September 7, 2010 posts

Business / Economic / Financial

[ This link to a somewhat more cumulative blog posts page will precede current days news since most all topics remain current in terms of impact and longer-term effect and can be searched by topical index term more easily. The same is provided since the blog site http://alpeiablog.blogspot.com has just been censored as to size by google which is typical for google as nsa / cia / gov’t shill as more are becoming aware of. The same is true for microsoft, another co. that’s seen their best days and relies on the government to maintain their monopoly. Up to now the better page http://www.scribd.com/alpeia is provided for ease of formatting and clarity thereby while the Washington Post page is the real deal but without formatting http://www.washingtonpost.com/wp-srv/community/mypost/index.html?plckPersonaPage=PersonaComments&plckUserId=alpeia&newspaperUserId=alpeia ]

Why the Furious Bear Will Come Back - Simon Maierhofer, On Tuesday September 7, 2010, 4:34 pm ‘The Top Ten List has become a staple of David Letterman's Late Show. We don't quite have the space to discuss ten reasons why the bear market isn't over (if we did, we'd probably put you to sleep), but we'll take a crack at a Top Five List. Without further ado, here it is:

#1: Forget About Earnings

Using past earnings numbers to project future performance is like basing your Roulette bet on the numbers that won previously. Old numbers simply don't have the crystal-ball-like properties needed to foretell the future.

Just because last quarters earnings were good, doesn't mean the balance of 2010 will be good. In fact, there is reason to believe that the next earnings season won't be so rosy.

Retail sales, which make up about one third of the economy, fell in May and June. This can't be good for future profits. Additionally, the expectation that taxes will go up might have moved some companies to pull some of next year's income into this year.

Even if earnings continue to rise, the January and April earnings season have shown that stocks (NYSEArca: VTI - News) can drop significantly despite great earnings (see chart below). [chart]

#2: Budget Deficits

The 2011 U.S. deficit projection for 2011 was raised from $1.2 trillion to $1.4 trillion. How much is one trillion? For $1 trillion, you buy 40,000,000 VW Jettas at a price tag of $25,000 each. You could buy 5,574,136 houses at the median price tag for existing single-family homes ($179,400). You could buy the star power of LeBron James for the next 50,000 years. You could pay the annual salaries of all 535 members of the Congress for the next 10,742 years, or the annual salary of 14.7 million teachers.

Every entity deals differently with budget deficits. The state of California, a state with a $1.8 trillion economy, is planning to cut state workers salary. As many as 200,000 state workers could be reduced to receive minimum wage salaries. It doesn't take an economics Professor to determine how bad that will be for the economy.

#3: Banks - Nothing but Fluff

Back in 2008, the ETF Profit Strategy Newsletter considered financials a 'downward spiral with no stop-loss provision' and recommended to short the financial sector via the Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ - News). Even though nothing had changed fundamentally, the newsletter recommended covering all shorts on March 2nd and going long the financial sector (NYSEArca: XLF - News).

The 2009 rally in financial stocks (NYSEArca: IYF - News) and the broad market was largely perception driven and relieved the deeply oversold condition created by the 55% 2007 - 2009 sell off. Fundamentally, however, nothing had changed.

In September 2008, President Bush said: 'The house of cards was much bigger and started to stretch beyond Wall Street. When one card started to go, we worried about the whole deck going down.'

The government postponed the collapse of the 'whole deck' thus far. As of recent, however, some disturbing information has surfaced. Bank of America admitted to hiding bad assets and Goldman's 82% profit drop shows that the days of fat trading profits - such as seen in Q3 and Q4 2009 and Q1 2010 - are over.

For right now, banks (NYSEArca: KBE - News) have found a new way to 'turn profits.' Banks are cutting their provisions for bad debts. Yes, at a time when 1 out of 4 Americans have a sub-600 FICO score, banks are dipping into their reserves to cover bad loans and reporting it as profit. Banks have reduced their loan loss reserves between 23% and 73%. It doesn't take an economist to know that taking money from your savings account and transferring it to your checking account can't be counted as income.

#4 Real Estate

In late July, the market allegedly rallied because new home sales jumped 24% to 330,000 units in June. We feel the urge to put this number into perspective. May sales were revised from an original 300,000 units to 267,000 units - this is an all-time low.

Bouncing off from the lowest level on record, new home sales did indeed increase 24%. Is that reason to celebrate though? Chances are the 330,000 will be revised lower in the future. Regardless, 330,000 homes sold pales in comparison to the 1.4 million homes sold in 2005.

