TO THE BRINK

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/06/AR2010100606772.html

REAL GDP is barely growing in the low 1% range, yet how are corporate profits hitting all time highs?

"Some companies are buying back shares partly because they don't want to invest in developing new products or services while consumer demand remains weak, analysts said.

"They don't know what they want to do with all the cash they're sitting on," said Zachary Karabell, president of RiverTwice Research.

Historically low interest rates are also prompting some companies to borrow to repurchase shares.

Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares. The company already has nearly $37 billion in cash, but much of that money is being held by its operations overseas. The tech company is reluctant to repatriate the money, because it would get hit with a huge corporate tax bill.

A share buyback is a quick way to make a stock more attractive to Wall Street. It improves a closely watched metric known as earnings per share, which divides a company's profit by the total number of shares on the market.

Such a move can produce a sudden burst of interest in a stock, improving its price.

Among the biggest buybacks so far this year: Hewlett-Packard, the world's biggest maker of personal computers, said in August it would spend $10 billion buying its shares. Its shares rose 1.5 percent after the announcement."

So another issue with LOW Interest rates is companies are lured into borrowing and using it NOT to create jobs but to buy back shares, make earnings APPEAR better and so when they CASH out to the bag holders they get more. WHAT about ALL the cash these companies have? why borrow if they really have all that cash?

The economy is limping along at a rate that cannot sustain economic activity, which in turn is what helps to create jobs, which in turn allows people to borrow andbuy homes, which in turn causes people to buy stuff for their homes, which in turn spurs additional consumer spending and increase in the velocity of money.

Stimulus used has created very little except a rise in stock prices. Fed has bought $2.5T of US Treasuries and now holds more than any entity. China holds around $1.7T.

The game of chicken being played between the 2 parties now is very dangerous and may have already done heavy damage to economy. ALL this is happening with near lowest long term rates in history.

A loss of credit rating would cause US interest rates to climb, hurting everybody. OUR CURRENCY which is mandated to the FED Reserve to be protected is being anything but that, a spit away from its historic LOW in value. The AIM is to FORCE YOU into risky assets in attempt to find yield.

"TIME IN THE MARKET" IN FOR THE LONG HAUL" LONG TERM BUY AND HOLD" "THE MARKET ALWAYS GOES UP"

I was in a branch of B of A Friday and I heard this from a Bank official talking to a depositor on the phone....."yes you should keep making 401 contributions, over 10 years the return on stocks is 10%".....I don't think that is actually true do you? The market has gone nowhere over last 10 years, but I can say it surely hasn't returned 10% a year over that time! TOO many people paid to help others no far too little about what they are peddling.

YES over time, if you live long enough, the stock market always goes up.

SInce January there have been 10 90% volume days....9 were down days only ONE was up! Volume has whithered away yet the market remains in a 6 month trading range. THIS is why there is no bear call from me yet. I SEE warning signs, I have said if it were me I would RAISE cash levels....you cannot buy discounted stocks if you don't have cash.

WE know there is a gov't debt bubble, come Tuesday does it pop? VIX moved up to above 25, this does show an elevated level of FEAR, but FAR from PANIC.

I have been watching the sector related to gov't contractors like SHAW GROUP and a few others, they are mostly at or near 52 week lows.

To cut Gov't spending, agencies have to shrink, budgets have to be cut, programs cut or reduced....and could lead to government employees losing their jobs.

If gov't cuts spending, if taxes on companies and middle America are reduced or not raised, we can choose where to spend our money vs govt....and we do much better job creating economic activity than the govt does.

WE have promised too much and we can't afford it. 40% of Americans get 90% of ALL their living cash from Social Security payments, this is NOT how the program was originally set up.

What does this say about our prosperity if 40% of Americans rely on just SS to get buy in retirement? what happened to savings, stock holdings?

Majority of Americans have wealth tied to HOME VALUES!!! AND what has been targeted by the (wish was abolished ) FED RESERVE has been (in their own words) ASSETS....the STOCK MARKET...and I don't think this in their mandate.

Banks CANNOT attract savers, which we use deposits for investment as they don't pay ANY INTEREST!!!!!!!

A WHOLE SECTOR of our society, is being SCREWED and HOSED because they don't want risk, at 70 you can't make up for steep losses, you run out of time. THERE IS NO SAFE OUTLET VEHICLE to gain good interest as investment.....this retarded imbalance cannot be good.

Your/mine cash that you don't want in the stock market, you know your money is used so the insiders can cash out shares and maintain their opulent lifestyles, you are told holding stock is a big deal....it's only a big deal for the privileged few who get shares for next to nothing and then sell them to you...and you hope to sell them to someone else and so on.....and its all just a PONZI SCHEME, so you better get in LOW and hope to sell high. A MOVE from lows of SPX 666 to near 1340 isn't good enough? can we go higher? YES....but do you believe stocks are now priced for big breakouts to the upside? are you then buying now early in the trend? or trying to catch the last bit of final move should it come?
Are we early in an economic renaissance?
WHY haven't anyone been arrested for their part in the financial crisis of the history of this country, not even ONE SHREW? SO no one did anyting wrong? The dude from countrywide? no one? these guys made Bernie ebbers from Worldcom look like a saint....the system is bought off....and that's how it is, as we teeter on the brink.

Many joining armed forces to get a job, not serve the country, it's that bad. The government is becoming the largest employer???? Pays the most with the most benefits......the size of gov't is grotesque and eating our economy whole.

SO as you watch this drama play out, and see both sides fighting for what they stand for, what kind of comprimise is possible? How do companies or investors make investments based on an uncertain outcome? THEY CANNOT

The adjusted money supply, the Treasuries and other paper that sit on the FED Reserve balance sheets, the worlwide bailouts of countries.....we are awash in paper....it has risen like a flag up a pole......its gets destroyed or it has to go somewhere....and that is part why GOLD stands at new highs.....a SLOW WORLD ECONOMY....deflating housing and economic activity and INFLATION at the edge of getting out of hand.

Is this thee fork in the road I am to see the world economies at the beginning of some new wodnerful expansion? or already past the best it could be.

Never before this far into "recovery" never before has so much been spent and done to gain sustainability and such futile anemic reults.....except stock prices. And I am afraid at some point we will reach that tipping point where the weak hands get killed again when the distribution is over and the insiders no longer play the game of buy the higher price.

Duratek