MARKET SELL OFF

Market selloff. APPL is off over 20% since it made highs at $705, you damn sure DO have to TIME the market....what does this all mean? Businesses do not like uncertainty, the certainty is 4 more years like we've had, maybe that is a problem...FISCAL CLIFF talk is that.....I think its in the soup...its something else..

I am not screaming chicken little, what I AM saying is there is a ton of complacency out there, the makret is overvalued, and things tend to recvert to the mean, which in past corrections is plain fact for those who bother to look or ask.

Not dividend yields nor PE ratio of the SPX 500 is anywhere near a true reckoning bottom, IMHO.

WTF do I know? just one dude talking here to myself?

D

POST ELECTION BLUES

http://seekingalpha.com/article/990091-so-much-for-certainty-explaining-yesterday-s-market-plunge?source=yahoo

KISS OFF

Interesting day AFTER? The market has been working UNDER the 50 DMA and has kissed off it several times.

Now the lower boundery (dashed line) and the 200 DMA are potential support and targets.

Possible rebound for a few days after this 300 pt loss.

D

VICTORY WILL BE BITTER SWEET

U.S. Futures Fall, Dollar Slips; Global Shares Gain After Obama Win

" World shares and gold rallied while the dollar fell and U.S. futures fell on Wednesday after President Barack Obama was re-elected for a second term, signaling no dramatic shift in U.S. economic policy."
 
Isn't this what the market wanted as it rose yesterday in anticipation of Obama victory? IMHO, was the victory ever in doubt with such a weak opponent?

This victory is a gift to the other party/s....there is nothing that can stop the deflationary debt deleveraging going on, it is not the 9th inning there, more like in the middle, most of the reductions in household debt have come from defaults on mortgages. A SPARK to set off a worse outcome would be...a RISE IN TAXATION, and a pronounced AUSTERITY move....not now...now is not the time for that. But with fiscal cliff talk...and now a TEFLON President with a mandate against "the rich" the JOB PRODUCERS....2013-2014 could turn mucho ugly, IMHO

CYCLE FORECAST

http://www.safehaven.com/print/27598/why-bernanke-cant-stop-the-kress-cycle-tsunami

BLACK SWAN EVENTS

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10725

"Politicians, central bankers and governments are trapped in “do whatever it takes” late-cycle reflationary measures. You can bet on it. Many have. And the global Credit Bubble dynamic will ensure that the world remains short-sided and blind to myriad serious risks until it’s too late.

We’re today in the midst of the manic financial Bubble phase. Especially here in the U.S., the markets will finance virtually anything. There’s hardly a junk bond the market doesn’t love. CDOs are back. Relatively higher-yielding municipal debt induces salivation. There are, then, no worries regarding the ability to finance Sandy recovery and rebuilding efforts. Costs really don’t matter. 
Wealth destruction is basically irrelevant. If it’s “money” that’s needed, well, we’ve got the Bernanke Fed. And why not just rebuild on the water’s edge and buy cheap federal flood insurance. “Broken windows,” broken subways, broken transformers, broken communication hubs, and broken neighborhoods are sure to incite a borrowing and spending boom. Dr. Bernanke’s “mopping up” strategy in action."

QE IS FAILING, AND THEY KNOW IT

"QE falls into a black hole. And it leads into an - if possible even larger - black hole. Ben Bernanke and Mario Draghi have neither the power nor the tools to stop deleveraging and debt deflation. That's just a myth they, and many with them who stand to benefit from that myth, like you to continue believing. It makes it all that much easier for them. That surge in excess bank reserves (see the second graph above) comes from QE. It is your money, everyone's money. And it does nothing to "heal" the economy you live in and depend on for your survival; it just takes away more of it all the time."

http://theautomaticearth.com/Finance/us-hyperinflation-is-a-myth.html  A MUST READ, if you have ANY hope of understanding what is going on.

D

DEMARK ON THE MARKETS

FINANCIAL STORMS

you KNOW, it is a crying shame what the &**% THEY have done to the world, all in the name of *&%)! what?

 

Just like this mammoth storm coming Sandy, this (FINANCIAL STORM) will pass, but not before it carves out a path of destruction no one can imagine....then the skies will clear.

 

Our job is to somehow remain standing my friends!!

IS QE3 WORKING?

NEW YORK (CNNMoney) -- "The Federal Reserve announced plans to unleash more stimulus Thursday, in its third attempt at a controversial program to rev up the U.S. economy.

The policy, known as quantitative easing and often abbreviated as QE3, entails buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months."

The FED has launched QE3 to LOWER long term interest rates, which is what mortgage rates are based on.....why isn't it working?

D

QE IS FAILING

"QE falls into a black hole. And it leads into an - if possible even larger - black hole. Ben Bernanke and Mario Draghi have neither the power nor the tools to stop deleveraging and debt deflation. That's just a myth they, and many with them who stand to benefit from that myth, like you to continue believing. It makes it all that much easier for them."

http://theautomaticearth.com/Finance/us-hyperinflation-is-a-myth.html 

MBA HOME INDEX SLUMPS

"Applications for U.S. home mortgages fell sharply last week, registering the biggest percentage decline in a year as demand for both purchase loans and refinancings tumbled, data from an industry group showed on Wednesday."

http://www.cnbc.com/id/49530700

STOCK BULL IS TOPPING

http://www.zealllc.com/2012/bulltop.htm Adam Hamilton's Zeal

"The bottom line is the strong stock bull of recent years appears to be topping. It is long in the tooth, much older than average. It has also powered far higher than average, driving it up near bull-killing secular-bear resistance. And since stock-market valuations remain way too high to herald the end of this secular bear, it needs to reassert itself. And the recent topping behavior sure looks like this process is starting.

Cyclical bears within secular bears are not to be trifled with, as they mercilessly slash stock prices in half over a couple years or so. But not everything gets sucked into this selling. Gold actually becomes much more attractive during stock bears, an island of strength in a sea of weakness. And gold stocks generally follow gold higher, particularly earlier in stock bears before the selling grows more intense later on."

