Dow Closes Above 11,000; This Rally Has Ignored Fundamentals, and Will Be Corrected Painfully, Hussman Says  The market rebound we've experienced is near an end, and we should have seen it coming, according to John Hussman of Hussman Funds… Here's a breakdown of why Hussman thinks that, even if you ignore questions about the banking system, this market is clearly in line for a correction.

As such, says Hussman:

This outcome is not dependent on whether or not we observe a second set of credit strains, but is instead baked into the cake as a predictable result of prevailing valuations. The risk of further credit strains simply adds an additional layer of concern here. Investors have chased risky securities over the past year to the point where the risk premium for default risk has eroded to the levels we saw at the peak of the credit bubble in 2007.      MY SENSE IS THAT THIS IS A MISTAKE THAT WILL BE PAINFULLY CORRECTED.    Investors now rely on a sustained economic recovery and the absence of any additional credit strains - and even then would be likely to achieve only tepid long-term returns from these levels…

[$$] Losing Big -- Winning Anyway Does moral hazard even exist anymore? The list goes on -- auto companies, banks, insurance companies and now countries.

HAL 9000s Keep Dow at 11,000: Dave's Daily  Dave's Daily  By Dave Fry, founder and publisher of ETF Digest and author of the best-selling book Create Your Own ETF Hedge Fund. HAL 9000s KEEP DJIA AT 11K There's no need to make this stuff up anymore since end-of-day stick saves are right there and in your face. No pretense or deception is necessary anymore. When you have "other people's money," including the taxpayers to work with; you can do what you wish and not be called-out on it. Who's going to do that anyway, the financial media?  LOL!!! Anyway, the media got the headline number they wanted and Main Street is no doubt impressed.  Now to the hard part--earnings. Starting with Alcoa (which just reported a miss) will be followed by important companies like Intel and Bank of America. There isn't much in the way of economic news until Retail Sales and the Fed Beige Book on Wednesday. Monday's volume was pathetically light; so managing the market higher was easy for those who could … Per Investopedia:  The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended (charts show +1250) …

Exciting Week for Stocks, ETFs but Economic Indicators (of which the boot-strap bubble stock market is a significant component inflating / obfuscating same) Tell Different Story  … This week I read some truly remarkable and conflicting facts that make things all the more interesting and confusing. On the up side, the March Institute of Supply Management report was positive, as was the February Pending Home Sales and Wholesale Sales, while Consumer Credit unexpectedly contracted by a whopping -$11.5 Billion. Also this week, it barely made the news that weekly unemployment claims unexpectedly rose by 18,000, and the four week moving average was up from the previous week as well.  Underemployment remains near 20%. We have approximately 5 million non current home mortgages in the US and a record 40 million people on food stamps, a number which has steadily been rising over the last year. In the housing sector, mortgages reached an eight month high this week and even Chairman Bernanke said in a speech that we’re “far from being out of the woods,” which is a chilling comment from one of the chief cheerleaders and architects of the recovery. Looking at the all important housing and employment markets, the FOMC meeting minutes released this week were even more chilling.

Regarding general conditions, the FOMC said:

Household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth.

The employment outlook was not particularly bright, in their opinion, as the minutes said:

Participants were concerned about the scarcity of job openings, the elevated level of unemployment, and the extent of longer-term unemployment .... Moreover the downward trend in initial unemployment claims appeared to have leveled off in recent weeks ...

Regarding the all important housing market, the minutes said:

Participants were also concerned that activity in the housing sector appeared to be leveling off in most regions despite various forms of government support, and they noted that commercial and industrial real estate markets continued to weaken. Indeed, housing sales and starts had flattened out at depressed levels, suggesting that previous improvements in these indicators may have largely reflected transitory effects from the first-time homebuyer tax credit rather than a fundamental strengthening of housing activity.

It’s just hard to see any good news in this report but somehow the markets have managed to ignore what clearly are scary facts. Looking abroad, the Greek Tragedy continued to unfold with Greece bonds crashing last week and requiring a 442 basis point premium to German bonds to be sold which Prime Minister George Papandreou labeled as unsustainable. Clearly Greece needs help from the European Union and probably the IMF and a plan could be announced as early as this weekend to stave off Greece’s default. Greece needs more than eleven billion eurodollars to cover debt between now and the end of May and last week, ratings agency Fitch cut both the nation’s and its banks’ credit ratings with a negative outlook. The problem here, of course, is that it isn’t just Greece that is in trouble but the other so called “PIGS” or Club Med states. Global contagion and sovereign defaults remain a real concern in the months ahead. Looking to Asia, China had a failed bond auction last week which went largely unnoticed in the US financial press. They offered 91 day and 273 day paper and neither offering was fully subscribed as they tighten their money supply in an attempt to slow potential inflation. Finally, earnings season starts Monday with Alcoa (AA), and late last week the company was hit with analyst downgrades, perhaps to make their results “exceed expectations” in spite of deteriorating earnings. What It All Means Adding it all up, we see an overbought, complacent market on a technical basis and a relatively high risk environment on a fundamental basis both at home and abroad …

 

Listen here and listen well: The frauds on wall street know all the tricks, mechanized trading trendline buy signals, chart buy signals, confirmation of trendlines, technical analysis, and other very mechanically applied strategies, etc., and can, and do manipulate by computerized buy programs (previously described in part on this website) accordingly. Everything purporting to account for the rise has already been discounted many times over to the upside over the past year and even that which purports to be must be discounted along with the looming reality of insurmountable debt crisis / debacle in this country, the GDP of which has already begun to suffer from debt service / costs. Sell while you can / take profits, gains / sell into strength / preserve principal / dont be caught holding their bag as in prior crashes.

This is a secular bear market. This is a bull (s***) cycle in a secular bear market. This is a manipulated bubble as has preceded the prior crashes with great regularity that the wall street frauds and insiders commission and sell into.

Calm Before Another Global Market Storm  Cooper ’…And given just how far this market appears to be manipulated it will have to be the bank trading desks who decide to put on their short positions and catch the rest of the market snoozing. Market timing How long will that take? If only we knew. But being positioned away from a crash is more sensible than being in the middle of it, unless you go short too. Realistically this should not take too much longer. We know from past crashes like the one seen in 2008-9 that a rally is followed by a sharp correction, and the longer the rally the sharper should be the correction. When the bank trading desks have killed every short then they will go short and kill the bulls. It will not be a pretty sight.’

Why Stocks are Extremely Overbought On borrowed time No doubt, extremes can go on for a while. Nevertheless, it is interesting to note the common denominator between all extremes - the year they last occurred are 1987, 2000, and 2007. All those years had one thing in common - major declines.…To a larger degree than in the past and at all cost, the government is doing all it can to prop up the economy (see related article 'What or Who is Driving Up Prices'). And even though this might be working right now, we know that the government's actions usually accomplish the opposite of what they intend…Take the Glass-Steagall Act as an example. It was a law designed to control speculation. This law was established in 1933, the year the Great Depression ended and was repealed in 1999, just before the tech bubble burst…Two extremes we haven't mentioned yet are P/E ratios and divided yields. Market bottoms are signaled by low P/E ratios and high dividend yields. Just a few months ago, Standard & Poor's pegged the P/E ratio based on reported earnings at 143, more than 10 times its historic average. Dividend yields have fallen close to the 1999 all-time low. This is not what a new bull market is made of…

Stocks: A Rally That Defies Gravity (at BusinessWeek) All good things must come to an end, though, so investing pros naturally wonder how long the market can keep up its winning streak. The market hit its 18-month high in the face of widespread skepticism among both investors and the American public.…Most individual retail investors have not been participating in the rally. According to Morningstar (MORN), investors pulled $3.7 billion out of U.S. stock funds in February, the fifth month of outflows in the last six months. A Mar. 25 survey by the American Association of Individual Investors showed 34.7% of respondents are bearish, which is more than the 32.4% who are bullish and up from a 23% bearish reading at the end of 2009. Many Americans seem unaware of the stock market's success and gloomy about the economy, according to a Bloomberg National Poll released Mar. 24. The broad S&P 500 rose 72.4% from Mar. 9, 2009, to Mar. 26, 2010. Yet the Bloomberg poll found only 31% of American investors said the value of their investments had improved in the past year. By contrast, 22% believe their investments' value has held steady and 46% believe their value has fallen…

 

Dow 11,000 - How Much Upside is Left? - Wall Street is always recommending to buy and advocating higher prices, so it behooves us to dig a little deeperAccording to Professor Shiller, the S&P (NYSEArca: SPY - News) is 30% overvalued. According to ETFguide's research, the extent of overvaluation is even worse. Regardless of which analysis you chose, stocks will eventually turn into a hot potato. Will you get burned?