The U.S. Census Bureau reported that the number of vacant properties, including foreclosures, residences for sale and vacation homes, reached 18.9 million. It shouldn't be too long before those bleak fundamentals are reflected in the performance of real estate ETFs like the iShares DJ US Real Estate ETF (NYSEArca: IYR - News) and SPDR DJ REIT ETF (NYSEArca: RWR - News). The UltraShort Real Estate ProShares (NYSEArca: SRS - News) is one of the few ETFs that benefit from falling real estate prices.

#5: Consumer Confidence

During periods of economic expanse the Conference Board's Consumer Confidence Index has averaged a reading above 100. Recessions average a reading of 71. The current confidence reading is at a dismal 50.4. The chart below paints this sad picture. [chart]

Consumer spending is said to make up about three quarters of the economy. How can the economy recover without participation by the consumer? It can't. That doesn't mean stocks can't rally temporarily. Such a disconnect between the economy and Wall Street's dream world tends to be short-lived.

Sentiment Confusion

It is important to distinguish between consumer sentiment and investor sentiment. Consumers are the engine of the economy. When consumers are negative and don't consume, corporate profits fall.

Investor sentiment moves with the stock market. If stocks are up, sentiment turns positive. If stocks are down, sentiment turns negative. We have seen this scenario play out a few times in recent years.

In 2000, extreme optimism sent the Nasdaq (Nasdaq: ^IXIC) and technology sector (NYSEArca: XLK - News) down as much as 82%. In 2007, extreme optimism sent the financial sector spiraling by 85%. The S&P 500 (SNP: ^GSPC) and Dow (DJI: ^DJI) dropped more than 50%.

Just as pessimism soared to the highest level in years, even decades, and investors started to throw in the towel, the ETF Profit Strategy Newsletter issued a strong buy signal on March 2, 2009. From there on, the major indexes rallied relentlessly for over a year.

This rally didn't go unnoticed, in fact by April 2010, optimism had reached another crescendo. By many measures, optimism surrounding the April highs was more extreme than in 2000 or 2007.

The ETF Profit Strategy Newsletter warned that 'the message conveyed by the composite bullishness is unmistakably bearish. The pieces are in place for a major decline.' The ensuing decline reduced the major indexes by nearly 20%.

More importantly though, the optimism surrounding the April highs is indicative of a major market top, a top that implies a decline much deeper than the 20% we've seen thus far. This conclusion is certainly supported by the above-mentioned Top Five list and many other indicators.

To many, the market's performance seems random. There are, however, many patterns and indicators (such as sentiment) that can help investors to significantly increase their odds of profiting.

The ETF Profit Strategy Newsletter monitors a variety of fundamental, technical, sentiment and valuation gauges regularly to formulate a bi-weekly update. We've found that monitoring a composite of indicators is the best foundation for formulating a high probability, big picture, forecast’.

Stocks Get Pummeled AGAIN: Here's What You Need To Know Weisenthal ‘How about a nice 1.1% down day to come back from summer vacation?
But first, the final scoreboard:
Dow: -107.35
S&P 500: -12.6
NASDAQ: -25
And now, the top stories:

• The week actually got off to a pretty good start, as Monday the major markets around the world were up on no news.

• Where things really started breaking down was in Europe, after a slew of negative headlines. First, you had WSJ slamming the Euro stress tests again, though arguably there wasn't much new in that, since everyone new the stress tests didn't take much regarding sovereign debt into account. But combined with ongoing Irish banking fears, and more trouble in Greece (PIMCO says the country may already be insolvent), and you had a good stew for slamming the markets.

• The euro dove in early going, as all the major "Risk Off" plays did well. The yen soared to a 15-year high. Gold jumped to an all-time high around $1258, and of course stocks got whacked. After last week's rally, when it looked as though US equities might be gathering some momentum, it's a disappointment.

• The US newsflow was actually pretty quiet. There were no big macro releases today, and for the rest of the week, the econ news will be light. HP suing Oracle over the hiring of Mark Hurd was actually the big corporate news of the week.’

September: In Like a Lion, Out Like a Lamb DeCiantis: ‘Students of behavioral finance must have had a field day this past week. In the wake of a month of dismal economic reports, Wall Street got its risk on with a few better than expected reports on manufacturing sentiment, home sales, and employment. Hopium, it appears, is a powerful drug. [ HOPIUM … YEAH! I KIND OF LIKE THAT METAPHOR WHICH RINGS TRUE! ]

Economists spent August cautiously lowering their outlook for the second half of the year as Obama's "recovery summer" failed to bear fruit, the Federal Reserve failed at both of its twin mandates (stable prices and full employment), and bullish analysts failed to convince investors that the market was ready to climb to fresh highs. As a result, stocks ended the worst August in nine years with rising calls for stimulus and fears of the dreaded double-dip.

