and bulked up on services as if the party would go on forever.

As a result, services grew faster than the economy for many years, especially when it came to building new prisons. Because of the ephemeral nature of property and stock gains, that movie now has to run in reverse, and state services have to shrink down to what they can afford.

During the last two recessions, state and local governments hired, easing some of the pain at the local level. Not this time. Teachers, policemen, and firemen have been laid off with reckless abandon, the oldest and most expensive usually targeted to go first. Obama is going to have to come up with some sort of “Marshall Plan” for the states to enable them to transition out of their structural deficits towards fiscal soundness.

Target number one is going to have to be entitlements, primarily state employee pension payments, which in many cases now exceed those in the private sector. The headache is so huge that it is mathematically impossible for any tax increase to address the shortfall alone. No action now brings slower economic growth, fewer jobs, and a paucity of votes in November. This is all one reason why I am pounding the table for a long term growth rate of 2%-2.5% which the financial markets have only recently started to embrace.

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Arnold Missed it by a Mile

P.S. If you’d like to sit side by side with me and let me help you multiply your portfolio like a winning hedge-fund manager then I’m happy to mentor you and share my specific trades as I make them just click here to get details on my breakthrough Macro Millionaire coaching program & trading service.

Yesterday was do or die day for stocks and commodities to breakout but they failed once again at resistance. The US Dollar in overnight trading has made a strong move up and that is putting pressure on stocks and commodities. Gold touched a key resistance level yesterday as expected and sellers quickly sold it back down along with silver. Crude Oil continues to pullback to our target of $88 per barrel. We continue to let the market work it’s self out before taking anymore action.

Watch this short video covering the dollar, gold, silver, oil and the SP500 –Click HERE–

Courtesy of Mish

How long can the ECB kick the can down the road? How big a hole will Greece dig before the ECB, the EU, and IMF realize that “Plan A” (austerity will fix problems by 2013), cannot possibly work? Is the amount of money the EU, IMF, and ECB willing to throw at Greece unlimited?

Those are the questions on my mind as I read How the Euro Became Europe’s Greatest Threat on Der Spiegel

In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions.

For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn’t working. We need a Plan B.

If it wasn’t for the euro, Greece’s debt crisis would be an isolated problem — one that was tough for the country, but easy for Europe to bear. It is only because Greece is part of the euro zone that Athens’ debts are a problem for all of its partners — and pose a threat to the common currency.

If the rest of Europe abandons Greece, the crisis could spin out of control, spreading from one weak euro-zone country to the next. Investors would have no guarantees that Europe would not withdraw its support from Portugal or Ireland, if push came to shove, and they would sell their government bonds. The prices of these bonds would fall and risk premiums would go up. Then these countries would only be able to drum up fresh capital by paying high interest rates, which would only augment their existing budget problems. It’s possible that they would no longer be able to raise any money at all, in which case they would become insolvent.

But if the current situation continues, the monetary union will invariably turn into a transfer union, a path the inventors of the euro were determined to prevent.

Democratic Deficiencies

The euro’s founding fathers did not anticipate such a crisis, and thus did not include any provisions for it in the European Monetary Union’s set of regulations. The euro welds together strong and weak countries, for better or for worse. There is no emergency exit, and there are no rules to follow in an emergency — only the hope that everything will turn out well in the end.

The euro, created with the aim of permanently uniting Europe, has become the greatest threat to the continent’s future. A collapse of the monetary union would set Europe back by decades, dealing it a blow from which it might never recover, especially with Europe’s position already threatened by the fast-growing Asian economies. How is a fragmented Europe to prevail against this new competition?

This is why Europe’s politicians want to defend the euro at all costs, and why they are approving one bailout package after the next. They are playing for time, hoping that the markets will settle down and the reforms will take hold.

Those snips were all from the first page of a five page article. Inquiring minds may wish to give the link a closer look.

Lend-and-Pretend (Plan A) is clearly not working. Yet ECB president Jean-Claude Trichet insists it “must” work.

Why?

Because there is no Plan B, and more importantly Because Trichet insisted there be no Plan B. Such is the nature of stubborn, arrogant fools.

The “Golden Trading Vehicle” that has nearly 100% accuracy CLICK HERE

By Jeff Clark, BIG GOLD

Have you considered what will happen to your portfolio―and all the other areas of your life―if the dollar fails? The ramifications will be widespread, painful, and inescapable if you’re not properly diversified.