Fed Inflates Stock Bubble: Dave's Daily  
The Fed minutes revealed the stunning conclusion interest rates will stay low for an extended period if the economic outlook worsens or inflation drops. Wow, that's surprising logic! With those mighty words stocks picked up steam some and closed higher overall. Not mentioned by many mainstream media talking heads is the building stock market bubble which, of course, few would care to see or discuss. It's what the Fed does--

Fed Governor Dares Say 'Bubble': Dave's Daily HOENIG SEES A BUBBLE & STOCKS SEE RED  …Hoenig stated: "In particular, what are the hazards of holding the Federal Funds rate target close to zero? The risks of raising too soon are clear and compelling. My comments, however, concern the risks of raising rates too late. Such risks also can be significant but all too often seem more distant and less compelling, and therefore hold great long-term danger for us all...I have dissented at the last two FOMC meetings specifically because I believe the 'extended period' language is no longer warranted and I am concerned about the buildup of financial imbalances creating long-run risks....And, the market appears to interpret the extended period as at least six months. Such actions, moreover, have the effect of encouraging investors to place bets that rely on the continuance of exceptionally easy monetary policy.  I have no doubt that many on Wall Street are looking at this as a rare opportunity." At least he's articulating what many are thinking--an asset bubble is brewing and it's being fed by current easy money policies. Lacking other news and with volume light before his remarks, investors took his words to heart Wednesday and started selling…  

THE FED'S SHELL GAME CONTINUES... Chris Martenson - Executive Summary

April is upon us. I need to take a moment to re-analyze the data to see what might happen now that the stimulus money has worn off, and, more importantly, now that the Federal Reserve's massive Mortgage Backed Security [MBS] purchase program is over. This is important for a variety of reasons.

·        The first is that the enormous flood of liquidity that the Federal Reserve injected into the financial system has found its way into the Treasury market, supporting government borrowing and also lowering interest rates for the housing market. How will the Treasury market respond once the liquidity spigot is turned off?

·        The second is that this flood of liquidity has supported all sorts of other asset markets along the way, including the stock and commodity markets.

·        What will happen to these when the flood stops? Will the base economy have recovered enough that the financial markets can operate on their own? Will stocks falter after an amazing run? Or will the whole thing shudder to a halt for a double-dip recession?

Back in August of 2009, I wrote that the Federal Reserve was basically just directly monetizing U.S. government debt by buying recent Treasury issuances as well as Mortgage Backed Securities [MBS]. Here's the conclusion from that report:

·        The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

·        This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

·        When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world, as they endeavor to meet the vast borrowing desires of the US government.

My surprise at all of this has been twofold. The shell game has continued this long without the bond market calling the bluff, and I am baffled by the extent to which the other world central banks have both enabled and participated in this game. Part of the explanation behind this unwavering support for the dollar and U.S. deficit spending by other central banks lies in the fact that other Western and Eastern governments are equally insolvent…

 

Seeking Alpha/Tradermark/Ritholtz “… Yes, there is an insanity to the markets that can make you mad if you let it. Instead, learn to see the delightful absurdity of it all. Revel in the stupidity, learn to read when the "wisdom of the crowd" turns into an angry mob. Find some Zen in the foolishness of others. Step back and look for the variant perception ... Consider this was an issue from 1996 or '97 until the collapse in 2000, and from 2005 to the collapse in 2008-09 …”

 All Just a Big Bubble  … this is the end of the road. That is, if the last forty years were all just one big money and credit bubble, temporarily misinterpreted as prosperity, that can produce no more bubbles except for the one that is most feared - another massive bubble in natural resources as a relatively fixed supply of goods meets up with an unlimited supply of paper money. It's no coincidence that the almost non-stop sequence of financial bubbles over the last forty years followed the abandonment of anything resembling a system of sound money. Contemporary economic thought posits that money is simply a "unit of account" and that there is no longer any need for it to maintain an intrinsic value of any sort. They say it's just "notations on paper" and that the world's economic and financial wizards, though set back a bit by their latest failure, have things squarely under control. If you're anything like me, you don't believe that for a second. In the fullness of time, the last forty years will likely be seen as an aberration - just one big bubble - as theories are abandoned and a more enlightened approach ultimately prevails. Unfortunately, between now and then, things are likely to get worse before they get better.

Here’s Why The Money Supply Has Exploded, But We Haven’t Seen Rampant Inflation Yet

One of the things they are doing with it is buying U.S. government debt… So instead of loaning money to American businesses and consumers who desperately need it, a ton of this new money is being used to pump up yet another bubble.  This time the bubble is in U.S. Treasuries.  Asia Times recently described how this trillion-dollar carry trade in U.S. government securities works… Remarkably, the most aggressive buyers of US government debt during the past several months have been global banks domiciled in London and the Cayman Islands. They borrow at 20 basis points (a fifth of a percentage point) and buy Treasury securities paying 1% to 3%, depending on maturity. This is the famous “carry trade”, by which banks or hedge funds borrow short-term at a very low rate and lend medium- or long-term at a higher rate. This works as long as short-tem rates remain extremely low. The moment that borrowing costs begin to rise, the trillion-dollar carry trade in US government securities will collapse. So what happens when this bubble collapses? Nobody knows for sure.  But anyone who has dealt with carry trades in the past knows that when carry trades unwind they can do so very, very quickly and the results can be nightmarish. The truth is that the U.S. financial system is a house of cards that could fall at any time.  A lot of economic pain is on the horizon – it is only a matter of when it comes and how bad it is going to get.  Trends forecaster Gerald Celente is predicting that it could be as soon as this year…

 

Indicators Most Overbought Since 2000 and 2007! 2007-Like Decline Next   A DECADE OF EXTREMES The years 1999/2000 were a time of extremes. In the last 15 months of its rally phase, the Nasdaq (Nasdaq: QQQQ - News) exploded and jumped up 50%. This rally was based on expected earnings of brand new internet and tech (NYSEArca: XLK - News) companies with no track record. As sharp as the rally was, the decline was even more powerful. The years 2007/2008 were another period of extremes. Financial companies (NYSEArca: XLF - News), never known for their hard work, found a way to make money even easier - trading and selling financial derivatives. In retrospect, it is quite amazing that this financially engineered house of cards did not collapse earlier. But with the real estate sector (NYSEArca: IYR - News) weakening significantly, it was just a matter of time before the sub-prime avalanche would hit the fan and Wall Street. Looking back it becomes obvious that the last ten years are composed of a cycle of building and deflating bubbles. The euphoria of rising markets was quickly distinguished by the pain of bursting bubbles. One thing we should have learned by now is that euphoria is the perfect breeding ground for problems. FOOL ME ONCE, ...As humans we are equipped with longer-term memories than rabbits and are generally reluctant to get burned twice. This decade has seen many get burned three times. Once with technology, once with real estate and once more with stocks in general (NYSEArca: TMW - News). There seems to have been just enough time between 2000 and 2007 to forget the tech-bubble and real estate, well real estate is a different asset class and was supposed to go up at all times - but it didn't. TURN ON THE GPS It is easy to forget where we are today. Let's turn on the GPS to get a read on our exact location. Over the past year, the Dow Jones (DJI: ^DJI), S&P 500 (SNP: ^GSPC), Nasdaq (Nasdaq: ^IXIC), small caps (NYSEArca: IWM - News), mid-caps (NYSEArca: MDY - News), large caps (NYSEArca: IVV - News) and virtually all other asset classes have gained 70% or more. This in itself is an extreme that has never happened before. For nearly six weeks, investors haven't seen a broad index lose more than 1%. Until yesterday, there hasn't been more than four hours of selling pressure since the February 8 lows. THOSE EXTREMES ARE AMAZING BY THEMSELVES. BUT WAIT, THERE IS MORE. Last week the National Association of Active Investment Managers (NAAIM) reported that 95% of active mutual fund managers are net long. This is the highest reading since October 17, 2007. Investors are feeling the same way. In December, portfolio cash allocation dropped to the lowest level since April 2000, while stock allocation rose to the highest level since September 2007 (according to AAII). Earlier this week, the Volatility Index - VIX (Chicago Options: ^VIX) dropped to its lowest level since July 2007. On December 31, 2009, the percentage of bearish investment advisors dropped to the lowest level since April 1987, while the percentage of bullish advisors spiked to the highest level since December 2007 (according to II) … ON BORROWED TIME No doubt, extremes can go on for a while. Nevertheless, it is interesting to note the common denominator between all extremes - the year they last occurred are 1987, 2000, and 2007. All those years had one thing in common - major declines. Is this time different? To a larger degree than in the past and at all cost, the government is doing all it can to prop up the economy (see related article 'What or Who is Driving Up Prices'). And even though this might be working right now, we know that the government's actions usually accomplish the opposite of what they intend. Take the Glass-Steagall Act as an example. It was a law designed to control speculation. This law was established in 1933, the year the Great Depression ended and was repealed in 1999, just before the tech bubble burst. The current rally is as unprecedented as it has been unexpected. A little more than a year ago, Wall Street was bracing itself for a repeat of the Great Depression. It was at exactly that time, on March 2, 2009, that the ETF Profit Strategy Newsletter sent out a Trend Change Alert, recommending to sell short ETFs and buy long and leveraged long ETFs like the Ultra S&P 500 ProShares (NYSEArca: SSO - News) and Ultra Financial ProShares (NYSEArca: UYG - News). The target for the end of this rally was Dow 9,000 - 10,000, which should be marked by extreme levels of optimism and a 'the worst is over attitude.' The market has certainly delivered on this outlook. You may find it interesting that the percentage of stock market bulls reached a record-low at that time. Once again, when it was time to buy, investors at large turned to cash. VALUATION EXTREMES  When it comes right down to it, valuations are the only thing that really matters. After all, who wants to overpay? Perception often drives valuations for a period of time. You may remember when VW re-launched the Beetle or BMW unveiled the brand-new Mini Cooper. Initially dealers were able to charge up to $5,000 on top of the MSRP simply because buyers would pay it. Today you can pick them up on the cheap simply because consumers won't pay a premium. What's changed? Perception. The same holds true for the Toyota Prius, which was a hot commodity during the $5/gallon gas price era and is plagued by recall troubles today.Just like cars or hot Christmas toys, stocks are largely driven by perception and valuation. History, however, shows unequivocally that profit margins, P/E ratios, and dividend yields always trump the perception of prices and pass through fair value eventually. Two extremes we haven't mentioned yet are P/E ratios and divided yields. Market bottoms are signaled by low P/E ratios and high dividend yields. Just a few months ago, Standard & Poor's pegged the P/E ratio based on reported earnings at 143, more than 10 times its historic average. Dividend yields have fallen close to the 1999 all-time low. This is not what a new bull market is made of. Even though momentum still keeps prices going up, now is the time to prepare for when they won't be. Every investor needs to know where fair valuations are to determine the downside risk…

