2010 Master's Cancelled

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2010 Master's canceled









Winner Already Announced


































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Kass’s Summary of Bearishness

Source: BP

Doug Kass very publicly made a prescient bottom call in early March. He has now flipped Bearish, and explains why:

1. Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.

2. Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth.

3. The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption.

4. The credit aftershock will continue to haunt the economy.

5. The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain.

6. While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn.

7. Commercial real estate has only begun to enter a cyclical downturn.

8. While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives.

9. Municipalities have historically provided economic stability — no more.

10. Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom.

Doug points to the animal spirits in full force, shorts scrambling to cover, and a crowded bullish sentiment as additional reasons for the tactical shift. He believes a “self-sustaining economic recovery appears doubtful”

That fits in well with my 1973/74 parallel of the current market environment.

P.M. Links

Senate Poised to Add $2 Billion to ‘Clunkers’ Program (Bloomberg)

‘Underwater’ Mortgages to Hit 48%, Deutsche Bank (Bloomberg)

The Latest Hotness Indicator (CNBC)

Goldman Sachs (GS) Q2 Winning Percentage: 97% (Fund My Mutual Fund)

Three Problems with Congress Extending Cash for Clunkers (The Atlantic)

ISM Shows Recession NOT Over Yet (MISH)

Clinton Visit Is Boon for Kim Jong Il (WSJ)

What I'm seeing.....

This is what I'm seeing right now. Market could edge higher to 1040-1100, but the top could be in at anytime now, I would stay in cash till a good shorting opportunity. I would tighten up stops on my longs if still in the market.

A.M. Links

Economists Upgrade Second-Half GDP Forecasts (WSJ)

New York Seeks Millions in Tax From Lehman (NYT)

Treasury's Debt Plan: More Sales of TIPS (WSJ)

Gasparino vs Taibbi (BP)

The US Housing Market and the Dollar (Forex Blog)

Freed Journalists, Clinton Return to United States (WP)

Iran's Ahmadinejad sworn in as president (Reuters)

What's on the Pentagon's mind? Facebook (LAT)

Senators, Advisers Urge Obama to More Than Double Afghan Forces (Bloomberg)

U.S. climate bill costs low for households: EIA (Reuters)

Fibonnaci Calls: the 38.2% Retrace is Approaching (Fund My Mutual Fund)

hmmmm? lol

Home Crisis Investigation

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

Important Chart to Consider

Goldman leading the way?

Goldman is just destroying everything in it's path.....

who could have guessed?

DTV?

DTV looks like an interesting buy today......market is very overbought, however shorts are just not working...could be worth a shot

Bank index breaking out?

Looks like we could have another leg of this huge topping pattern if the bank index moves to the upside today

Wind about out of China's sails

China in panic?

Black Swan Capital July 10

Wow!! Is Goldman Stealing $100 Million per Trading Day?

Via: The Big Picture:

Here’s something to give the conspiracy buffs a total breakdown: Combine these stories from Bloomberg, Daily Kos, and Zero Hedge, and you can reach a rather unsavory conclusion:

• Goldman Sachs’s $100 Million Trading Days Hit Record

• FBI Arrest Opens Goldman-Sachs’ Pandora’s Box

• Intraday Observations

• “Incredibly Shrinking Liquidity” as Goldman Flushed Quant Trading

What is the inference of potentially illegality here?

“That Goldman Sachs may just possibly have used security access codes and built a system to acquire trading information PRIOR to transaction commit time points at NYSE.

The profitability of this split-second information advantage would have been and could have been extraordinary. Observed yielding profits at $100,000,000 a day. [summary to address complaints with respect to complexity.]

GS has special access inside the system from its status assisting the Working Group on Financial Markets (colloquially the Plunge Protection Team) created by Presidential Order two decades ago. GC also acts as Special Liquidity Provider for NYSE.

With 60% dominance of NYSE program trading, what’s good for Goldman defines what shows as overall market performance.”

There is likely to be more info about this trickling out over the coming days and weeks. Stay tuned . . .