UNDERSTANDING SECULAR AND CYCLICAL TRENDS

http://www.safehaven.com/article/27379/stock-bull-topping

Now let's step back for a moment and try to get a grasp of what is going on and where we are WITHIN the SECULAR (long term) cycle. DO read the link to Adam Hamilton's article above.

This is a sideways GRIND, stocks are lower than they were 12 yeasr ago. We are long in the tooth for cyclical bull trend and near the 1500 topping zone. 2 X we have bottomed near 750 SPX the bottoming zone, where do YOU want to put money to work? Near the topping area? knowing the bull is 43 months old? YES that's what THEY want you to do.

ALL THE QE infinitty talk is to help establish that "stocks can't do down" and one FOOL on CNBCBS quipped "there will beno 200 pt declines", well he's a liar already.

OK, so if history means anything, we know that PE ratio is now at 19.8 (per Adam's piece), and we also know that SECULAR BEARS end between 6-7 PE ratio. IS this a good place to buy based on that?

Have we returned to some kind of norm? Is the economy reset? AS you can see from the 2 charts above, the CREDIT BUBBLE has barely begun to correct, or do you believe what happened in 1929-1950 won't repeat?

The move to our current CREDIT DEBT BUBBLE HIGH is far greater % wise than in 1929 and it has barely begun to adjust, retreat. If we are doing so well, if QE worked so well, why did the FED just call for QE 3 to infinity? WHAT imbalances are being aggrevated because of these actions?

A BELL may not go off, to warn you that the next phase of this SECULAR BEAR
 (usually lasting 16-17 years) has begun. OR maybe you think like some that history won't repeat and it will be different this time...you don't know JACK as they say....or JAck don't know squat...

We have the fiscal cliff ahead of us, we have Bush tax cuts probably ending, calls for Cuts in Federal spending, we still have the government debt growing at over $1 Trillion a year.....how will this all end?

Do we have a government debt bubble and will it burst? We better hope it doesn't burst, because we know we have one.

From DR MArc FAber
One day, the system would break, he said.
"Eventually you have either huge changes occurring in a peaceful fashion through reforms, or usually through revolutions," he said. The U.S. was getting closer to such a revolution, he said, as was Europe.
"I think the timeframe would be within five to ten years you have a colossal mess... everywhere in the Western world," Faber said.
"I think the deficit here (in the United States) - irrespective of who is in the White House - will stay above a trillion dollars per annum for at least as far as the eye can see," Faber said.

Bureaucracies in the U.S. as well as Europe were far too big, he said, and were a burden on the economy.
"My medicine for the U.S. is: reduce government by minimum 50 percent," he said. "The impact would be immediately an improvement in the economy."


D

"MIDDLE CLASS MUMBO JUMBO"

http://www.safehaven.com/print/27371/middle-class-mumbo-jumbo

Light reading for Sunday

S&P 500 DIVIDEND YIELD

The 1.98% yield is one of the lowest yields on record, the lowest came in 2000 when the GREAT BULL MKT topped and the tech bubble burst.

SEE in 1980 how the rate was above 6%....the last GREAT BOTTOM, which set the stage for a 20 yr plus bull mkt.

D

LARGE CAP MULTI NATIONAL FIRMS MISSING ESTIMATES

http://news.yahoo.com/firm-dollar-weak-europe-crimp-u-industrials-sales-024016525--sector.html

HISTORY TENDS TO REPEAT ITSELF

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10721  Doug Noland's Credit Bubble Report 25th Anniversary (of the OCT 87 crash)

"The Nikkei ended 1989 at 38,916. The Nikkei closed Friday, some 23 years later, at 9,003."


"Especially after the ’87 Crash, the Federal Reserve and other regulators should have moved decisively to nip the derivatives boom in the bud, especially in the area of the dynamic hedging of myriad market risks. “Black Monday” provided unequivocal evidence of the serious flaws and dangers associated with the premise of “liquid and continuous” markets – an assumption that is really the foundation for contemporary derivative hedging strategies. Instead of the Crash destroying this market fallacy, the Fed’s day-after statement validated the view that derivative contracts could be written and risk-strategies pursued on the belief that policymakers would be there to counterbalance market illiquidity and neutralize “tail risks” and system shocks. "

"And the way I see it, the Fed, ECB and global central bankers today fight a losing battle. The mountain of global debt, securities, and derivatives, along with this destabilizing global pool of speculative finance, just inflate larger by the year – and after each policy response. "

My premise for this blog has and always will be to warn and educate.Some affable bobo's come by after each rally and proclaim how right they are, but after a market decline are noticeably quiet.

Each time there is a "CRISIS", the ECB and or the FED open the flood gates of liquidity, and easy money policy to "correct" the decline. All this has done is add more imbalances to an already overloaded unhealthy system that PUNISHED investment and  savings, and rewards speculation.

For 4 years now we have had a 0% interest rate policy, forcing MANY who otherwise would not do so, into RISK markets in search of yield. As long as there is a "greater fool" to pay higher prices this strategy will work in rewarding the risk taker. BUT at some point it will NO longer work and there will be nobody left to catch the falling knife.

After 2 horrendous BEAR MARKETS In the last 10 years, many would be investors have either left the market for good, or are still left in a state of shock even perhaps still holding their investments...as really there is little other strategy to take.

Where is it good, where variety isn't the spice of life, and choice taken away from investors limiting their options is the reality?

Current account debt keeps piling up at now over $16 TRILLION, this does not take into account some $50 T more in unfunded liabilities like medicaid and SS. WHAT politician is going to get elected or keep office telling the American people "Houston we have a problem" and somehow it will take the form of shared sacrifices and less opportunity for many years to come.

4 years of 0% FED funds rate, 3% 30 year mortgages and the Housing Market barely has a heartbeat, 25% of HOMEOWNERS are underwater in their mortgages. This is the FIRST recovery not to be led by housing, any wonder it doesn't feel like a recovery?


If printing money (digitally) was the answer and cure for all the ills, why would we EVER suffer an economic contraction and ever leave prosperity?



43 months of spectacular market gains have not led to historic recovery in housing, hiring, wages, investment ,spending and overall economic activity.