 

20 Signs That Could Mark a Top  After what appears to be the call of the decade (although he was a few weeks early) with his S&P 666 is a "generational low," Doug Kass remained bullish for a good long time. But late last fall he began pulling in his reigns … Now, nearly 13 months later and with the S&P 500 almost 500 points higher, it is time to focus on a new checklist of some potential adverse developments that could contribute to a market top and a reversal of investors' good fortunes since March 2009.

  1. Interest Rates: The yield on the 10-year U.S. note might climb to over 4% (now at 3.85%). A 4.00% to 4.25% yield would likely provide a tipping point for increased competition to equities and produce an interest (mortgage) rate headwind to the nascent housing recovery at a time when stock dividend yields have nearly halved and when a large phantom inventory of unsold homes is about to begin to enter the residential for-sale market.
  2. Jobs / Economy: A more sluggish-than-expected expansion in new jobs and the weight of higher taxes in 2011 might translate to a downturn in consumer confidence, reduced business fixed investment and a more shallow domestic economic recovery in the second half of this year.
  3. Retail: Cautious forward comp guidance in retail could reverse the February-March strength.
  4. Europe: There could be growing signs of weakness in the European economies.
  5. Credit: Over there, we might witness evidence of more sovereign (Spain?) crises, and, over here, we could see more U.S. municipal -- the universe is large! -- financial woes. Forced austerity measures would likely produce lower growth.
  6. Credit (Part Deux): Credit spreads might widen.
  7. Geopolitical: We could see a possible rise in geopolitical tensions or even another terrorist act on our shore.
  8. Monetary Policy: We might have a less dovish Fed in words (jawboning) and in action (through an increase in the federal funds rate).
  9. Tightening Abroad: It is likely that central banks around the world will begin to clench their monetary fist, especially in China.
  10. Protectionism, Trade and Currency Wars: Things might get ugly, especially on the U.S. / China front.
  11. Housing: A renewed leg down in home prices is possible as the spring selling season could fail to appear. (It hasn't gotten off to a great start.)
  12. Sentiment: We could witness the birth of a 5x to 10x levered bullish ETF, a burst in bullish investor sentiment, an expansion in hedge fund net long positions, a further drawdown in mutual fund cash positions, a meaningful increase in retail mutual fund equity inflows and massive outflows out of Rydex bear funds.
  13. Technical: Stocks could fail to respond to good news, suggesting that the sharp corporate profit recovery has been baked into prices. A breakdown in financials and/or transports could occur. Overseas markets might fail to make new highs, or we could see a further contraction in NYSE / Nasdaq exchange volume.
  14. Deflation: Industrial commodity prices could weaken.
  15. Speculation: We might see an increasingly speculative market for low-price issues.
  16. Underwritings: The emergence of a record syndicate calendar is possible.
  17. Wall Street: A substantial increase in Wall Street industry hirings could be announced.
  18. Dr. Doom vs. the Sunshine Boys: Dr. Nouriel Roubini could see green shoots, causing bullish strategists and money managers to demonstrate even more swagger. Reminiscent of late 1998, a sell-side analyst (perhaps the new Henry Blodgett) might raise his 12-month Apple (AAPL) price target to $375 a share, leading another analyst to top that target and move to $400 a share a week later.
  19. The Media: CNBC could throw another celebratory party. Time magazine might declare the death of the bear market on its cover or run a cover story offering a new bullish economic and/or stock market paradigm. Sir Larry Kudlow could have trouble finding a single bear to appear on CNBC's "The Kudlow Report." Record ratings might induce the management of CNBC to expand "Squawk Box" from three hours to four hours (6:00 a.m. to 10:00 a.m.) and add an additional anchor to join Joe, Becky and Carl.

 

 

11 Clear Signs That The U.S. Economy Is Headed Into The Toilet

The Economic Collapse
January 15, 2010

The vast majority of the talking heads on television are still speaking of the current economic collapse as if it is a temporary “recession” that will soon be over.  So far, the vast majority of the American people seem to believe this as well, although for many Americans there is a very deep gnawing in the pit of their stomachs that is telling them that there is something very, very wrong this time around.  The truth is that the foundations of the U.S. economy have been destroyed by an orgy of government, corporate and individual debt that has gone on for decades.  It was the greatest party in the history of the world, but now the party is over.  The following are 11 signs from just this past month that show that the U.S. economy is headed into the toilet and will not be recovering….

#1) When even Wal-Mart is closing stores you know things are bad.  Wal-Mart announced on Monday that it will close 10 money-losing Sam’s Club stores and will cut 1,500 jobs in order to reduce costs.  So if even Wal-Mart has to shut down stores, what chance do other retailers have?

#2) Americans are going broke at a staggering pace.  1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.

#3) American workers are working harder than ever and yet making less.  After adjusting for inflation, pay for production and non-supervisory workers (80 percent of the private workforce) is 9% lower than it was in 1973.  But those Americans who do still have jobs are the fortunate ones.

#4) Unemployment is absolutely exploding all over the United States.  Minority groups have been hit particularly hard.  For example, unemployment on many U.S. Indian reservations is over 80 percent.

#5) Unfortunately the employment situation is showing no signs of turning around.  December was actually the worst month for U.S. unemployment since the so-called ”Great Recession” began.

#6) So just how bad are things when compared to past recessions?  During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs will stop any time soon.

#7) Can you imagine trying to get your first job in this economic climate?  Our young men and women either can’t get work or have given up on work altogether.  The percentage of Americans 16 to 24 who have jobs is 13 percent lower than ten years ago.

#8) So where did all the jobs go?  Over the past few decades we have allowed the corporate giants to ship mountains of American jobs overseas, and there are signs that this trend is only going to get worse.  In fact, Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades.  So get ready for even more of our jobs to be shipped off to Mexico, China and India.

#9) All of these job losses are leading to defaults on mortgages.  Over the past couple of years we have seen the American Dream in reverse.  According to a report that was just released, delinquent home loans at government-controlled mortgage finance giants Fannie Mae and Freddie Mac surged 20 percent from July through September.

#10) But that is nothing compared to what is coming.  A massive “second wave” of mortgage defaults is getting ready to hit the U.S. economy starting in 2010.  In fact, this “second wave” is so frightening that even 60 Minutes is reporting on it.
#11) Meanwhile, the Federal Reserve has announced that it made a record profit of $46.1 billion in 2009.  Apparently during this economic crisis it is a very good time to be a bankster.

 

 

I DON'T KNOW HOW MUCH CLEAR IT GETS THAN THIS:

By Scott Lanman and Craig Torres
Jan. 7 (Bloomberg) -- U.S. regulators including the Federal
Reserve warned banks to guard against possible losses from an
end to low interest rates and reduce exposure or raise capital
if needed.

“In the current environment of historically low short-term
interest rates, it is important for institutions to have robust
processes for measuring and, where necessary, mitigating their
exposure to potential increases in interest rates,” the Federal
Financial Institutions Examination Council, which includes the
Fed, Federal Deposit Insurance Corp. and other agencies, said in
a statement today.

Let me point out a few things.