Quick way to solve our money problems

US To Trade Gold Reserves For Cash Through Cash4Gold.com

FDIC Gearing Up for Bank Failures

Via: Washington Business Journal:

The Federal Deposit Insurance Corp. is gearing up to handle a large number of bank failures expected as a result of bad mortgages, both in residential and commercial real estate, an economist said Tuesday.

“They know they’re going to take down a large number of banks and they can’t do it until they’re staffed up,” said Mark Dotzour, chief economist and director of research for the Real Estate Center at Texas A&M University.

Dotzour expects federal regulators to establish an agency, similar to the Resolution Trust Corp. that disposed of assets belonging to insolvent S&Ls in the late 1980s and early 1990s.

“Once they start to sell [foreclosed real estate], we’ll find out what the market really is,” Dotzour told attendees at an economic summit hosted by a handful of real estate groups in Tampa, Fla.

…

Dotzour expects foreclosure rates to continue to climb, real estate prices to fall more and cap rates to rise to at least 9 percent before leveling off.

In 2010 and 2011, interest rates will begin to rise, as will inflation. Once investors realize the market is at bottom, deals will begin to flow again, he said.

In the meantime, he compared the bad loans that remain on banks’ books to a smelly cat litter box and the feds keep throwing more litter on top to mask the smell. But they’ll eventually have to remove the organic material to fix the problem.

It’s Not About U.S.

Via: Financial Sense:

While the world has been used to the U.S. being the engine that drives global economic growth, this decade we witnessed the resurgence of developing nations with popularized terms such as “Chindia” (China/India) and “BRICs” (Brazil, Russia, India, China). There has truly been a shift in importance coming from developing nations and it is showing on multiple fronts, including share of world market capitalization. The U.S. share of world market cap has fallen from roughly 45% in 2003 to 29% currently, while China’s share has risen from roughly 1% to 9% over the same period. The second chart, of the U.S. dollar, shows how the currency markets are responding to U.S. weakness.

Real Estate Recovery?

Via: Bloomberg:

July 8 (Bloomberg) -- Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said.

There were 5,315 buildings in financial distress at the end of June, the New York-based real estate research firm said in a report issued today. That’s more than twice the number of troubled properties at the end of 2008.

Hotels and retail properties are among the most “problematic” assets following bankruptcy filings by mall owner General Growth Properties Inc. and Extended Stay America Inc., according to the report. The scarcity of credit is causing property defaults in all regions and among every investor type, Real Capital said.

“Perhaps more alarming than the rapid growth in the distress totals is the very modest rate at which troubled situations are being resolved,” the report said.

About $4.1 billion of commercial properties have emerged from distress, according to Real Capital.

“In far more situations, modifications and short-term extensions are being granted, but these can hardly be considered resolved, only delayed,” the study said.

The June figures issued today are preliminary.

Funny Video

here is a nice video to take you away from the market for a minute

VIX breakout

This is not good for the market......not at all

Can Copper keep it up??

I don't see copper continuing its run much further. It has run into heavy resistance on it's weekly chart and has painting a nasty negative divergence on the stochastics. Translation: Copper is due for a pullback. I'm going to play this by shorting Freeport Macmoran (FCX)

Short AAPL

Going short AAPL here.....good breakdown yesterday and I see weakness continuing going forward for both AAPL and the overall market.

True Unemployment Rate Already at 20%

Great article from MSN, take the time to read it

Via: MSN:

Really, how hard is it to find a job? Was June’s horrid numbers, in which 467,000 people lost their jobs compared to 345,000 in May, a one-time fluke? Or does it mean that all those Wall Street economists who believe the economic recovery is starting are dead wrong?

Not to scare you, but the situation is actually worse than it seems. Over the years, the government has changed the way it counts the unemployed. An example of this is the criticized Birth-Death Model which was added in 2000. The model is designed to account for the birth and death of businesses and the resultant lag in survey data. Unfortunately, the model doesn’t work that well during economic contractions (like we have now) and consistently overstates the number of jobs being created each month.

John Williams of Shadow Government Statistics specializes in removing these questionable tweaks to the government’s statistical data to better align current numbers with the methodology used to gather historical data. After reviewing the data, Williams believes that “the June jobs loss likely exceeded 700,000.” David Rosenberg of Gluskin Sheff notes that the fall in the number of hours worked in June (to a record low of 33 per week) is equivalent to a loss of more than 800,000 jobs.