What feels like economic stability is more or less a mirage, being held up by FED POLICY and GOV'T spending and handouts. More Americans are receiving GOV'T assistance than ever before.....now if we had a true recovery would that be so?

That is life living under the specter of the ongoing credit bubble and its effects on our lives. AS Doug suggests, what has been growing in that aftermath of the bursting of the housing bubble is now a GOVERNMENT FINANCE BUBBLE....the "MOTHER" of all bubbles.

IS it possible that at some point, the US TREASURY auctions find few others takers than themselves or the FED?

D

CLOSEUP OF DECLINE

I'm very interested to see what action we get near SPX 1430.

D

MARKET ARTICLES OF INTEREST

http://www.marketwatch.com/story/qes-real-cost-dysfunctional-markets-2012-10-17?link=MW_story_investinginsight

"As Pimco’s Bill Gross wryly observed: “What a good country or a good squirrel should be doing is stashing away nuts for the winter. The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
http://www.marketwatch.com/story/debt-is-drowning-the-american-dream-2012-10-17?link=MW_story_investinginsight

INTC and IBM MISS send tech spending warning
http://www.bloomberg.com/news/2012-10-17/intel-slumps-with-ibm-on-weak-businesses-consumer-demand-tech.html?cmpid=yhoo

EBAY misses forcast, growth slows
http://www.bloomberg.com/news/2012-10-17/ebay-forecast-misses-estimates-as-growth-slows.html


Below is a more positive, butnot climactic chart that shows continued improvement in housing starts and permits....but it sure is still a FAR cry from normal isn't it?

MICHAEL BELKIN MARKET SAGE PREDICTS

http://live.wsj.com/video/michael-belkin-predicts-40-stock-market-drop/A1C9660A-0321-4E82-BA0E-EFD4CD092D40.html?link=MW_hp_tboverticalx8#!A1C9660A-0321-4E82-BA0E-EFD4CD092D40

Hey Mr Belkin agrees with me? I would listen to Belkin before I would some of the BAFOONS out there.

His Model has been pretty spot on, and his service is pricey at around $40,000 a year last I heard.

D

GROWING ECONOMY BY ADDING MORE DEBT, SIMPLE ANALOGY

Same as.....if I was in debt $100,000, and I borrowed another $100,000 I could use that to make payments on the $200,000 and buy more shit.

When that ran out, if lenders agreed, I would borrow another $100,000 to make payments on now $300,000 and buy more shit etc.

As long as I can keep doing this, the game continues.  But that doesn't alter the facts that I now owe $300,000 instead of $100,000 which means I will be paying forever, borrowed even more to keep going or default because I can never pay it back.

If my borrowing costs rise, I will then be making higher interest payments and have less left over to buy more shit.

US 10 yr rates below 1.7%...the norm is closer to 4-6%. The FED has pegged the rate banks can borrow at 0%, but that also means Savers get 0%.

TRILLIONS HAVE BEEN POURED into efforts to jolt economy, and here in the US we have declining GDP , growth rates which are now around 1.5%......so are we already in the influence of the debt "black hole" and no matter how much NEW MONEY is printed to pay off the OLD MONEY and see it trickle into economic activity, we have perversed the system....delay the inevitable correction....STIFLE investment and we get mediocre job creation.

FED SPOKE of QE3, butactually since then their balance sheet has declined.....

D

BLACK HOLE OF DEBT

https://www.mauldineconomics.com/frontlinethoughts

"I think we can draw a rough parallel between a black hole and our current global economic situation. (For physicists this will be a very rough parallel indeed, but work with me, please.) An economic bubble of any type, but especially a debt bubble, can be thought of as an incipient black hole. When the bubble collapses in upon itself, it creates its own black hole with an event horizon beyond which all traditional economic modeling breaks down. Any economic theory that does not attempt to transcend the event horizon associated with excessive debt will be incapable of offering a viable solution to an economic crisis. Even worse, it is likely that any proposed solution will make the crisis more severe."

Are we too close to thebalck hole of debt? Can we achieve excape velocity? I have my worries, doubts as out economy, the world has been subject to HISTORIC attempts to stimulate, and creation of money, yet we have meager historic worst recovery, and its not creating enough jobs.

By the FED monetizing the debt, have we fixed anything? ZERO % interest rates held for alreay 4 years, has that fixed anything? what it has done is make it impossible for savers to get any return. There are no choices, we have not deleveraged, we have not gone back to the NORM from where maybe we return to investment and real job growth.

D

Chinese data as clue

http://www.marketwatch.com/story/china-inflation-data-suggest-economy-unsettled-2012-10-15?siteid=yhoof2

NEAR TERM SPX ACTION

EARNINGS THUD

http://www.fool.com/investing/general/2012/10/10/markets-kick-off-earnings-season-with-a-thud.aspx

I don't need to call a top, not running around with my bear hair protruding out of my shirt like some mad crazed monkey.....I just report what I see and only hunt for the truth.....which you won't get in too many places.

D

BLATANT MANIPULATION?

"In a memorandum dated September 28, the White House Office of Management and Budget counseled defense employers not to issue layoff notices on November 1. OMB assured employers that if they did not send out layoff notices and layoffs occurred, the "contracting agency," namely the Pentagon, would absorb the penalties and attorneys' fees the employers would have to pay, a significant cost to taxpayers. If firms don't file WARN notices and plant closings or layoffs of more than 500 workers occur, employers are liable for penalties of 60 days back pay and benefits paid to workers.

No problem, says OMB in the memo, the contracting agency will pay the costs. It specified that if sequestration occurs and the contractor has followed Labor Department guidelines, "any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys' fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency, if reasonable and allowable."