  1. We have never seen a crash and rebound in US stock market history like what we have just experienced, except once. That "once" was 1929/1930. What followed next was a grueling grind - not a crash, but a grind that never ended, and in which the market lost more than 80% of it's value. Those who argue "the bigger the dive the bigger the bounce" forget that the only true comparison against what we have just seen was in fact the prelude to a grinding 90%+ overall decline.
  2. If you believe in "long wave" cycles - that is, Kondratieff cycles, we have precisely followed the several-hundred-year long pattern though its latest incarnation, with the 1982-2000ish period being "Autumn." Winter follows fall. These cycles seem to happen mostly because all (or essentially all) of the people who lived through the last cycle's horrors are dead. Unless we have found a way to break a cycle that has endured far longer than our nation, we're right where we should be - which incidentally aligns with what happened in 1929/30 as well. This means that while there may be ups and downs we have not bottomed - not by a long shot - no matter what people tell you.
  3. Interest rates can only go up from zero. That should be obvious. Rising rates are not positive for equities and multiple expansion.
  4. The Financials are getting a tremendous bid the last few days, presumably on the premise that "employment is at least somewhat stabilizing." With zero short rates and a steep yield curve, this means they make a lot of money. But rates cannot stay where they are if in fact the economy is recovering, and if the long end rises it will choke off housing.
  5. At the same time people are rotating into a sector The Fed and regulators just said will be forced to constrain its profits people are fleeing the stocks (tech) that have been on a tear. This is exactly backward based on the news flow. Are The Fed and Regulators lying or is the "optimism" incredibly misplaced (and even stupid if they're rotating out of winners for what were just announced would be losers!)
  6. P/Es are at record levels. Yes, that's on "as reported" 12 month trailing, and it is down materially since one of the two "disaster quarters" is now gone. But even with the other gone (which it will be in another month) we will be trading at somewhere around 40 or 50x earnings, an utterly unsupportable level and above where we were in 1999 - just before the entire market fell apart. Even on "operating earnings" we're trading at 24 times - outrageously overvalued from a historical perspective.

We also have the BIS calling in bankers to warn them that they've changed nothing in their behavior (gee, really?) and China making a serious attempt to pop their property bubble (must be nice to actually pay attention to such things, eh?)

For today, "party on Garth" in equities.

Let me simply remind people that what got me writing The Market Ticker was this event - something that I missed the signs of because I was overly complacent, just as people are being right now.

That was 2006 and into 2007, remember?

Straight up - right up until it wasn't, and 60 SPX points came off in one day. That warning (and mine when I started writing) was ignored by a whole lot of people too who thought it was a "blip."

Uh, no, it was a warning and those who failed to heed it got their heads handed to them.

Don't worry folks, it can't happen again. Remember, The Fed has our back, just as they did in 2006 when they told us there was nothing to worry about in the summer when we got the swoon (remember that? I do - and bought into it!)

The picture now is actually worse than it was in early 2007. In early 2007 we had solid employment, we still had a reasonable housing market although it had slowed some, GDP was positive and we had just come off a GREAT Christmas season with extraordinary profits and sales. In addition we were running ~350 billion in deficits, not $1.6 trillion (estimated for FY10) nor did we have to roll and issue over $2 trillion of treasury debt (to someone!) in the next 12 months.

Now we have the regulators issuing formal warnings about bank liquidity and interest rate risk (no really, you think that might be an issue with that sort of issue behavior?) while at the same time formal liquidity support in the form of monetization along with stimulus spending is slipping away - the source of the liquidity that fueled the rally from March.

Ignore all this if you're brave - or stupid.

PIMCO isn't. Bill Gross sees the same thing I see.

 

 

 

Shadowstats John Williams: Prepare For The Hyperinflationary Great Depression     

DECIDEDLY SPECULATIVE: JOHN HUSSMAN'S COMMENTARY AND MORE  ValidFi John Hussman's weekly comment on 12/14/2009: "Any virtue of stocks here is decidedly speculative. Stocks are overvalued to a level from which uninspiring returns have always followed. That fact is true regardless of whether or not the economy is in a sustainable recovery..." [full commentary here]. Hussman has been negative since September of this year. Recently, however, he has adopted a slight speculative stance on the US stock market through call option exposure. Based on his commentary and our estimate here, the stock exposure beta of Hussman Strategic Growth Fund HSGFX is less than 10%. The following are some key points from his above commentary:

Case-Shiller Still Predicts Massive 45% Fall from Todays Values  11-27-09  The 10 major cities in the Standard & Poors/Case-Shiller home price index have risen 5% from their April low, but the index is still predicting a massive 45% fall from todays values.   

HERE IS WHY THE DOLLAR IS NOW EFFECTIVELY WORTHLESS Tyler Durden Zero HedgeTuesday, Nov 24th, 2009A picture is worth a thousand Krugman essays, which is why we present a chart comparing the US Monetary Base (and by subtracting Reserve Balances with Fed Reserve Banks, Currency in Circulation), and the Feds holdings of MBS and Agency paper (worthless GSE/FHA garbage). In summary: Currency in Circulation: $920 billion; MBS/Agency Holdings: $997 billion. The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing.

15 signs Wall Street pathology is spreading By Paul B. Farrell, MarketWatch  ARROYO GRANDE, Calif. (MarketWatch) -- In "The Battle for the Soul of Capitalism" Jack Bogle no longer sees Adam Smith's "invisible hand" driving "capitalism in a healthy, positive direction." …Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious "pathological mutation of capitalism" driven by the new "invisible hands" of this new "mutant capitalism," serving their selfish agenda in a war to totally control America's democracy and capitalism. The "Goldman Conspiracy" is the perfect B-school case study of Wall Street's secret contagious pathology, with insiders like Lloyd Blankfein, Henry Paulson and others pocketing billions more of the firm's profits than shareholders, evidence the new "mutant capitalism" has replaced Adam Smith's 1776 version which historically endowed the soul of American democracy as well as our capitalistic system. Sadly for America Goldman's disease is rapidly becoming a pandemic spreading beyond Wall Street's too-greedy-to-fail banks, infecting our economy, markets and government as it metastasizes globally...

Market Reversal Already Happening  ‘…First, the S&P sells on a price-to-earnings multiple of 88 after the recent financial results. That is a horrendous overvaluation. A reasonable p/e would be around 18-25. That leaves a 90 per cent downside! Secondly, the outlook for GDP growth is lackluster in 2010. It is therefore vulnerable to setbacks, and most particularly the impact of a stock market decline that would undo much of the data pointing to a recovery being in prospect. The market has been operating as a positive feedback loop since March, it also works the other way around. Thirdly, have markets not reached levels that would normally require a correction? Indeed, have they not overshot those levels, and now require a bigger than average correction?…’

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5 DISTURBING FACTS FOR THE BULLS By Simon Maierhofer 

When seventeenth century French dramatist Pierre Corneille said that 'danger breeds best on too much confidence,' he wasn't talking about the stock market, but that doesn't mean it doesn't have a practical application for investors.

On Wednesday, October 21, 2009, the Volatility Index, also called the VIX or 'fear index', fell to levels not seen in well over a year. In fact, the last time the VIX dropped below Wednesday's reading of 20.10 was on August 28, 2009.

Just a few days later the Dow Jones (DJI: ^DJI), S&P 500 (SNP: ^GSPC), and Nasdaq (Nasdaq: ^IXIC) recorded mind boggling losses of about 30% in 30 days. No doubt there is more to investing than just the VIX. Nevertheless, a look at a composite of indicators shows that the party on Wall Street is close to an end, or may have ended already.

DISTURBING FACT NO. 1: BUYING CLIMAXES

Investors Intelligence (II) tracks buying and selling climaxes on a weekly basis. Buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones. According to II, investors who sell into buying climaxes are right about 80% of the time after four months.

This week, II recorded 253 buying climaxes and just 8 selling climaxes. The first two weeks of October saw 597 buying climaxes and only 41 selling climaxes. In total, there have been over 900 buying climaxes thus far in October, the most since the October 2007 all-time highs.

DISTURBING FACT NO. 2: DEFLATION

For good reason, deflation is an economy's worst enemy. Falling prices create the perception that any goods can be bought cheaper at a future time. This creates a waiting attitude which stifles spending and demand, ultimately resulting in a slower economy. A slower economy, on the other hand, forces consumers to turn every penny twice before spending it.

In September, the Producer Price Index (PPI) declined 0.6%. Even the core PPI, which excludes food and energy, was down 0.1%. Even though investors seem more concerned about inflation than deflation, it is deflation that has been showing its ugly head. The 1929 onset of the depression shows what deflation can do. This sad period of time came to be known as a deflationary depression.

DISTURBING FACT NO. 3: FORECLOSURES

Foreclosures used to be mainly confined to low income areas. The most recent figures from Zillow, however, reveals a concerning development. USNews reports that at the peak of the market, the top third of the property value spectrum made up just 16% of foreclosures. By July of this year, this most expensive segment of the market accounted for 30% of home foreclosures.

Based on future projections, this isn't just a flash in the pan type problem. Foreclosures are expected to rise from about 2 million currently, to 6.5 million by 2011. This cancer-like spreading of foreclosures even into the prior taboo-area of prime mortgages is directly correlated with a weak job market.

Not only is the 'official' unemployment rate quickly closing in on the foreboding 10% number, the average length of time unemployed, or without a job, has just reached an all-time record of 26 weeks or six months.