There are similar issues with the way the unemployment rate is measured. The headline rate only jumped from 9.4% to 9.5% because of a drop in the number of people in the workforce. The more inclusive “U-6″ measure of unemployment, which includes discouraged workers, jumped from 16.4% to 16.5%. But even this doesn’t adequately capture the situation on the ground: Back in the Clinton Administration, the definition of discouraged worker was changed to only include those that had given up looking for work because there were no jobs to be had within the last year.

By adding these folks back in, William’s SGS-Alternate Unemployment Measure rose to a jaw-dropping 20.6%. Separately, the Center for Labor Market Studies in Boston puts U.S. unemployment at 18.2%. Any way you cut the numbers, the situation is very bad. According to David Rosenberg, one-in-three among the unemployed have been looking for a job for more than six months and still can’t find one.

Nasdaq breakdown

The Nasdaq is breaking down below the neckline of it's head and shoulders pattern as well as it's 50 day moving average. This is a signal for further weakness ahead.

Tech Sector Collapse

The Tech sector, which has lead the recent rally, is currently breaking down. Multiple head and shoulders patterns on the biggest tech names are playing out as we speak. This is not good for the stock market going forward.

America's Fiscal Train Wreck

Good article by Morgan Stanley on the debt situation in the United States

http://www.morganstanley.com/views/gef/index.html#anchor098c0c3c-6a29-11de-9228-3fb01e8a07e2

Article on Goldman Sachs

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine

U.S. debt from a different perspective

You're eight months behind on your $500,000 mortgage, your bank is
demanding a meeting, and you respond by telling them there's nothing to
worry about. Why not? Because you just saved $40 by canceling your
newspaper subscription.

That, essentially, is the kind of fast budget talk President Obama
trotted out in April when he made a big to-do out of instructing his
cabinet to cut $100 million from their budgets.

$100 million may sound like a big number, but the cut would only reduce
the United States' projected $1.8 trillion budget deficit by 0.005% --
less than what you'd save for your mortgage by giving up the daily
paper.

Doesn't look good for equities....

Here is a weekly chart of the volatility index. IMO it doesn't look very good for stocks.

SRS for extreme bears

bear trap?

I am not bullish on this market, however we must keep in mind that this could be a bear trap.....

here are a few bullish set-ups to watch

Pairs trade to play the currency market

Yesterday I showed a chart of the Euro/Yen.....

Today I am going to put on a pair trade to play this currency pair....

I am entering a long positions in FXY with a stop at $102.50 and a short position in FXE with a stop at $142.50


good trading!!

Short MAR.....stop $22.52

Short IYR.....stop at $33.50

I am going to short IYR with a stop at $33.50........aggressive players can buy SRS (ultrashort real estate)


The market is currently breaking down as expected...........if it moves lower than 890 the H&S pattern will become a reality and 800 should follow in short order. A look at the advances/decliners shows that there is ample room for more downside.

Real Estate recovering?

This is IYR, a chart of the real estate index............looks like a screaming sell to me, overbought, kissing the 200 day MA, and forming the right shoulder of a textbook H&S pattern...

Euro/Yen

This is just a secondary indicator I like to use to confirm stock market movements. It is a measure of risk. If it is rising the currency markets believe the economy to be healthy. Right now it is looking rather toppy and could be setting up for a fall......bad for the stock market

Market very toppy.....

Market is looking very toppy, I'm looking to add a few short positions before the close today.....stops should be tightened up on any open longs

Short Oil?

Oil is looking like a good short right now....this could be a sign that this rally is nearing completion.....

I'm going short with a stop at $38.95

Good New York Times Article

http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html?pagewanted=1&_r=1

interesting site

here is an interesting site to put our debt situation into perspective......

http://usdebtclock.org/


if we don't figure this situation out soon it's going to be to late

VIX capitulating?

The VIX looks as if it could be capitulating today. The VIX has also formed some pretty impressive positive divergences and I think this could be the day to get short this market.

Market breaking down??