It's not clear that the White House has the authority to offer to pay the costs. Nevertheless, defense companies, such as Lockheed Martin and Boeing, which were planning to send out notices to tens of thousands of workers, have announced that they will refrain. Blatant Manipulation This is clear manipulation by president Obama. That said, it would not affect the unemployment rate now. Nor is it a conspiracy. However, it was a cowardly act, one that certainly cannot inspire confidence in the president at all "

Read more at http://globaleconomicanalysis.blogspot.com/#T68rlac9e2QDIM5b.99

DEAD FISH

IMF ASESSMENT OF "BLEAK" GLOBAL RECOVERY

http://finance.yahoo.com/news/imf-offers-bleak-assessment-stalled-002236424.html

GLOOMERS ARE WRONG

Are the Gloomers wrong as a recent comment left suggests? I never suggest TIMING the market, the trend for stock may still be UP, but I have been warning of underlying problems both fundamental and technical.

Currently the world markets are in the GRIP of FED and ECB actions, there is nothing subtle about it, they have taken away the vail of secrecy and have laid their cards on the table. The MAJOR players like PIMCO and large hedge funds are buying up SPanish bonds and all kinds of "risky" assets, in defiance to the underlying issues, as in as near a guarantee as they can muster, both FED and ECB say buy we got your back.

Speculation is being telegraphed, supported, almost guaranteed in an effort to avoid IMPLOSION. It will, has worked for awhile, but I don't think this will be open ended.....manipulation always comes with unintended consequences.

ECRI has said we are in a Recession, that economic data suggests a firm slowing down of economies.

There is a year long NON CONFIRMATION DOW THEORY in place, the Transports have not since 2011 confirmed the new highs in the Dow and SPX. As Tim Wood recently pointed out in an essay published on SafeHaven, Dow Theory Non CONFIRMATIONS are WARNINGS OF TROUBLE AHEAD, NOT TIMING TOOLS FOR SPECULATION.

Did I say trouble was brewing 6 months ago? probably so. And it IS, IMHO. That doesn't mean the market will crash a day later.

IMHO we are further apart from the actual economic reality compared to stock valuations. WHEN markets are manipulated this will happen. But for EVERY BUBBLE.....there comes a POP....and when they BURST it usually gets ugly, that I want to avoid.

This is a dangerous game of musical chairs we are playing...

D

IS THE DOW HEADED FOR NEW ALL TIME HIGHS?

If this pattern is still alive, as it appears it is, that is certainly a possibility. There is no crime in having been long during this cyclical bull market, that appears may have another leg left.

This pattern is call a Broadening megaphone, and after it completes is Bearish, that is well above where price is today.

Is the current FED policy of no options for returns enough to keep money flowing into stocks and keeping volitility low?

Is the job market gaining momentum? Friends, it may be that none of this matters, all that matters is the people who can move the markets, believe there is no worries of a serious decline at this time.

I can say to you , well maybe this is not for me.....but I try to present all possibilities. This does NOT change my view of how it all ends, BADLY. But sometimes you have to take what they give you, and since 2009 they been giving a lot.

43 months into this CYCLICAL BULL means it may be running on borrowed time. Tops seldom give out shouts to get out, and take time to form....no guarantee history repeats.

Whether Transports ever confirm the new Dow high in the short run won't matter, but it does certainly give a warning, should that divergence continue that something is wrong and buyer beware.

D

DEVIL IN THE DETAILS

**This was from last months report**(8.1 from 8.3% http://www.briefing.com/Investor/Calendars/Economic/Releases/employ.htm

 

Unfortunately, the drop in the unemployment rate was the result of a sizable drop in the labor force participation rate (from 63.7% to 63.5%).

That rate is the lowest since September 1981.

Read more: http://www.briefing.com/Investor/Calendars/Economic/Releases/employ.htm#ixzz28QfJaenF

 

Todat's report, given the LOW #'s reported in the jobs data....seeing a drop from 8.1% to 7.8% is rather dramatic on the surface until you read above, same thing must have happened this month but even greater numbers giving up. And stocks near new highs.....WHAT a disconnect!

"The job market has been improving, sluggishly but steadily. Jobs have been added for 24 straight months. There are now 325,000 more than when Obama took office.
The September gains were led by the health care industry, which added 44,000 jobs — the most since February. Transportation and warehousing also showed large gains. The revisions showed that governments actually added 63,000 jobs in July and August, compared with earlier estimates that showed losses. Still, many of the jobs added last month were part time. The number of people with part-time jobs who wanted full-time work rose 7.5 percent to 8.6 million."

 

D

 

 

QE3 BOUNCE?

 

COLLAPSE

10 WAYS TO SUNDAY LOOKING AT DEBT

http://www.financialsense.com/contributors/ronald-griess/balance-sheet-household-credit-market-debt

Deleveraging...returning to norm hasn't barely begun.

D

PROBLEMS WITH STUDENT LOANS?

"We give Bernanke at most 2 years before everyone is aware of the true extent of not only the student debt bubble, but that it has already popped, at which point student loans will be the next "asset" to be monetized by the Federal Reserve. "

http://www.zerohedge.com/news/2012-09-28/next-subprime-crisis-here-over-120-billion-federal-student-loans-default

TRANSPORTS BREAKING DOWN AND TEST

PEAK PROFITS?

http://www.mauldineconomics.com/outsidethebox  "What if the FED has it all wrong?"

" Today, employment growth remains below 1.5% YoY, a rate insufficient to reduce unemployment. Nominal wages are growing 1.2% while inflation is 1.7% and threatens to accelerate, in large part due to the impact that the Fed's actions are having on commodity prices, particularly oil prices.

The Fed wants to grow employment faster, but jobs don't grow out of thin air. Corporations create jobs when they have the means, they see a need, and there is visibility to commit.

The problem with Bernanke's wealth effect thesis lies with the new reality in America. Income and assets have lately been so significantly redistributed that only a tiny few actually feel a wealth effect from rising equity prices. "

Today on CNBCBS, "expert" came on ans basically said only worry is some short term turbulence, but longer term NO PROBLEMS as the FED has put a price under market and that we "won't see ANY 200 pt delines as long as FED is there.

All the traders know the FED IS THERE, and maybe this guy is right. But I ask the question, where is it in the FED mandate they target the stock market?

There is a YING and and YANG to everything, and it seems obvious to me, the FED policy for what it is costing, is VERY INEFFECTIVE in helping their #1, and #2 mandates.....full employment and price stability as it also relates to the protection of the reserve currency.