It seems like the real estate market is more aware of the seriousness of the issue than the stock market. While the S&P 500 (NYSEArca: SPY - News), Dow Jones (NYSEArca: DIA - News) and Nasdaq (Nasdaq: QQQQ - News) have all reached new highs recently, real estate ETFs like the Vanguard REIT ETF (NYSEArca: VNQ - News), iShares Cohen & Steers Reality Majors (NYSEArca: ICF - News), and SPDR Dow Jones REIT ETF (NYSEArca: RWR - News) are still trading significantly below their respective September recovery highs.

DISTURBING FACT NO. 4: OIL PRICES

The performance correlation between stocks and oil is tough to explain for proponents of the 'business as usual' notion. High oil prices are usually the scapegoat for a faltering economy, as we saw last year. As oil (NYSEArca: USO - News) rose to never before seen highs ($147/barrel), stock prices were plummeting.

Earlier this year in February , however, oil prices were hovering near lows of $30/barrel. At that time, the average price of gas was below $2 gallon. CNNMoney asked just recently: 'But how good did you feel about the economy back then? Fears about a massive wave of big bank failures and another depression were running rampant. So, cheaper oil and gas were little consolation.'

At precisely that time, when fears of another depression were running rampant, the ETF Profit Strategy Newsletter issued a Trend Change Alert predicting the onset of the most powerful rally since the October 2007 highs. While many were selling at the worst time, Profit Strategy subscribers started accumulating high octane leveraged ETFs, which racked up double and triple digit gains, since.

Earlier in 2008, the ETF Profit Strategy Newsletter introduced the 'red across the board scenario'; a scenario where all asset classes should move in the same direction. For most of 2008, the direction was down; beginning in March 2009, the direction was up.

The only economic environment that has the power to link the performance of various asset classes is a deflationary depression, such as the Great Depression. Aside from a 50% monster rally from 1929-1930 where all asset classes shot up (sound familiar) simultaneously, the predominant trend was down, down hard.

DISTURBING FACT NO. 5: (OVER) VALUATION

As a consumer, chances are you're always looking for the best deal. Why overpay if you can get the same item at a lower price elsewhere, or later on? Who, for example, would still pay the sticker price for a gas guzzling SUV like a Chevy Tahoe or Ford Explorer? Nobody! Even if the car served you well while you owned it, you know that its resale value would be sub-par at best.

If you wouldn't overpay for a car, why would you overpay for stocks?

Stocks are way overvalued; it just hasn't sunk in yet. Based on actual reported earnings, the P/E ratio for the S&P 500 is 138. This means that a stock sells for 138x its actual earnings. Of course, this is the average for the S&P. Many companies, such as Alcoa, aren't even in positive earnings territory. The earnings picture today is worse than it was in the year 2000 when dozens of tech companies (NYSEArca: XLK - News) with no earnings saw their stock prices soar into triple digits.

Even though stocks still trade 30% below their 2007 levels, dividend yields are within reach of their all-time lows. Dividends reflect a company's ability to share its profits with shareholders. Declining dividends are caused by declining profits. Dividend yields can increase either by a falling stock price or rising dividends.

In March, dividends for the broad market spiked briefly above 4%, due to the waterfall decline in stock prices. For a short time, the Select Sector Financial SPDRs (NYSEArca: XLF - News) offered a juicy yield of nearly 10%. With rising prices, dividends have dropped back down towards 2% for the broad market and only 2.52% for XLF.

Investors with an affinity for historical data know that the stock market has never reached a true bottom unless dividend yields are driven sky-high by falling prices, and P/E ratios are driven down to rock-bottom readings, also due to falling 'P' (prices). Once this valuation reset happens, the market will give a green signal for the next bull market.

Unfortunately, this reset did not happen at the 2002 lows. It also didn't happen in March 2009, and we are certainly far away from those levels with the Dow around 10,000 and P/E ratios of 138.

 The October issue of the ETF Profit Strategy Newsletter includes a detailed analysis of P/E ratios, dividend yields, and two other indicators; mutual fund cash levels and the Dow measured in the only true currency - gold (NYSEArca: GLD - News). Since its 1999 peak, the gold-Dow has spearheaded the decline to new lows. If history's assessment of valuation is correct, the dollar-Dow will soon follow.

Confidence, reflected by the elevated investor optimism (a contrarian indicator) does not only breed danger, it also provides opportunities for savvy investors that know how to interpret the market's very own signals.

    The 'Buy Anything' Market  It's the "buy anything market" brought to you courtesy of the destruction of your currency… [the following comments were so astute that I’ve included them hereafter]  

SHORTING THE DOUBLE DIP 10-4-09 Michael Shulman

The double dip has begun.

Statistically, we will see a rise in GDP in Q3 and in Q4. This is anticipated and meaningless data, but the numbers will hit headlines.

In the real world, the double dip has begun. Here is why - no one seems to be willing to pull things together in one short argument, perhaps for fear of being bored by a bull wearing green shoots. Simply put, all the core factors in driving an economy upward are broken other than pundit comments talking about "it must turn upward base on historical data." ..

Unemployment: The reported unemployment number is 9.8%; real unemployment is 20% if you include those who have stopped looking and part time workers wanting to work full time. And the labor force participation rate is at a 23 year low.

National Income: Wages are falling and work hours are stagnant, according to Friday's jobs report, and combine these data with a shrinking work force and rising unemployment and you continue to have a sharp downturn in national income.

Consumer Spending: National income drives consumer spending, which is contracting due not just due to falling national income but rapidly contracting credit lines and a near 40% loss of accumulated wealth in the property and equity markets. And while consumer spending ostensibly is 70% of the economy, this includes spending on health care - love those government statisticians - so contraction has an incredibly outsized impact on consumer discretionary spending - luxury goods, travel, restaurants, unnecessary goods, expensive goods - anything you can trade down from to a lower level of price with equivalent functionality.

Credit Contraction: The credit contraction has been ferocious for consumers and small businesses as noted this morning by uber analyst Meredith Whitney (one of my favorites) in the Wall Street Journal. Depending on how you slice data, almost all increases in consumer spending since either 2002-2003 or 1997 has been due to credit. Trillions have been withdrawn and Ms. Whitney postulates another $1.5 trillion dollars will disappear in the coming months due to banking caution and changes in regulations. Given the total lack of credit to small business, and this segment is 38% of GDP and 50% of new job creation, there cannot be a recovery until credit begins to flow.

Zombie Banks: Nothing has changed with toxic assets and zombie banks - nothing, and even the IMF said this - and another $1.5 trillion needs to be written down, at least. Just because these assets are not in the headlines, and the Fed, the Treasury and the FASB faked stress tests and changed accounting rules, this does not mean the banks are or will be lending in a meaningful way in the near future. The Fed prints money, the banks sit on it to shore up busted balance sheets.
Business Investment: There are too many factories around the world, too many shopping malls an stores, too much commercial real estate - and at levels beyond all historical norms or comparisons. The first several legs of a rebound needed to absorb this capacity before we see any uptick in business investment that materially helps the economy.

The End of Stimulus: The buy gold and build a bomb shelter types have been screaming about the Fed printing money - what the Fed did was print enough money (they added a trillion to their balance sheet) to replace what was lost in the shadow and real banking systems - but not enough to replace what will be lost in the next 12-24 months. That being said, there is no political support for more stimulus. Deficits and a Congressional election preclude another stimulus package next year and the Fed and Uncle Sam have already said they are definitely pulling back, beginning November 1. We saw what happened to auto sales after Cash for Clunkers ended; ditto for home sales data in the coming weeks as the $8K tax credit expires. The bottom line: the economy will be much on its own next year.
Corporate Earnings: Corporate earnings follow the economy and they may be all right for Q3 and perhaps Q4 but they are going to disappoint the Street in 2010, big time. You can only cut costs so much - you need some top line growth - and it is only going to be there next year.

Markets: And one historical norm I like is the regressing of markets to the mean of corporate earnings. Translation - the market should be coming down next year or perhaps in 2011.

What to Do:

If you like to short, consider the following - short the S+P (puts on the SPY), long term; short consumer discretionary spending via puts on the XLY; short the companies making stuff know one needs, like Harley Davidson (HOG) and Brunswick (BC); short companies making things no one can get credit to buy, such as new homes, via puts on the XHB ETF; short business spending via travel companies, the first thing to be cut in a business cutback, via puts on Avis (CAR); short retailers with terrible balance sheets, notably Macys (M).

EXPECT ECONOMIC STAGNANCY, IF NOT WORSE, FOR YEARS TO COME by: Craig Brown October 04, 2009

Obama referred to Friday's jobs data, a loss of 263,000 jobs (roughly 100,000 more than economists expected) as sobering. Well, I agree, but to say it was unexpected is to buy into those that thinks we are in recovery phase. To me we are in the lull before the storm. By the way, of over 80 economists surveyed, none, not one, predicted the number to be as high as 263,000. That reality is sobering.

But if you really want something sobering, I suggest the following link. As the author points out, if you are expecting consumers to start spending more money for an economic rebound then you are sadly mistaken. They are already spending at very high (record) levels in terms of a percentage of personal income and as a percentage of GDP. And even that is not really lifting us out of this recession absent government support. Even though consumers are pretty much spending as much as they can, the economy is still struggling. So I don't expect things to improve from here.