As of right now the market is oversold on both the short term and the intermediate term. At this moment it is breaking down out of its bearish rising wedge, this favors lower prices ahead. Short positions should have been entered when we received the market top indication, now long positions should be sold and new positions shorted on further strength. Watch for support around 800-750.

Update

Market is nearing a point that looks good for some short entries. I would go with some conservative shorts that are at decent resistance levels with tight stops at this point. The market is looking VERY toppy. However, we have yet to break down from the rising wedge, once that happens I would be loading up on shorts.

Trading System

Sorry for not posting for so long, I have been working on perfecting my trading system and I think I am finished now.

The system is comprised of multiple indicators spanning across multiple time frames. It has intermediate term top/bottom indicators, intermediate term momentum indicators, long term trend indicators, and short term entry point indicators. It takes a certain amount of subjective thinking, however it is a pretty mechanical system and is fairly easy to use once learned.

here is what to look for:

1. Has a top or bottom been spotted by the top/bottom indicators (if so a trend change is imminent)

2. Say that a top has been spotted. You would tighten up stops on your long positions and enter a few short positions (basically go market neutral)

3. Next you should look for a confirming signal from the intermediate term momentum indicators. This confirms the new change in trend and you can then enter positions in that direction.

4. The short term entry signals can be used to find good entry points in the direction of an intermediate term trend.

5. New positions can be opened in the direction of the new trend until a new top/bottom has been spotted, once this happens you repeat the process (stops are tightened up on existing positions and a few new positions are opened against the trend to move market neutral)


Here are what the indicators are saying right now:

Top/Bottom Watch: Topped

Intermediate Momentum: Bullish

Short term timer: Neutral, oversold, however, bearish rising wedge and lots of negative divergence is in place (no more long positions should be taken, as seen below)



Updates should be posted nightly from now on. Enjoy!

Market starting to look toppy

The market is started to run into loads of overhead supply and is starting to look toppy after this recent run up. Right now the risk/reward favors shorting the market once again. As I see it we are getting ready to embark on the 5th down wave of this recession/depression.

Here is a good video of British Prime Minister Gordan Brown getting destroyed about the British debt. Yes, this is Britain, but we are right there with them in this mess.

Unintended consequences is Washington.......

“The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple. It operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.”

-Andrew Gelman


Congress definitely fits Mr. Gelman’s definition of a simple system. I can’t think of a body of people operating with more ignorance than Congress. The information they act upon, is provided by the 17,000 lobbyists that wine and dine them on a daily basis. Corporate lobbyists, PACs, unions, and special interests buy their votes. Their time horizons are less than a few months.

They are constantly running for re-election, raising money and handing out goodies to their constituents. The only feedback they care about is their standing in the polls and the amount of money they’ve raised from “donors”. Their incentives are poor and not aligned with the needs of the American people. They are not willing to do what is right for the country because they have no incentive to do so. Their only incentive is to get re-elected by insuring that their district gets as much pork spending as possible. They do this by selling their votes to the highest bidder.

Some possible grounds for the unintended consequences are the world’s complexity, human stupidity, self deception, hubris and biases. Merton’s five possible causes were:

1. Ignorance (It is impossible to anticipate everything, thereby leading to incomplete analysis)
2. Error (Incorrect analysis of the problem or following habits that worked in the past but may not apply to the current situation)
3. Immediate interest, which may override long-term interests
4. Basic values may require or prohibit certain actions even if the long-term result might be unfavorable (these long-term consequences may eventually cause changes in basic values)
5. Self-defeating prophecy (Fear of some consequence drives people to find solutions before the problem occurs, thus the non-occurrence of the problem is unanticipated)

Ignorance, error, and immediate interest sound like a perfect motto for the U.S. Congress, Federal Reserve, and Treasury. When media pundits, pompous economists, self proclaimed “experts”, and corrupted politicians assure you that they have the solutions to all of our problems they are practicing the most evil form of hubris. The arrogance and self importance of these people is an insult to the intelligence of all Americans. They put their unproven theories into practice by committing trillions of taxpayer funds. They are only concerned about the next election cycle and not about the long-term consequences of their ignorance and ignorance of crucial facts. The accumulation of blunders over the decades by government has led to unintended consequences that could bring down our country. Recent developments will have disturbing consequences for all Americans.