Props to Richard Russell http://ww2.dowtheoryletters.com/dtlol.nsf who is still writing one of the best letters available, especially for the layman, and is going strong well into his 80's. If there was a HALL OF FAME for this, he surely would be there.

D

HOUSING HAS RECOVERED? SO HAS CONSUMER CONFIDENCE?

http://finance.yahoo.com/news/ashes-housing-come-back-163611038.html  Claims housing has come back.

A Chartists Perspective on DOW THEORY NON CONFIRM

http://www.pretzelcharts.com/2012/09/dow-theory-gives-warning-can-fed-print.html

FED RICHARD FISHER SPEAKS

http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm  SEPT 19th

"We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before."

"This much we do know: Our engine room is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash—or fuel for investment—is burning a hole in the pockets of money market funds and other non depository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy’s boiler when so much is presently lying fallow?"

The FED's MANDATE:
"As you all know, the Federal Reserve’s mission is mandated by the Congress. It calls for us to steer a monetary course according to a dual mandate—we are charged with maintaining price stability while conducting policy so as to best assist in achieving full employment."

"In the current tumultuous economic sea, facing strong headwinds common in the aftermath of financial crises and balance-sheet recessions, our desired port is increased employment. Certain theories and various hypothetical studies and models tell us that flooding the markets with copious amounts of cheap, plentiful liquidity will lift final demand, both through the “wealth effect” channel and by directly stimulating businesses to expand and hire. And yet from the perspective of my watch station—as I have reported time and again—the very people we wish to stoke consumption and final demand by creating jobs and expanding business fixed investment are not responding to our policy initiatives as well as theory might suggest."

"Surveys of small and medium-size businesses, the wellsprings of job creation, are telling us that nine out of 10 of those businesses are either not interested in borrowing or have no problem accessing cheap financing if they want it. The National Federation of Independent Business (NFIB), for example, makes clear that monetary policy is not on its members’ radar screen of concerns, except that it raises fear among some of future inflationary consequences; the principal concern of the randomly sampled small businesses surveyed by the NFIB is with regulatory and fiscal uncertainty."   "“If your costs of borrowing were to decrease by 25 or more basis points, would this induce you to spend more on job-creating expansion?” The answer from nine out of 10 was No.”

"To be sure, buying in stock will have a positive wealth effect on that company’s shareholders, but putting the equivalent amount of money to work in spending on plant and equipment would put more people back to work more quickly."

Bottom line is, from the FED's horses mouth, current FED policy is not having the desired effect on business, but yet they just announced a scaling up of QE to another new level of historical insanity....as they have PROOF it's not working, not aiding business borrow nor investment...but they keep piling on!

And Fisher also points out, from these uncertain, uncharted waters Bernanke has swam us into.....there is NO SURE WAY TO GET OUT!

D

NEW ERA OF GROWTH AND PROSPERITY?

Exhibit A http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10709

"Deleveraging – the process of unwinding the economic damage wrought from years of excess - will be a quite arduous economic process; one that will commence at some unknown date in the future. Oh, I guess I failed to mention that total (financial and non-financial) Credit ended Q2 at a record $55.031 TN, or 353% of GDP. And Rest of World holdings of our financial assets ended the quarter at a record $19.100 TN, a $3.860 TN increase from the end of 2008. "

Exhibit B

http://www.mauldineconomics.com/frontlinethoughts?utm_source=newsletter&utm_medium=email&utm_campaign=frontline

"In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business."

So we have world Central Bankers printing money like there's no tomorrow, and it is the OPINION of many letter writers that YOU "have to be in stocks for long term...." BUY NOW AND BUY OFTEN!

It is hard to argue the success of current policies for inflating Risky assets. But the whole idea of Bear Markets and periods of reconciliation are that the preceding excesses are cleansed and we acan start anew, REAL GROWTH, a REAL ECONOMY.

Is it any wonder, while some who come here and post how great the stock mkt is, how I'm missing the boat, is that THEY are missing the point of my blog.....the greater risk IMHO is not understanding the greater issues and what might their impact be at some point.

I can't predict THE TOP or when the TIPPING POINT will arrive, what I am saying is current policies are aimed at one sector, STOCK PRICES, and a WHOLE LOT OF AMMO has been used to gain higher prices, but what has been the EFFECT on the overall economy?

Higher spending, consumption.....and a LOT of it is Gov't, but stock prices back to near record highs has increased Household wealth. Housing prices had been a more stable storehouse for personal wealth until the BUBBLE....again created by reckless FED policy of unusually LOW Interest rates held low for TOO LONG, in the face of OBVIOUS price speculation that only after the crash was anyone complaining.

ALL this money thrown at the core problems? Is creating even MORE and larger dysfunction, and total credit market debt is still near 350% of GDP....for now the DAY OF RECKONING has been pushed back.......looking at these 2 charts, especially the one showing debt in 1929 (we know what happened next) and where we are standing today......DO NOT LOOK DOWN!

Duratek

INCONSISTANCIES

Ever since I started my blog, my goal was to educate, to light a fire under the avg person to try to be in more control of their financial destiny.

Depending on your age, and goals you would perhaps look at your investment future differently. I will make it clear again, my goal is not to give you any advice, and everything I post is just my opinion, and articles posted I share opinions, charts of others.

YOU should not make ant decision based on what I think, of course as any writer would suggest, you should work with a financial advisor, professional and make it clear what your objectives are.

I believe we are in a SECULAR BEAR MKT, so that means over a LONG period of time stocks are in for a rough ride. These long term trends can last longer than you think, some of that depends on how hard OTHER FORCES, like the FED fight the prevailing trend.

ALL a BEAR MKT tries to do is RESET things, return the economy and market to a balance, a natural balance so REAL GROWTH can return and the previous imbalances and speculation, excesses can be healed so we can start anew.

This Bear has been fought like no other, HISTORIC, NEVER BEFORE SEEN measures have been taken by the Gov't and especially the Federal Reserve which has overstepped its mandate.

It IS NORMAL to experience periods (CYCLICAL BULLS) of 3 years or more of counter trend rallies and bullish periods, stocks usually react positively to FED MEASURES.