And as this piece points out, we are in for a world of hurt due to the size of the private debt that has built up. We may do well in the short to medium term while government spending/stimulus props us up, but that will in time end and then we are all in for a world of hurt.

Now I hate repeating myself so much, but let's consider the math and see where it leads us:

Folks, I am not saying when the problems will sink in and take hold, but they have to at some point. At the very best, our economy will be stagnant for years to come, probably over a decade. More likely, in my opinion, we have a world of hurt on the way with the only question in my mind being when will this reality sink in?

PREPARE FOR A LOWER DOW TO GOLD RATIO…by Moses Kim – Seeking Alpha…That era of paper wealth is gone for now, as evidenced by the mass failure of financial institutions last fall, and we have entered into a period when hard assets are in vogue. The Dow to Gold ratio is a useful tool to track this process of asset reallocation, since gold is the ultimate hard asset. Usually, when hard assets enter into a bull market, the Dow to Gold ratio goes to under 5. For example, the ratio hit 1 in 1896, 2 in 1932, 3 in 1974, and 1 again in 1980. The current bull market in gold has brought the ratio from a high of 44 in 1999, to its current reading of 10. In addition, there seems to be a tendency for the ratio to "overshoot" on the downside based on how overextended the ratio becomes. For example, an 18 Dow:Gold ratio eventually fell to 2 in 1932, and a 27 Dow:Gold ratio eventually fell to 1 in 1980. Considering that the Dow:Gold ratio was at 44 prior to this move, it looks like we still have a long way to go on the downside… With stocks overpriced at over 100 times reported earnings, a decent-sized pullback is in order. Therefore, I expect the Dow to Gold ratio to decrease in the coming months and years…

REALITY CHECK ON U.S. 'ECONOMIC RECOVERY'  Jeff Nielson - U.S. equities are rallying again today, and (as usual) it is a rally with no basis in reality.  Most of the enthusiasm comes from another string of corporate quarterly results which “beat expectations”. I had hoped that the sheep were starting to clue-in to this silly game, however it appears there is a still a large pack of Pavlov's Dogs out there – who respond to their propaganda cues without a moment of actual thought. The truth is that all of the companies “beating expectations” are still reporting steadily worse results year-over-year – and in many cases, much worse results. Among the few exceptions are U.S. financial corporations. However, since accounting-fraud was legalized in the United States (see “FASB strong-armed into mark-to-fantasy accounting”), their bottom-lines have had absolutely no connection to their business operations…

WHY DO EQUITY MARKETS DISAGREE WITH THE DATA?  Adam Hayes    Some of the smartest economists, traders, bankers, brokers, and academics are all screaming and yelling the same things: "This recession/depression is NOT over yet! This is just bear market rally! There are NO green shoots!" And the data does support these beliefs. Retail sales and consumer spending remain muted as families increase savings and pay down debts. Unemployment is not yet recovering, foreclosures are still rising while home prices are still falling. Commercial real estate is starting to falter in a major way. Oil and metals remain elevated while the dollar remains relatively weak. Banks are failing at a record pace and the FDIC is on the verge of insolvency. The government is auctioning debt at a record pace (and record % of GDP) while the deficit explodes. Banks are still NOT lending to small businesses or homebuyers nor to each other. Much of this data is also showing no sign of decelerating. Every week a new number comes out the revision for the previous always seems to go worse! And the GDP numbers, when analyzed, show that government spending and issuance of government debt is keeping the economy from being much much worse. And what happens when BRIC countries stop buying our debt and dollars? The Ponzi scheme falls apart then? And what about diminished tax rolls both local and federal due to low employment and low corporate earnings!?

CALPERS IS UNSUSTAINABLE   Jeff Nielsen   The mainstream, U.S. media continue to ignore a steadily worsening pension crisis, most likely because it is one more huge contradiction of all their “U.S. economic recovery” propaganda. Unlike the $70 trillion or so in “unfunded liabilities” which is certain to bankrupt the U.S. federal government – but not today, the U.S. pension-crisis is already here. When the chief actuary of the nation's largest, state pension plan (CalPERS) bluntly states, “We are facing decades...of...unsustainable pension costs”, this should have attracted the attention of journalists across the U.S. Unfortunately, they all appear to be much too busy handing out their “U.S. economic recovery” party-hats to be paying attention. Some people may not see a direct connection between the health of U.S. pension plans and the health of the overall economy, however the connection is clear – and has never been greater than it is today. The huge, demographic bulge known as “the baby-boomers” are beginning to retire. After plundering government coffers for their entire lives by demanding exorbitant social programs which they were unwilling to pay for with their own taxes, they have literally mortgaged the futures of their own children and grand-children. But the “plague” these “locusts” have inflicted on the U.S. economy goes well beyond that. These are the same baby-boomers who dismantled the U.S. manufacturing sector, and shipped it to Asia – so that they could pay less for the ever-increasing hoard of consumer-goods which they have accumulated with manic zeal. In the process, they have also eliminated most of the well-paying jobs which they benefited from, but which they have taken away from their children and grandchildren. Despite the baby-boomers having the best-paying jobs of any generation in history, and ridiculously low taxes (relative to the gold-plated social programs they demanded), these pampered prima donnas have been so recklessly irresponsible with their own spending that this generation has less in savings than previous generations. As a result, this bloc of selfish spendthrifts is more dependent on lavish pensions (and pie-in-the-sky medical benefits for seniors) than their own parents. The problem is that this group has mismanaged their own pension-plans just as badly as they have mismanaged the overall economy and government finances. In other words, just as they have doing all their lives, U.S. baby-boomers are planning on spending money they don't have all through their retirements – in order to fund their lavish lifestyles. However, having squeezed all of the wealth out of the U.S. economy, and squeezed all the wealth out of their children and grandchildren, there is no money to top-up their mismanaged, under-funded pension plans (along with the equally generous retirement medical plans which accompany them). The bottom line is that this generation of financial-failures is already facing a multi-trilllion dollar shortfall - which is totally separate from the $70 trillion funding-gap in Social Security and Medicare (see “U.S. Pension Crisis: the $3 TRILLION question”). This is a crisis which is developing from the bottom up. Vallejo, the one-time state capital of California, was already forced into bankruptcy due to the unsustainable retirement benefit plans of its municipal workers. Meanwhile, on the opposite coast, municipal leaders lament that they only have enough funds to pay for either the pension/medical plans of their former police officers and firefighters, or the salaries of the current police and firefighters. Further aggravating this crisis at the local level, many municipal governments were severely “burned” through being conned into various forms of “exotic financing” by Wall Street scam-artists. Municipalities and public institutions not just in the U.S., but all over the world, have been crippled by countless billions in losses – while paying these financial predators fat fees to ruin them. It is within this context that we can begin to examine the problems of the pension-plans, themselves. To start with, the “financial model” (and solvency) of most of these pension funds is based on the premise of a rate of return far in excess of the historical, average rate of return in the U.S. economy. This is despite the fact that the U.S.'s steadily growing mountain of never-to-be-repaid debt requires an ever-greater percentage of the U.S.'s GDP just to service the interest payments on this debt…

Seeking Alpha…Will the economic recovery be enduring—V shaped? Collapse after a short time—W shaped? For the middle class, it may be none at all—an X. By conventional wisdom, the housing bubble, credit crisis and collapse in consumer spending caused the recession. With home sales rising, new cars flying off lots, and Wall Street profits soaring, analysts see an imminent recovery, but the economy is running on steroids. About 90 percent of existing home sales are distress sales—foreclosures and homeowners in financial difficulties. New home purchases are juiced by the $8000 first-time buyer subsidy that expires December 1. Summer car sales were pumped by cash for clunkers.  Regional banks are failing under bad commercial loans, and mortgage-backed securities purchased from Wall Street financial houses. In part, Wall Street posts big profits by shifting its debauchery onto smaller brethren, and the FDIC may run out of cash to guarantee regional banks’ deposits. Clueless behavior by big players is frightening. Automakers are boosting production, assuming car sales will continue at their torrid summer pace.  Wall Street is planning big year-end bonuses instead of shoring up capital for a possible second dip in the recession. The backup may be a Broadway lyricist to pen “Bail ‘em out again Ben.”  Consumers, recognizing danger, stay away from the malls and seize what dollars they have. The economy will be lifted by businesses rebuilding depleted inventories and replacing outdated computers and federal stimulus dollars. Those simply will not deliver annual GDP growth greater than 2.5 percent or many new jobs. The stock market will rally with modest growth, because U.S. multinationals produce so much in Asia where growth is robust. To Wall Street, the recovery will appear V-shaped, but for ordinary workers, it will be an X.  Unemployment will reach 10 percent, and stay there until President Obama stops obsessing about redistributing wealth by nationalizing car companies and health care and raising taxes on energy and the wealthy.  The country needs pro-growth policies—fixing the huge trade deficit and the banks. Dollars spent on imports that do not return to purchase exports can’t be spent on American products. That saps demand for American-made products, keeps factories and offices shuttered, and idles workers. The trade deficit is mostly oil and Chinese consumer goods. Export more, import less, or the economy flops. Without bank credit, businesses can’t expand, entrepreneurs can’t create, and workers don’t work.  Obama dodges the toughest aspects of the banking morass. Compensation structures built on the too big to fail doctrine permit Wall Street to take huge risks, shift losses onto smaller investors and the government, and suffer too few consequences for their calamities.  Until those change, Wall Street bankers will be too busy chasing rainbows to adequately reestablish lines of credit to regional banks essential for business expansion. Buy only as much as you sell, reasonable pay for honest work, and let the reckless fail.  Old time religion? That’s what made America great.