The sum total of all that has been done and all that will be done will eventually lead to a hyperinflationary bust. The money supply is being expanded too rapidly, fiscal stimulus spending will be borrowed from foreigners, the dollar will fall as foreigners refuse to accept 2% for 10 years, and the Federal Reserve will react too late just like they did when this crisis began. This overstimulation of the economy will lead to a panic out of dollars and into real assets. The government will attempt to control the situation by confiscating gold as they did in the 1930s and Americans will be forced to surrender more liberties. In periods of economic and social upheaval - war, revolution, or dictatorship become possibilities. The average American needs to wake up from their materialistic stupor and understand the risks that lie ahead. An educated concerned citizen is our only defense against tyranny. Orwellian governmental policies will be inflicted upon the populous. Seek out those who are telling the truth. David Walker, Boone Pickens, Ron Paul, Mike Shedlock, Doug Casey, and John Mauldin are among the truth tellers.

definition of ignorance

Why I don't listen to CNBC!!!

This video shows exactly why I don't listen to a word that CNBC says.

They are always so wrong it is funny.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

rebound?

Today we had a small rebound. However, the main thing to remember is the market is still looking very week and we have not seen the kind of fear and irrational selling that usually marks a tradeable bottom. Yes, the market is oversold. But there is no law that says oversold can't become more oversold.


Short Term: Bullish

Intermediate Term: Bearish

Long Term: Bearish

Good Video

This video was made in the fall of 2007. Not a bad prediction right?




Right now the futures are up about 50 points on the Dow. If we don't have a strong intraday rebound today it is VERY bearish for the markets and I expect continued downside to around 650 on the S&P short term until see some real panic.

Have a good day.

close to temporary bottom......

Here is just one of my charts showing that we are close to a temporary bottom.


Remember this is temporary. Which is why my short term trading signal is bullish.

Wow, market is moving right where predicted.....

To anyone reading this blog......I hope you listened to me and sold your shares when I clearly told you to. This market is bad. It is only going to get worse. However, on the bright side, I do expect the market to move higher in the short term, up to a week. This should provide an opportunity for you to unload your shares before it is to late. With the move down last week and today we have basically confirmed my suspicions that the S&P will bottom somewhere in the 400s and the Dow somewhere near 4000.

This is going to be/already is the first depression this country has seen since the 1930s. If you don't believe it you are really, really wrong and need to have your head examined. Some people say....."well it is time to buy because stocks are cheap". NO!! Stocks are not cheap. If you value the stock market on a P/E basis the market would have to fall to around 515 on the S&P just for stocks to be as cheap as they were during the 1974 recession. We need to fall to nearly 350 on the S&P to get as cheap as the Great Depression. So, when so and so tells you on CNBC, CNN, or Fox News that it is time to buy stocks, don't listen. They are just flat out wrong.

Here is an update of the carnage:


Short Term: Bullish

Intermediate Term: Bearish

Long Term: Bearish


"Blaming speculators as a response to financial crises goes back at least to the Greeks. It's almost always the wrong response."

-Larry Summers

Tax Cuts vs Infrastructure Spending

In my mind this is a no brainer. However, I keep hearing people try to dispute the fact that tax cuts don't work as good as infrastructure spending. When going into a recession you must increase spending to keep the level of GDP up and avoid the recession. It doesn't matter where this spending comes from, as long as the spending is done. When you give someone a tax cut they may spend it, they may not. They may just put it in their bank account, pay off some credit card debt, or make a mortgage payment. This doesn't stimulate the economy. Also, if they do spend it they will more than likely spend it in the service sector on clothes or food. This also doesn't help the economy, as the spending isn't directed at increaseing the REAL assets of the economy, which increases the productive capacity of the economy. Now for government spending. When the goverenment spends money on infrastructure the money is spent. There is no questions about it. The governement doesn't just sit money in a bank account. It goes and spends it on anything and everything. If it does happen to be on infrastructure such as energy, utilities, human (education), roads, and factories it increases the REAL assets of the economy and increases the productive capacity of the economy. This creates WAY more jobs than tax cuts and it sets the economy up for future growth.