Last month, I attended the Global Currency Expo sponsored by EverBank. The overarching theme, as you might expect, was that diversification out of one’s home currency is paramount. While there were plenty of traders on hand, it was the big-picture talks that had the most pressing messages.

I came away feeling that I needed to reexamine my exposure to the dollar. Have you considered what will happen to your portfolio―and all the other areas of your life―if the dollar fails? The ramifications will be widespread, painful, and inescapable if you’re not properly diversified.

With that in mind, I want to pass on some highlights from a few speakers, along with their investment recommendations… many of which were framed as the “trade of the decade.”

Frank Trotter of EverBank Direct stated that the U.S. dollar “will see a significant decline in the next 5-10 years.” His five favorite currencies for the next decade are the Swedish krona (which he thinks is better than the Swiss franc), the Norwegian krone, the Australian and Canadian dollars, and a surprise, the Brazilian real.

Eric Roseman of Commodity Trend Alert warned that we’ll see a food crisis within three to five years. He’s convinced China will become a net importer of agriculture, which will have major ramifications around the globe. His trade of the decade is the exchange-traded note for grains, JJG.

Sean Hyman of World Currency Watch said his trade of the decade is the Singapore dollar (SGD). “Buy it and forget it.”

Doug Casey also spoke; he laid out five “sure things” for the next ten years:

1. Short bonds/bet on rising interest rates
2. Short the yen/go long on Japanese small- and mid-cap stocks
3. Borrowed money: “It’s an excellent way to short the dollar, and you get a tax deduction.”
4. Gold: “It’s not cheap, but it’s going higher. Buy it and store it abroad.”
5. Small-cap mining stocks

Rodney Johnson, president of HS Dent, got some audible groans from the audience when he claimed the trade of the decade was the U.S. dollar versus the euro. He’s convinced that deflation is coming and that inflation hedges will get hurt. He predicted that the dollar will rebound and that interest rates and prices will fall. While it’s always healthy to check one’s assumptions, I heard no reason to change my mind about the dollar’s long-term woes. Interestingly, most of the speakers do expect the dollar to temporarily strengthen this summer, though they have no doubt the currency is ultimately headed to the graveyard.

But the most thorough and convincing presentation by far came from Chuck Butler, president of EverBank World Markets and a 35-year currency analyst. If anyone knows currencies, it’s him. It’s been said that he’s advanced awareness of the currency markets more than almost any other banker working today.

Chuck outlined the case against the U.S. dollar with damaging conviction. He pointed out that the pound sterling was the world’s reserve currency until WWII, and “we became the reserve currency by financing England because they couldn’t pay their debts and had diluted their currency… They needed assistance from other countries to service their debt and had overextended their military.” Sound familiar?

He noted that China, with little fanfare, started signing swap agreements in 2009. To date, they’ve signed agreements with much of Asia, the European Union, Canada, Russia, Brazil, Belarus, Argentina, and will soon with Japan and Korea. There are even rumors of them working on currency swaps with the Arab nations. He reminded us that China’s president recently stated publicly that the U.S. dollar is a “product of the past.”

The scary ramifications of this were couched in a stark warning: “The U.S. dollar will lose its reserve currency status sometime between 2014 and 2020. There will be no trumpet; it will just happen.”

He said SDRs (Special Drawing Rights) from the IMF may be used first, but that it won’t matter since the dollar losing its reserve status is “inevitable.” He, too, felt there will likely be some strength in the greenback this summer, but that this will change nothing in the long-term picture.

When it comes to preparing one’s investments for this eventuality, Chuck stated that “94% of investment return is based on the asset-class selection, and a low covariance with other assets.” On a practical basis, this means owning an investment that is not correlated with U.S. stocks, and one that is not denominated in U.S. dollars. He said the key to diversification is applying the same logic you would to stocks: “You wouldn’t buy just one stock, so why would you own just one currency?”

He likes the renminbi, which can be played via CYB or CNY. He also likes the Singapore dollar, the Norwegian krone, and the Swedish krona.

The point of the weekend was to examine one’s portfolio from the point of view of a failing currency. It won’t matter too much how diversified your stocks are if they’re all exposed to the same currency. If this outlook turns out to be correct―and I see no way around it―then the U.S. dollar will undergo a sea change that will erode and ultimately destroy any investment backed by it.