My personal finances aside, I am VERY CONSERVATIVE, so what I do (which I don't usually publish) may not be for everyone.

One of the MORE difficult things to do is ride the bull, especially while it undergoes a shakeout, draw down...like in early 1998 right before one of the greatest rises in stock wealth ever seen in such a short period of time. FED INDUCES TECH CRAZE...worries over Y2K....1998 crash..but that wasn't sustainable, nor was 2003-2007....each time with more disastrous results.

SO either I am 100% WRONG for worry now, and we have sustainable recovery built on SOUND economic policy......or the mother of all shit will hit the fan based on the level of attack fighting the inevitable reconciliation which will bring us to ground zero and true healing to build again from a sound base.

Duratek

HOUSING LEADS US ECONOMY OUT OF RECESSIONS....EXCEPT THIS TIME!

Housing has led the economy out of every Recession:.......until now. Stocks are what is supposed to lead us out? What is targeted by the FED?

With 30% of US homeowners underwater, all that has been done is keep them indebted, transfer debt to the FED, give Treasuries to the deadbeat Banks, bailing them out, in turn they buy stocks, gold....Fed and govt buy ALL US mortgages....stocks are targeted....manipulated

There is your answer why so many remain unemployed, if the economy dips down again, what tools are left to combat it?

WTF happened to all those m'fers who cheated and were a part of this financial disaster certainly committing felonies against the people?

JUSTICE? NOT ONE TRIAL, NOT ONE CONVICTION.

The Gov't represents the people?

D

TOWER OF BABBLE

http://www.oftwominds.com/blog.html

"If the Fed wanted to "save" housing and not the banks, why not buy mortgages directly from homeowners?"

QE3 AND SOMETHING IS WRONG

Why would OIL and the Transports fall after the QE3 and DOW rise to flat?

D

SOME REALITY TO PONDER

WEAK MANUFACTURING DATA GLOSSED OVER?

http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

QE3 BOOST A HOAX?

http://finance.yahoo.com/news/steep-slide-oil-prices-shows-070648288.html

Crude oil's biggest drop in two month's this week signals investors are deeply skeptical about whether recent stimulus efforts by global central banks - including last week's announcement by the U.S. Federal Reserve of a third round of quantitative easing - will have a meaningful impact on restoring growth, analysts and traders told CNBC.

The positive effect of the Fed's much-awaited stimulus announced last week wore off more quickly than many thought in the oil markets, which are considered a leading indicator of future economic activity.
"The oil market is telling us there is not much faith in another round of QE," said John Licata, Chief Energy Strategist for Blue Phoenix Inc., an independent energy research and consulting company.

QE3 WILL WORK?

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10707

US IN RECESSION NOW?

http://www.safehaven.com/article/26926/ecris-lakshman-achuthan-says-us-in-recession-now-that-makes-three-of-us

BEARISH BROADENING MEGAPHONE TOP SPX 1550 STILL IN PLAY?

WE NOW HAVE A BOOM?

http://finance.yahoo.com/news/marc-faber-were-bernanke-resign-104243316.html

"Central bankers are "counterfeit money printers" and Federal Reserve Chairman Ben Bernanke should resign for messing up the U.S. economy so badly, Marc Faber, author of the Gloom, Doom and Boom, told CNBC on Friday.
He said Bernanke was one of the main proponents of an ultra-expansionist economic monetary policy that was to blame for the latest financial crisis.
"If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous - it doesn't work that way. It's a temporary boost followed by a crash," Faber said."

ANother Headline/story

World Stocks Jump on Fed Pledge for U.S. Economy

AP
World stock markets bounded higher Friday after investors got just what they wanted — big moves by the Federal Reserve to help the U.S. economy out of its funk. More »

Problem is, this move creates asset bubbles, moves stocks, does LITTLE or NOTHING for job creation....I Love a bull mkt like the next guy..I'd rather see people get jobs and a sustainable recovery.

Ask yourself this WHY WOULD THE TARGET THE STOCK MKT NEAR ITS HIGHS?

D

FUNNY HOW WHEN ECONOMY FALLS SHORT IT"S ALWAYS "UNEXPECTED"

• 

  Consumer Credit Falls Unexpectedly in July ReutersConsumer credit fell in July for the first time in nearly a year as Americans reduced credit card debt, a worrisome sign for the economy.

I've said it once, if I have to say it 1,000 X's, Investors are set for a FLEECING.

D

SURE, MORE QE PLEASE, BUT

Can the Fed Suprise Markets Without Disapppointing Them?

Breakout
The minutes may have been stale, the Jackson Hole speech uncertain, but the August payrolls report last Friday was crystal clear in its warning on jobs.

**Problem is, preserve some jobs? Maybe....CREATE LOTS OF JOBS? NO. QE has one purpose and only one purpose, to goose stock markets. While in and of itself not a bad thing in the short term, this is CRACK, artificial sweetner.....and it WILL LEAVE a bitter after taste

D

CRACK ADDICT

US Gov't guarantees EVERY mortgage, this CRACK cannot be taken away or that market falls apart, is that healthy?

FED has lowered Bank rates to basically 0%, this in turn lowers mortgage rates to historical lows, now after 4 years of this CRACK, can they afford to ever let rates rise?

Savers get 0% on MM savings, this CRACK leads to a BAD TRIP. MARKET is addicted to CRACK rates at 0%. Take it away and the addict will foam at the mouth.

What all this does, is embolden the RISK TAKERS, create worse imbalances, and makes for a pretty lopsided trade. SHORTS serve a purpose, they bring balance and sometimes FUEL for rally....ECB move last week was to BURN shorts, stem EURO weakness.....supply CRACK to the addict.....now maybe this buys time as Doug points out in the previous piece posted, but it only ADDS to the lopsided PUT on the market and rates......each time the addict needs MORE and STRONGER CRACK.....we are nearing the law of diminishing returns.

WHEN CRACK IS SUPPLIED, YOU  can't take it away, certainly not suddenly, How do you ease out of a MULTI TRILLION FIX?