This is a no brainer. Anyone who can't see the difference doesn't know what they are talking about and should be avoided in any political discussion.

Long Term Outlook

Here is a chart of my long term outlook on the S&P 500. I believe we will bottom somewhere near 450. Of course we will have a couple rallies between now and then, some could be very violent, but the downward trend will prevail. The chart shows it all.

So as it seems we are going to venture back to 1994 on the S&P 500. That was a good year wasn't it? Here are a few facts from the year that was 1994:

• The Dow Jones Industrial Average closed the year at 3834
• Average cost of a gallon of gas: $1.09
• Average yearly income: $37,070.00
• Cost for a dozen eggs: $0.86
• 500,000 people were killed in a mass genocide in Rwanda
• The channel tunnel opened between England and France
• Serbia continued its attacks on Bosnia
• 50th Anniversary of the Allied landings in Normandy
• Los Angelas Northridge earthquake
• O.J. Simpson fleed police in a white bronco
• Major League Baseball Players Association begin 232 day strike causing 1994 season to be cancelled
• Orange County, California files for bankruptcy protection
• Violent wildfires destroy 286,000 acres in Montana.
• Brazil Wins 1994 World Cup in United States
• Forrest Gump wins the best picture award

See, now aren't you excited to return to 1994? Financially that is.

Some Ideas to Consider

Some ideas for consideration follow:

• We know that Congress is corrupt and in the pocket of lobbyists. They show no courage to make necessary unpopular decisions because they won’t be re-elected. The founding fathers envisioned representatives who did their civic duty for a short time and then went back to their real profession. Almost 200 out of 535 members of Congress are lawyers and lifetime politicians. This explains much about our predicament. Term limits would inject our leaders with a dose of courage. Maybe they would do what was best for the country if they knew that they would only be in Washington for six years.

• Outlawing lobbyists and PACs would remove the buying and selling of votes in Congress. We must remove the corruption from Washington DC.

• The PAYGO rules that were allowed to expire in 2002 must be reinstituted. These rules would not allow new spending initiatives without an equal cut in other spending. These rules allow Congressmen to pretend to have a backbone and say no to constituent demands.

• The banks that are insolvent will need to be nationalized, investors wiped out, and good assets sold off to good banks. Nouriel Roubini lays out a logical scenario. The sooner we purge the system of its bad debt, the sooner we can get this economy on a positive track.

• Dr. John Hussman has a solution for the foreclosure disaster that would not stick the U.S. taxpayer with the bill. Banks could write down the mortgage balance but receive a PAR (property appreciation right) back from the homeowner. The idea is discussed in more detail here.

• The U.S. carmakers need to be restructured within a pre-packaged bankruptcy. They want another $39 billion of your tax dollars. No more taxpayer funds can be wasted on these bloated pigs.

• A truly non-partisan commission appointed by the President with the power to put forth a comprehensive plan to restructure Medicare, Medicaid, and Social Security for an up or down vote by Congress is the only way to create a viable future. Congress must be forced to confront this issue.

• John McCain’s moderate approach of allowing a path to citizenship seems like the best immigration plan. Most came here to try and live a better life. If they have committed crimes or don’t follow the prescribed path to citizenship, then they need to be expelled from our country. We need to encourage foreign professionals to immigrate to America with incentives, if necessary.

• If 50% of the $1.4 trillion annual military related budget was redirected to debt reduction, energy independence, and infrastructure rebuilding, we would actually get a positive return on our tax contribution. Our military is supposed to defend our country, not invade sovereign nations. (If we cut military spending by 50% we would still have by far and away the largest military budget in the world.)

• A “Manhattan Project” to develop new energy sources which would eliminate the $400 billion per year that we send overseas for foreign oil. The number of high paying jobs that could be created by building nuclear power plants, wind farms, and converting vehicles to natural gas would be in the hundreds of thousands.

• A tax system that eliminated all the preferences and loopholes for corporations and individuals while lowering rates would be fairer. Maybe even our Treasury Secretary could do his taxes correctly. Congress and lobbyists use the tax system to push their agendas. A flat tax or replacing the income tax with a national sales tax are other possible options.