So, how much exposure do you have to the U.S. dollar? And what happens to your portfolio when the greenback reaches its ultimate resting place? Even if you think it avoids becoming fancy green toilet paper, prudence suggests that you at least consider preparing your investments for a prolonged erosion. By the time you carry your investment “bucket” to retirement, the persistent leak from dollar devaluation could buy half of what it did ten years earlier. Will this be acceptable to you and your family?

Gold and silver are one of the easiest and simplest ways to diversify out of the dollar, regardless of one’s portfolio size. They are a confidential, personal, and immediate purchasing-power protector. Pretend your financial life depends on it, because the abuse continually heaped upon the dollar doesn’t come free of consequences.

FREE Special Report: Learn all about how, when and where to buy silver… which forms of silver are the best to own… and why we could soon be running out of silver altogether… in Casey Research’s 2011 Silver Investing Guide. Read and download it for free here.

All eyes are on Greece as the vote will be taken this afternoon at five o’clock Eastern standard Time. That is a vote of confidence on the last 30 measures and also on the government. As you know, the market has been in an oversold condition and I think today’s rally was reflective of that move from an oversold condition. Crucial 5 PM Vote comes in when the markets are closed. If there is a vote that is negative then these markets will come crashing down tomorrow. This is just like gambling in that no one knows what’s going to happen with the Greek government. My own view is if they do agree on what they’re doing it will just be kicking the can down the road.

Here’s some of the analysis you will find in Adam’s video:

S&P 500: +55. The market action continues to reflect a trading range. Yesterday we mentioned that this market was at the lower range of the channel and expected amounts. Today is that bounce. Major downside support is at $1,250.

Silver: +55. This market continues to contract and it does look like it is getting ready for a move one way or the other. We would wait for our trade triangles to kick in to give us that direction. Market is oversold and expect to see a bounce from current levels. Near term resistance at $39.00. Support at $34.00.

Gold: +100. All systems are go for gold and we expect this market to do better. The Donchian channel has resistance at $1,353 today. Major support at $1,513.

Crude Oil: -100. Today’s action in crude oil is very negative. The trend in crude oil is clearly down with all of our Trade Triangles in a negative position. The market did bounce as we expected from the lower levels of the Donchian channel. Look for more two-way action in this market.

The Dollar Index: -80. Our indicators are still negative longer-term for the dollar. Minor support at $74.00. Major support at $73.00. Look for a test of the lower line of the Donchian channel which comes in at $73.54.

The Thomson Reuters/Jefferies CRB Commodity Index: +55. We are at the lower end of the Donchian channel and the market is oversold. We would not rule out some sort of bounce from current levels. Market still appears to be in a broad trading range.

Tim Iacono

Manufacturing conditions in the Northeast have deteriorated rapidly over the last month, the New York Federal Reserve reporting that the Empire State manufacturing index dipped into negative territory for the first time since last November.

In a survey where readings above and below zero indicate expansion and contraction, respectively, and with a consensus estimate for a reading of +10, the general business conditions index fell almost 20 points, from +11.88 in May to -7.79, in June while the important new orders component fell even more sharply, from +17.19 to -3.61.

Shipments plunged from +25.75 to -8.02 and about the only good news in the report was that prices paid saw a modest decline, down from 69.89 in May to 56.12 in June, a reading that is still quite high by historical measure.

An Environmental Activist’s Take on the Markets. I spent an evening with Lester Brown, president of the Earth Policy Institute and a winner of the coveted MacArthur Prize, for some long term thinking about the environment and its investment implications.

Global warming is causing the melting of ice sheets in Greenland and Antarctica, glaciers in the Himalayas, and the Sierra snowpack. Water tables are falling and fossil aquifers are depleting. In the coming decades this will cause severe shortages of fresh water that could lead to crop failures in India and China, where one billion people depend on mountain runoff to irrigate crops, and even California, which delivers 80% of America’s vegetables.

The fresh water inputs in one person’s food and materials consumption works out to some 2,000 liters a day. That is no typo. As a result, all food prices will rise. To head off the greatest threat to the global food supply in human history, we need to cut carbon emissions by 80% before 2020, not 2050, as is being discussed in Copenhagen.