My friends, and JACK (my bullish needler), all I want is BALANCE restored, you don't reach sustained economic activity with CRACK, you get it with balance and not with ONLY supporting the risk markets and rewarding wild speculation.

As I said, the FED and ECB have been chasing everyone out of the POOL, and onto the same side of the BOAT....my vision is of the TITANIC.

As in previous attempts to NOT allow the economy to HEAL without excessive intervention...AKA tech bubble, Housing Bubble.....Tulips and on and on.....2 MEN DRAGHI and BERNANKE seem to hold the WORLD in the palm of their hands, that my friends is a SCAREY thought indeed. That's a lot of power between just 2 men.....what if their assinine experiment goes wrong? EVERY BUBBLE in history POPS.....and my thinking is what is perculating now is GOV't DEBT....the biggest bubble of them all.

IT is being MISPRICED, risk is because of all the intervention and manipulation, it just will end badly....I'm afraid.

Already you see how this HISTORIC CRACK is passing by the very economy it is said to benefit, how IRONIC....yet these....2 men persist....more and  MORE of the same...NO TURNING BACK NOW>

D

"DIVERGING LIKE IT'S 1929" Doug Noland

"Importantly, traditional rules and analysis no longer apply. Monetary policy has been locked in super ultra-loose mode now entering an unprecedented fifth year. Here in the U.S., financial conditions can’t get meaningfully looser. The Federal Reserve has pushed corporate and household borrowing costs to record lows. Liquidity abundance will ensure near-record 2012 corporate debt issuance. “Loose money” has already had too long a period to impact decision making throughout the economy – with decidedly unimpressive results. Arguably, previous unfathomable monetary measures some time ago created dependencies and addictions that are increasingly difficult to satisfy."
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10705

5 years of EASY money policies with unimpressive economic results. Unemployment goes down as job seekers give up in droves. What more can be done? A most noted wise man once said taxing is not the answer its the government spending that is the problem.

Year after year, the US must borrow $1Trillion plus, we now owe over $16 TRILLION, and what happens is near 70% of the gov't budget is used to pay JUST the interest on the debt. This is NON PRODUCTIVE.

We are LOCKED into a war in Afghanistan that President Obama is too stupid to figure out cannot be won, costing precious lives and gobs of money. Did he forget to look up the Soviet's experience? or anyone who has tried to roll over that country.

What DOug's essay goes into detail is to try to explain that now the US and WORLD eonomies (and stock markets)  are addicted to QE like a CRACK ADDICT.

The direction and gains in world indices are in stark contrast to what feet see on the ground.

Only one of 2 things can happen, a CRASH in the stock market, or a ROUSING revival of world economies, which will it be?

Duratek

CALL ME CRAZY

But did today's advance only make the divergences that DO exist even that MORE foreboding?

For you EW's out there http://danericselliottwaves.blogspot.com/2012/09/elliott-wave-update-6-september-2012.html

ECB ACTION A "GAME CHANGER"?

SHIPPERS ARE NOT ACTING RIGHT.

"What FedEx had to say was in many ways not too surprising. Weak growth worldwide, with a Europe still in crisis and a slowing China, has crimped revenues for the company, forcing them to lower earnings estimates for the first quarter."


YRC Worldwide Inc. "has shrunk its headquarters staff from around 2,000 to less than 400 as the company tries to streamline its operations."

LONG BEACH, Calif. " (AP) -- UTi Worldwide Inc. reported Thursday that net income fell 17 percent in its fiscal second quarter as a weak economy hurt demand for freight services. CEO Eric W. Kirchner said companies were "increasingly careful" about spending on freight and logistics, and he doesn't expect weak trends to change in the second half of the year."

GAME CHANGER??

Jacob Kirkegaard of the Peterson Institute for International Economics says the plan is not a band-aid and "really does have the potential to be a game changer."
Here's how it will work: The ECB will buy unlimited government bonds so long as that euro zone government complies with an economic reform program approved by the euro zone leaders. The ECB, in turn, will offset those purchases by taking an equal amount of money out of circulation, keeping its mandate to maintain stable prices.

"WHEELS COMING OFF CART FOR CHINESE ECONOMY?

http://finance.yahoo.com/news/wheels-coming-off-chinese-economy-185524157.html

"And because the growth of electricity historically outpaces the growth of the economy, it means the economy can't be growing more than zero," he added.
"If you look at the manufacturing surveys, the price indices, they suggest zero growth, as do the mountains of copper in the car parks and the iron ore in the graineries."
Chang, author of "The Coming Collapse of China," said other headwinds, such as an anti-reform government, will also hurt its economy.

"After 35 years of growth, the wheels are coming off the Chinese economy," he said.

"DEBT DESTROYS EVERYTHING" by Martin Armstrong

http://www.martinarmstrong.org/files/DebtDestroysEverything/index.htm

"Obama is preaching the destruction of the middle class small business owner in order to pay that pound of flesh now demanded by the bankers. He ignores the fact that almost 70% of the entire accumulated national debt went to interest payments to the bondholders – not to improve the lives of people. This idea of socialism has in itself been a lie. For you see, the numbers do not lie. The bulk of the national debt has been interest payments not to help anyone but the moneylenders. He preaches "socialism" while practicing the hypocrisy of lining the pockets of the New York bankers. MF Global will not be prosecuted. Why? Corzine is his buddy?"



Bottom line is out of one side of his mouth our President preaches equality, socialism and the EVIL of Wall Street, while his #1 contributor is Goldman Sachs? WHILE the FED chief under his rule has made it so the AVG American cannot find yield, but same FED chief has publicly admitted he has targeted the stock market for appreciation for its "WEALTH EFFECT"

Who benefits the most when stocks go up? Who owns more stocks? You guessed right, the wealthy. The Conservative saver, retires person, or the avg person with some stocks in his IRA benefits the least, and the SAVER is penalized.

They have it now, where you are literally FORCED into RISK ASSETS in a YIELD STARVATION environment, even as it is shown, that current policies are NOT putting enough people back to work, but it IS LINNG THE POCKETS of the bankers, INSIDERS, and Wall Street Elite.