• The Federal Reserve needs to be abolished. A currency backed by gold or a basket of precious metals would restrict what Congress could spend. This would save us from ourselves. The dollar has lost 93% of its purchasing power since Nixon closed the gold window in 1971 and the National Debt has gone from $389 billion to $10.8 trillion, a 2,800% increase in 38 years. Politicians will spend your money if they are given the chance. Let’s not give them the chance.

“All tyranny needs to gain a foothold is for people of good conscience to remain silent.”

-Thomas Jefferson

Watch This!!

I just want everyone to have the chance to watch this video!! Please, take the time to reflect on it!

Market Breakdown!!!!

Today the market broke out of its triangle pattern, as predicted in an earlier post:

http://themarketprophet.blogspot.com/2009/02/critical-point.html


This gives us a price target on the S&P of roughly 650 so prepare accordingly. Also, many of my intermediate term indicators gave me sell signals today and the ones that haven't yet are VERY close. This generally means that we will have another extended down leg in the markets.

The breakdown combined with extremely low levels on the put/call ratio generally means bad times for the market in the coming weeks. The put/call ratio is a indicator of how bullish or bearish options traders are. When a large number are bullish it is relatively bad for the market because the crowd is always wrong. Good luck out there, it could get ugly.

Scary picture being painted.....

Thus far throughout this crisis I have been a deflationist. However, doing some research this weekend, I am starting to come to the conclusion that we may see rapid inflation before I recently predicted. The reasons I am starting to see are coming about because of our monetary system. In a monetary system where the currency is backed by gold or other tangible assets you can have long periods of price inflation and deflation. However, in a system where the currency is back by essentially nothing you generally tend to only have one thing, inflation. This system is refered to as a 'fiat' currency system and it is the one that we have used since 1933. My previous predictions of deflation have come from comparing recent happenings with the Great Depression. However, when the Great Depression started in 1929 we had a currency that was backed by gold. Therefore, the Federal Reserve could not pump unlimited amounts of money into the system to prop it back up. This led to a deflationary spiral until 1933 when Franklin Roosevelt took us off the gold standard and gave the Fed unlimited ability to print money. Graph #1 shows when this change took place and how inflation essentially turned on a dime in 1933.

Graph #1

So, what does this mean for the prospect of impending inflation? It means that when the Fed increases the monetary base we should pull out of this deflationary period we are experiencing right now and have a rapid inflation. This doesn't mean that the economy will turn around. If anything, I believe it will just make the economy worse because the dollar will be severly devalued and U.S. citizens will lose half of their purchasing power. This next chart shows the effects of inflation on the value of the U.S. dollar since FDR pulled us off the gold standard in 1933.

Chart #2

Looking at that chart is very startling to me and it is only going to get worse in the near future. I believe the dollar can fall another 50% before the entire financial crisis/depression is all over. One only has to look at a chart of the U.S. monetary base to realize the grand scope of this fiasco. Here is a recent chart of the increase in the U.S. monetary base.

Chart #3

The increase in the monetary base is just staggering. Nothing has ever been seen like this before in the history of the world, let alone just the United States. We are truly venturing into uncharted waters.

What does this mean? This means that commodity prices should start rising again. It means that the dollar will start losing its value again. It means that people holding large portfolios of bonds will be hurt because inflation will be higher than the returns they are getting from their fixed income securities. What inflation basically does is redistribute wealth from the retired and soon to be retired to the young working class. Inflation destroys wealth, and the people who have worked the hardest to accumulate and protect their wealth over the years are always the hardest hit.

How do you protect yourself? You must hold assets in your portfolio that appreciate with inflation. This means holding hard assets like oil, gold, silver, and other commodities. Once the stock market starts to recover it means buying stocks such as oil producers, gold miners, agricultural companies, oil royalty trust, and certain real estate investment trust. Also TIPS bonds can be purchased. These are Treasury Inflation Protected Securities (TIPS) and are guarenteed to hold their value during high inflation peroids.

Right now I am watching a lot of differnet indicators and they are started to predict inflation. I'm believe that within the near future oil will start outperforming gold again. I think gold and silver are due for a pullback, but soon they will be giving me a buy signal again. I'll keep you posted.