13 VIEWS FROM SEEKING ALPHA:

Is It a Stock Market Rally or a Dollar Devaluation Seeking Alpha…A cheaper dollar means higher stock prices (temporaily), as US assets are marked down for global investors. What we have is not a stock market rally but an adjustment to global market prices. Fully 80% of the movement in the S&P can be explained by the movement in the dollar index. That is a profile well known to emerging market investors. Whenever the Brazilians would pull another currency devaluation, stock prices rose to compensate, as tradeable assets floated up to world market prices. The bank bailout has made Americans poorer relative to the rest of the world and created the illusion of a stock market recovery…

Wall Street was all in at the bottom, they caused the reversal and resulting rally on declining volume, they held up the market all on their own until institutional money managers fear ful of being accused of missing the boat climbed aboard a few months later and now appear to be fully invested, all that is left is for the fearful retail investor to be convinced by Wall Street thats its safe for them to get on board as well. Based on Wall Streets history for sacrificing the retail investor for the good of the market, it seems that another black Oct is a forgone conclusion and then it starts all over again. Aug 22 2009

Let me put it this way, if the market goes down 50%, then goes up 50%, are you happy?
If that became a trend and happened 4 more times, over say the next 3 years or so, you know what is left of your $1,000,000 investment?
Answer = $237,304

"...The biggest rally during the '29 to '32 period was 46.77% over 148 days. The current rally is up 51.68% over 165 calendar days. ..." Looks pretty darn ( statistically ) similar to me! The exact opposite of your conclusion...suggest you brush up on your math!

This bull looks like BS to me. Low volume, high P/E. The market was oversold in March and overbought now, but that doesn't mean it won't go higher or another panic might not test the March lows. The important lesson for investors is that you cannot time the market and must stay in the market to catch the upward movements. Diversification is the key. Exposure to different asset classes, including stocks, bonds, property, gold and cash. Don't be greedy.

Hypothetical scenario
start with $1 to invest in 1990 by 1999 you have $2, now the dotcom bubble bursts your portfolio drops 50% and your left with $1, back to square one, well then you hang in there and your investment grows by 50% through 2008 so your up to $1.50, better then nothing though your only up 50% in 2 decades, then we get the 2008 collapse down another 50% in 6 months to $.75, so now your down 25% from your initial investment of $1 in 1990, but wait if you can stay fully invested and all your positions move with the market your up 50% in six months so you would now have $1.125 in your account, so since 1990 your original investment of $1 has grown by 1/8 in just under 2 decades. Thats is reality for most investors and to think they dont know is foolish and to think they will run back into the market again is also foolish, without the Retail Pawns it will be hard for Wall Street to continue playing the market manipulation game much longer

This latest Bernanke-fueled rally confirmed--it's a pro market for technicians driven by momentum based off Bernanke's cues. You can write the script--the pro's drive another 300-500 points on the Dow, then small investors move in. It's all good--until Jan/Feb/Mar. 2010 when consumer spending craters (then back to Dow 8000) or when Israel bombs Iran (then back to Dow 6000).

I do not know if this is a beginning of a bull or a bear. But, certainly, at these level the US market is not a buy. Even in the positive scenario that the S&P earns its 10 year average of 50 in 2010 it would stillbe a P/E of 20. Then consider that the consumer will not return and that the government cannot forever sustain its current cost to income ratio of 180% and you will have to come to the conclusion to sell.

Love the statistics which are favorable, but beside the quantitative
analysis try a qualitative analysis.

1. Volume is low over all and historically.
2. NDX typically leads any lasting rally,
3. The underlying economy is not likely to produce the earnings projected (high probably multiple expansion is unwarranted).
4. The depth of the retraction into March was over sized expect the bounces to be equally exotic.
5. The liquidity poured into the market is 7-10 times the amount seen in any other recession - where did it go beside bank values? stocks.
6. Be patient and careful, momentum is fading the market may be out of fuel.

For those who think this market is even remotely close to reasonable valuations, we suggest they read Doug Short's accurate summary of historical stock market valuations. See: www.dshort.com/article...
As per Doug Short's great summary, it does not mean the market cannot go higher temporarily - based on the momentum and liquidity trading that is apparently happening - but it does clearly show that the market is significantly overvalued by any historical comparisons with previous recessions. Thus the only logical conclusion is that (unless the market is somehow different this time-and it never has been different before-despite bull and commentator claims to the contrary) the market will endure at least one more very serious selloff at some point in the relatively near future(or alternatively there will be some magical hugh increase in corporate earnings, which is highly unlikely). Thus maybe one can trade this market and make some money, but past historical comparisons indicate there will be much better buying opportunites at much better valuations somewhere out there in the relatively near future.

Was there a Goldman Sachs in 1929-1932 with a direct dollar pipeline to the Fed? Much of what we see today, IMO, is smoke and mirrors designed to make us feel good. In today's America, feeling good is more important than reality. Or, perhaps we believe feelings create reality. Japan has languished because they refused to deal with their economic colapse according to reality. Aren't we doing exactly the same? Did the investors who created this mess lose their money? Not yet. But a lot of others have. Have the bad loans been dealt with? Not yet. And we all know it. What has happened is the Fed has pumped dollars into the "too-big-to-fail" companies (the one's who should of lost it all) and the government has handed money to it's citizens to "stimulate" things. Oh yes, and the media has pumped persistently positive news to the citizens designed to change moods rather than report fact. Bernanke thinks he has it figured out. That he can engineer a graceful recovery and save the world. I think he's convinced has a lot of new tricks up his sleave that will make it different this time. I'm just afraid that his power is still inferior to the market's even though he has a infinite number of dollars to play with.
And when the market decides to take over once again, look out below.

It is actually worse than that because unless America ring fences its economy by implementing exchange controls then most of the hot investment money will simply flow into the economies of other countries. Even so you will struggle not to resemble Zimbabwe.

THE GREAT DEPRESSION AND TODAY - SOBERING PARALLELS ABOUND        

By Simon Maierhofer  August 27, 2009 …IF THERE IS JUST ONE TIME YOU WANT TO TAKE A LESSON FROM HISTORY, IT IS RIGHT NOW. THE PARALLELS BETWEEN TODAY AND THE GREAT DEPRESSION ARE NUMEROUS AND STRIKINGLY SIMILAR. THIS 5-MINUTE HISTORY LESSON MIGHT BE THE BEST INVESTMENT YOU'LL EVER MAKE.

WATCH OUT! EVEN THIS RALLY PARALLELS THE GREAT DEPRESSION

The first leg of the Great Depression reduced the Dow Jones (DJI: ^DJI) by 48%. The first leg of the 2007 bear market reduced the Dow Jones by 53%. Both times, the initial declines were followed by powerful and persistent rallies. The five-month rally from November 1929 to April 1930, lifted the Dow Jones (NYSEArca: DIA - News) by 49%. So far, the five month rally from the March 2009 lows has lifted the Dow Jones by some 46%. The time frame and percentage gains are certainly too close for comfort. Even though the S&P 500 (SNP: ^GSPC) was not around during the Great Depression, the modern day picture mirrors the Dow. The Nasdaq (Nasdaq: ^IXIC) may have already provided a window into the future as it declined over 80% from its 2000 technology (NYSEArca: XLK - News) bubble, to its 2009 low. When talking about windows for the future, we can't omit the juicy fact that the Dow Jones measured in the only true currency - gold (NYSEArca: GLD - News) - has also declined to an extent similar to the 1929 - 1932 market meltdown (more about that later).

FROM HUMOROUS TO SOBERING - PARALLELS THAT STING

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities. Just as we've seen recently, investors took their leftovers from the real estate bust and poured it into stocks. Talk about jumping out of the frying pan into the fire. Just as in 2007, no one foresaw a decline, let alone the seriousness of the decline. On December 4, 1928, President Coolidge sent the following message on the state of the Union to the reconvening Congress: 'No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment and the highest record of years of prosperity. In the foreign field there is peace. You may regard the present with satisfaction and anticipate the future with optimism.'

JIM CRAMER - THE MODERN DAY HARVARD PARALLEL? 