Here is another good read http://www.mauldineconomics.com/frontlinethoughts?utm_source=newsletter&utm_medium=email&utm_campaign=frontline  "The consequences of easy money policy"

"I missed the part where Congress gave the Fed a third mandate, to target the stock market. But Bernanke not only takes credit for the stock market, he points out that the rebound in the housing market is also due to Fed policy, because it fostered lower mortgage rates. Which it did. But let's also remember that it was Fed policy that helped create the housing bubble to begin with. Which I don't remember Bernanke taking credit for, even though he was on the Fed then and up to his eyeballs in supporting that policy."

 

DO THE ENDS JUSTIFY THE MEANS?

"I will first note that the Greenspan Federal Reserve was caught completely off-guard by the market excesses that their policies had nurtured back during the (then) aggressive 1992/93 reflation period. It's worth noting that the hedge fund community has expanded about 20-fold since, to a record $2.1 TN. Global derivatives markets have mushroomed to hundreds of Trillions. Importantly, derivatives markets as well as the global “leveraged speculating community” have continued to grow post-2008 crisis – only further bolstered by aggressive policy regimes."
Doug Noland

In a NORMAL crisis, or Recession, there is usually a slowing demand for credit, and a retrenching by Consumers, after the period of slowing demand, the Consumer will have reset themselves, sentiment will improve and the economy heals and grows again, this will be a sustainable recovery.

Instead, what we have now is an Historically LOW recovery in Consumer sentiment, remember the Consumer is 70% of the US economy. In fact in the latest poll sentiment fell the most in the last 9 months, considering at same time STOCKS were near their highs is disconcerting.

The FED was not watching the excessive speculation in the late 90'S? The PENNY STOCK FEVER would rival any TULIP MANIA of the past 100 years. High tech stocks soared almost every day with DOT COMS springing up on the HOUR and had no trouble getting funding, went public , then shortly went bust, but not before we saw MANIC behavior and WILD SPECULATION.

Since it was more an inventory, and tech related specific mania....stock mania, the REAL economy would have recovered. NOT GOOD ENOUGH for the FED, they had to MEDDLE again, but who remembers they were the BOZO'S ON THE BUS, asleep at the wheel while all the wild speculation was at play, visible in PLAIN SIGHT for anyone to see. But they didn't see? SURE , they saw, but maybe purposely did nothing. WAS this an experiment for Greenspan the financial monarch to prove he could cure a BURST BUBBLE?

Here comes his successor, Ben Bernanke, as we live and breathe GREENSPAN CLONE ON STEROIDS!
"How do you deal with a burst bubble? INDUCE ANOTHER ONE, but the next one proved to be even more unwieldy and harder to manage and again, the FED induced REAL ESTATE speculative BUBBLE, MANIA went unchecked by anyone? Including those in charge whose mandate is SOUND MONEY POLICIES and FULL EMPLOYMENT?

Now we have the BANKS and many FINANCIAL institutions involved in the mess....so what do we do? CREATE $16 Trillion out of thin air and bail then all out, HELICOPTER BEN.

Now he has his European DOUBLE?

0% FED FUNDS for almost 4 years, yet we suffer from PLUS 8% unemployment, that tells me the policies are ineffective in fixing the real economy. But this has fostered ANOTHER, perhaps even more dangerous BUBBLE to cover the previous one (see how this works)....
A GOV'T DEBT BUBBLE.....and an asset bubble AGAIN. AND if the FED is backstopping everything then isn't this setting up a worldwide MISPRICING OF RISK ASSETS????

You have a FED and world CB'S showing all their cards on the table, "WE GOT YOUR BACK" keep doing what you are doing. Meaning, we have PUT on the market, it can't fall because we would just print more money...and cover it all up.


BUT, the lack of ANY YIELD IS causing many to do just about anything to find yield. Even John Mauldin has just issued his new newsletter called "Yield Shark", to help subscribers find yield in an environment where it is harder and harder to find ANYTHING SAFE!~

IS FORCING almost all of the investors to ONE SIDE OF THE BOAT a good idea? ALL BUBBLES eventually burst.

AS Consumers have cut back on spending Governments have tried to STEP IN and replace them, making it an even more unbalanced economy. Gov't spending VS BUSINESS OR CONSUMER spending tends to be a LOT less efficient. It is speculated that it takes $800,000 per person for the Gov't to create a single job. (that figure comes from the govt's own figures)

Now there is mounting pressure to curb gov't spending, as we run $TRILLION plus deficits, and an audit the FED bill passed.

Wall Street reveres the FED, what if the FED Loses credibility? What appears stable is not, in round #3 of BUBBLE BLOWING the FED has outdone itself, for every action there is an equal but opposite reaction.......I DON'T like the sound of that.

D

SOME INITIAL FINDINGS FROM THE FED AUDIT

"Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and super corporations like Halloween candy"

http://beforeitsnews.com/economy/2012/09/first-audit-in-the-federal-reserves-nearly-100-year-history-were-posted-today-the-results-are-startling-2449770.html

$16 TRILLION out of thin air, there's your under pinnings of this "great" stock rally.

D

HERE WE GO AGAIN?

How'd this work out? "Commodity Futures Modernization Act of 2000" or repeal of this one? Glass–Steagall Act

The SEC proposed some new rules yesterday on this issue. .......

"..As predicted, hedge funds remain a surprise beneficiary of this legislative and regulatory bonanza. Of particular interest to hedge fund managers, privately offered funds will be able to conduct offerings using general solicitations or general advertisements under the new amendments, without losing either of the very important exclusions under Sections 3(c)(1) or 3(c)(7) of the Investment Company Act. Is it only a matter of time now before the cold callings, mass mailings and full-page glossy ads in “Vanity Fair” and “GQ” begin?"

WEEKEND DOUG NOLAND

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10702

Doug on POLICY RISK

"Before delving into his cost-benefit framework, it is worth mentioning that the word “Bubble” is nowhere to be found in Bernanke’s paper. I strongly argue that the issue of whether the Fed is once again accommodating a Credit (“government finance”) Bubble is today’s prevailing – potentially catastrophic - policy risk."