This can only be accomplished by redefining food and the environment as national security issue and launching a wartime mobilization. These difficult goals are achievable. Enough sunlight hits the earth in a day to power the global economy for a year. Texas alone has 20 gigawatts of wind power operating, under construction, or planned, enough to take 5% of our 250 coal fired power plants offline. Electricity demand could be cut by 90% purely through greater efficiencies, like switching from incandescent bulbs to LED’s.

Europe could get its entire 300 gigawatt power supply from solar plants in North Africa at current market prices. Cars powered by wind generated electricity would bring fuel costs down to an equivalent 75 cents a gallon, as electric motors are three times more efficient than internal combustion engines.

While Brown’s predictions are a little extreme for many, they mesh perfectly with my long term bullish cases for food and water plays. Take another look at the food sector ETF’s, (DBA) and (MOO), and the water space ETF’s (PHO) and (FIW).

P.S. If you’d like to sit side by side with me and let me help you multiply your portfolio like a winning hedge-fund manager then I’m happy to mentor you and share my specific trades as I make them just click here to get details on my breakthrough Macro Millionaire coaching program & trading service.

Good afternoon and thanks for stopping by for the 1PM Afternoon Update. During today’s update, we’ll be looking at how the major markets are faring today. INO.com president and MarketClub co-founder Adam Hewison shares his decades of trading and investing knowledge LIVE every weekday through his afternoon market updates and each Thursday evening on MarketClub TV.

** Note: All of the MarketClub updates will now be available through INO TV. Though you do have to register for INO TV, it is completely FREE and best of all, it will let you find all of MarketClub’s videos in one place. You only need to register one time and then you have access forever!

INO TV is designed to take your trading to the next level by providing you with educational resources to help you recognize and capitalize on these trends. To gain access to your educational videos, training resources, and recent market forecasts from MF Global and INO.com,

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The coming summer should be exciting for traders! While summer trading generally tends to be slow, this one could be different. A large number of other professional traders I talk with are all feeling the tension building in the market. We all think some big movements are just around the corner and the big question is which way are things going to move?

Depending on your trading style you may be viewing the recent market action as the beginning stages of a bear market (major sell off). A bear market is not necessarily impossible as the U.S. Economy is showing the beginning signs of weakness. The fact that stocks have moved lower for almost 6 weeks straight is a recent reminder that we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.

In contrast, some traders may be seeing this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009. Some traders may see this as a buying opportunity because you are a contrarian. Most contrarians generally want to do the opposite of the masses (herd) who are merely trading purely out of emotional sentiment.

I myself have mixed thoughts on the market at this point in time. I’m not a big picture (long trend forecasting) kind of guy but my trading partner David Banister is great at it. Rather I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting 3-60 days in length. So looking forward 2-5 days I feel as though stocks and commodities are going to bottom and start to head higher for a 2-6% bounce. At that point we need to regroup and analyze how the market got there… Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?

During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.

OK let’s take a quick look at the charts…

Dollar Index 4 Hour Candles
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.

Crude Oil Chart – Daily
Oil took a swan dive in early May and has yet to show any signs of moving higher. Actually crude oil is looking more and more bearish as time goes by.

Silver 4 Hour Chart
Silver has formed much of the same pattern that oil has. On a technical basis its pointing to sharply lower prices still. The fact that silver bullion went from an investment to a speculative trading instrument within the past 8 months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.

Gold 4 Hour Chart
Gold has held up much better than other metals and commodities and I feel that is because it’s still seen at the REAL safe haven. But reviewing the chart Im starting to see bearish price action beginning to take place.

SP500 Futures – 10 Minute Chart Going Back 8 Days
Last week the SP500 continued to show signs of weakness. Any bounce in the market was on light volume and that is because the sellers took a break and let all the small traders buy the market back up. But once the market moved up enough then sellers jumped back in and unloaded their shares.
Last Thursday I sent out an update to members pointing out that lower prices were to be expected. I came to this conclusion because of many data points. Looking at the chart you can see sellers are clearly in control. The SP500 bounces high enough that it reached a key resistance levels going back 5 days. Also the 200 period moving average was at that level. To top that off my sentiment reading for the herd mentality was at a point which sellers like to start dumping their shares again.

Weekly Market Trading Conclusion:
In short, I am getting more bullish for a bounce as the market falls. But once we are into day 3 or 4 of a bounce we must be ready to take profits and/or look for a possible short setup.

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Chris Vermeulen