The Harvard Economic Society, previously esteemed for its pessimism, turned bullish a few months before the market topped. In fact, the Society remained bullish all throughout the downturn until it was dissolved just before the depression ended. One of the many blunders that lead to the untimely (though not soon enough for investors' welfare) demise of the Society, was its March 24th, 1930 assessment that; 'The outlook is favorable.' This was just days before the onset of the above mentioned second leg to new lows. The second leg reduced the Dow by another 47%, but it didn't stop there. There are many modern-day parallels to the Harvard Economic Society. The Blue Chip Economic Indicator survey, a survey of private economists, is just one of them. According to the survey, 90% of economists believe that the current recession will be declared to have ended this quarter. Nobel-Prize-winning economist Paul Krugman, who believes the worst of the global crisis is over, is likely to be another one. Interestingly, economists also believed that in March 2009 the market's worst was yet to come, when the Dow traded below 7,000. Contrary to the general climate, the ETF Profit Strategy Newsletter's contrarian view has been keeping subscribers one step ahead of the market.

REALISTS BEAT OPTIMISTS

In December 2009, the Newsletter declared Dow 9,000 to be an opportunity to load up on short ETFs. This window of opportunity opened from January 2nd to the 6th. In the following 90 days, short ETFs went to record double and triple digit gains, while the S&P 500 (NYSEArca: IVV - News) lost 30%. On March 2nd, at a time when an atmosphere of doom permeated Wall Street, the Newsletter issued a Trend Change Alert with a target of Dow 9,000 - 10,000 and S&P (NYSEArca: SPY - News) 950 - 1,050. As the following excerpt from John Kenneth Galbraith, author of 'The Great Crash 1929', observes; contrarian (or realistic) investing pays big dividends. Before reading Mr. Galbraith's astute assessment, take a moment to put it in context with today's environment.  Consider that the market just rallied about 50% from its March lows and the worst seems to be over, while compelling values abound (allegedly).' The worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few people as possible escape the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost.  The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall. Even the man who waited for volume of trading to return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next 24 months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.' Other parallels that can be found are the government's assurance that things are fundamentally sound, an increase in mergers and acquisitions, falling car prices, increasing Ponzi schemes (Madoff vs Ponzi), new tools to leverage money, credit expansion/contraction, etc. The Great Depression even had its own Warren Buffett and Jim Cramer. If that isn't enough, consider this: Research shows that the decline in industrial production over the last nine months has been as bad, if not worse than the nine month following the 1929 peak. The world stock markets have fallen even faster this time around compared to 70 years ago. The volume of world trade is drying up at a faster pace than the Great Depression and government surpluses are the lowest in 100+ years.

RED ACROSS THE BOARD, NOT SEEN IN 70 YEARS

Thus far, this bear market has humbled large cap stocks (NYSEArca: OEF - News)along with small cap stocks (NYSEArca: IWM - News), growth funds (NYSEArca: IWF - News) along with value funds (NYSEArca: IWD), defensive sectors along with aggressive sectors, real estate (NYSEArca: ICF - News) along with commodities (NYSEArca: DBA - News). This unique 'red across the board' behavior has not been seen in the 70s, 80s or 2000 bear markets. The only other similar time period to be found is during the Great Depression. Of course you can't simply build your entire financial future around parallels to past history. If, however, such parallels as the ones discussed above, harmonize with trustworthy indicators with an accurate historic record, the composite advice should not be ignored. In fact, ignoring those indicators as a composite would be a foolish thing to do. History has taught us that in periods of time when investors are enthusiastic about stocks and their future prospects (1929, 2000, and 2007) has turned out to be the worst times to buy, and almost always preceded a major market decline. The implications of the above mentioned composite indicators will do more than merely touch peoples' financial futures. Prudent investors will take precautions now to protect their family and financial nest egg. The brand-new September issue of the ETF Profit Strategy Newsletter includes an analysis of the current rally (are higher prices ahead or is a top in place?), a target range for the ultimate market bottom, ETF profit strategies, and practical ways to thrive and survive in the coming years. As mentioned above, the Dow's recent decline measured in gold is a near replica of the 1929 - 1932 decline in stocks. Eventually, the Dow measured in inflated dollars will catch up with the real value metrics reflected by gold. At that time, many will wish they'd learned from history.  We simply must learn from the mistakes of others because you can't possibly live long enough to make them all yourself.'

Fake Dutch 'moon rock' revealed A treasured piece at the Dutch national museum - a supposed moon rock from the first manned lunar landing - is nothing more than petrified wood, ...BBC News    BBC NEWS | Europe | Fake Dutch 'moon rock' revealed    Prized moon rock a fake - A PIECE of moon rock given to an overseas politician by the United States is actually a lump of petrified wood, museum authorities revealed yesterday. ...    'Moon Rock' in Dutch Museum Is Just Petrified Wood Aug 27, 2009 ... Fake moon rock at Dutch national museum. Rijksmuseum / AP. This rock, supposedly brought back from the moon by American astronauts, ... http://www.albertpeia.com/moonfraud.htm

In reality it is just a piece of petrified wood ... Another piece of evidence that shows again that Apollo program is indeed a fake and a fraud

SOBERING STAT: ARMS INDEX INDICATES MARKET IS AT PEAK, NOT BOTTOM….Brett Steenbarger…What I can tell you with certainty is that two of the past historical occasions in which we've had 20-day price highs and ultra low median 20-day TRIN readings have been March 2000 and late May/early June, 2007. Both corresponded more or less to bull market peaks. The ultra low TRIN seemed to capture frothiness in those markets: lots of volume going into a few speculative, rising issues. Might we be seeing the same thing with the recent pops in such low priced stocks as AIG (AIG), Citigroup (C), Fannie Mae (FNM), Freddie Mac (FRE), CIT (CIT), and Bof A (BAC)? I note that about 2 billion of NYSE volume was concentrated in C, FNM, and FRE alone. Seems like lots of money chasing low-priced volatile financial stocks. Just like lots of money chasing volatile tech stocks or emerging market stocks. Not something you'd see at market bottoms. A bit of a sentiment caveat for this market shrink…

SEEKING ALPHA…Larry MacDonald…Correction…

From TrimTabs Investment Research:

From David Rosenberg of Gluskin Sheff:

WHY THE BULLS ARE SKATING ON THIN ICE  Michael Panzner 9-10-09 Thursday, we had more "good news" on the economic front. Another 550,000+ Americans filed initial jobless claims -- the 35th straight week above the half-a-million mark.

As usual, data that should be seen as a cause for concern seemed to be the catalyst for renewed buying of equities, and the S&P 500 index climbed to its highest level in six months -- up 54 percent since March 9th.

For me, the current disconnect between Wall Street and Main Street brings back memories of the fall of 2007, when share prices were racing to new highs as credit markets were unraveling and the economy was imploding.

That is not the only reason to think there is something wrong with this picture, of course. The points raised in the following commentaries -- from Minyanville and The Pragmatic Capitalist, both of which are regular stopping points of mine -- also suggest the bulls are skating on very thin ice:

"Answers I Really Wanna Know: Is a Tech Wreck on the Horizon?" (Minyanville):

If technology stocks led the market higher and the semiconductors lead tech, what can we read into...
Altera (ALTR) recently raised guidance and the stock was flat.
Diodes (DIOD) recently raised guidance and the stock was flat.
Microchip (MCHP) recently raised guidance and the stock is flat.
Texas Instrument (TXN) substantially raised guidance and the stock is up a dime.
Since
Intel (INTC) raised guidance on August 28th, the mother chip is .40 higher (and well below the initial surge).
85% of portfolio managers are bullish on tech in a recent survey.
An ISI Group survey indicates 88% of respondents believe we’re in a bull market.

"5 Reasons the Rally Is Built on Quicksand" (The Pragmatic Capitalist):

From the desk of David Rosenberg this morning [note: TPC's comments are in italics]:

1. This remains a hope-based rally (with strong technicals). I say that because during this six-month 50%+ rally in the S&P 500, the U.S. economy has shed 2.4 million jobs, which is almost as many as we lost during the entire 2001-02 tech wreck — in just six months. The market’s ability to shrug off the loss of 2.4 million jobs is either a sign that it is treating this as old news or sees the cost-cutting as good news for profits. Either way, what we are seeing transpire is without precedent — the magnitude of the employment slide versus the magnitude of the market advance. Truly fascinating stuff.

It’s remarkable to add that jobless claims were 550K this morning – a staggering number this deep into a recession. But fear not – it was “better than expected”.

2. Companies have not really been beating their earnings estimates — only the very final estimates heading into the reporting quarter. For example, the consensus view for 3Q EPS at the start of the year was $21.00, last we saw the estimates were down to just over $14.00. But there is a deeply rooted belief that earnings are coming in better than expected. This is a psychology that is difficult to break. It is completely unknown (for some reason) that corporate revenues are running at a -25% YoY rate, which compares to the -10% we saw at the worst part of the 2001-02 bear market and the -3% trend at the most negative point in 1991.

It’s also interesting to note the very real weakness in corporate revenues. The bottom line can be manipulated, but revenues never lie….

3. Valuation is a poor timing device but even on “normalized” trailing 10-year earnings, the S&P 500 is trading near 18x, which is now above the historical average of 16x