Then came September. In like a lion, surging nearly 3% on the first trading day of the month on the heels of a better-than-expected survey by the Institute for Supply Management of the manufacturing industry. Representing (statistically speaking) nearly 30% of the US economy, the number was expected to fall after a series of similar Fed surveys from around the country indicated that American heavy industry -- that engine of growth over the last two quarters -- was finally loosing steam. Instead, it leapfrogged every estimate on The Street to post its first advance since May. Granted the rise was modest, but the surprise factor flipped the all-important risk switch and a reinvigorated camp of bulls poured back into the market, convinced that their creeping suspicions about a slip back into recession were all just a bad dream.
[chart]

Outside of a few trading irregularities, the data itself forced the bears to take pause and reflect on the substance of the report. The economics team at Goldman Sachs may have summarized it best:

"Without question, the report was better than expected...[but] the details of the report actually reinforce the case for further slowing in this sector. As shown in Exhibit 2, the gap between the indexes for new orders and inventories, an important lead indicator of movements in the composite index and in industrial production, almost disappeared in the August report. As recently as May, this gap was a robust 20.1 index points. The clear—if uneven—downward trend in this indicator actually strengthens the case for a decline in the composite index in coming months. The bottom line: US manufacturing output may still be expanding, but the risk that these goods are winding up on the shelf has increased."

More telling, however, was the dissection by semi-permabear David Rosenberg that helps to put the August print into context:

In a nutshell, ISM did smash consensus expectations in August but the composition left much to be desired. The coincident indicators firmed but the categories that actually lead manufacturing activity softened across the board.

As we said at the outset, the ISM index was at complete odds with the regional surveys. Philadelphia, New York, Milwaukee, Richmond and Kansas City were all down. Dallas and Cincinnati were up. In the past, when we had a 5-to-2 ratio to the downside, the share of the time ISM managed to eke out an advance was 4%.

It would be wise to lean against the market's initial dramatic reaction to this data. The ISM orders/inventories ratio is a decent leading indicator and it sank to 1.033x from 1.065 in July. 1.278x in Julne and 1.441x in May. The hidden nugget in today's report is that this ratio has decline to levels not seen since February 2009. And the last time it fell this fast to this type of level was in the September to December 2007 period (1.03x from 1.30x) when once again, there was tremendous confusion and intense debate over whether it was a recession/soft patch in the economy and the bear market/corrective phase in equities.

Suffice it to say that in the past 30 years, with eleven observations, ISM dropped to 47x in the three months after such a decline in the orders/inventory ratio to such a low level as is the case today. That is the average, the median, and the mode. The highest ISM reading three months hence was 51.9, so if past is prescient, today's data was likely a huge headfake.

[chart] The ISM report also overshadowed another important data release on construction, but we'll get to that later. The next feather in the bulls' cap was a pair of data points on residential real estate -- the sick dog of nearly every major developed economy in the G8. The first revealed a rise in July pending home sales (5.6%) after a precipitous drop in May (30%) and a further drop in June (2.6%) as an $8,000 tax credit expired. Analysts collectively expected a drop of 1%. Needless to say the markets were pleasantly surprised.

A closer look at the data reveals two key narratives not captured by the popular media or trading desks. First, it's important to contextualize the "rise" in pending sales by looking at a longer time series that tells the same story (this particularl series only goes back to 2005). The graph below speaks for itself.

[chart]

Second, the reported data may suffer from a disease common to many of the economic statistics released every day: Seasonal Adjustment Disorder (SAD). Given the inherent seasonality of the home buying cycle (higher during the summer when kids aren't in school, lower in winter when the weather is less than ideal for moving) economists at the National Association of Realtors make adjustments for these factors to make monthly comparisons easier. However, that can sometimes mask changes in the raw data, as was the case with the August NAR release. As Rosenberg suggests:

While the increase in pending home sales is encouraging, we did dig through the data and found that the not seasonally adjusted numbers (the raw numbers) fell by 7%, with declines across the country. This makes sense as July is usually a slower month for homebuying activities.

We wonder if there is a chance that the seasonal adjustment factors could be overstating the monthly increase given that we have seen such huge volatility in the housing numbers in the recent year making the seasonal adjustment process more difficult. Recall that Standard and Poor’s issued a note about the Case-Shiller home price index saying that “the turmoil in the housing market in the last few years has generated unusual movements that are easily mistaken for shifts in the normal seasonal patterns, resulting in larger seasonal adjustments and misleading results.

Another data point that drew a lot of bullish attention was Tuesday's housing release on prices. After a few dismal years, any news that isn't a decrease is more than welcome by just about everyone, rich and poor, domestic and international. Tuesday's Case-Shiller print was no exception, as home prices "jumped"...by a mind-numbing 1%...two months ago in June... on a rolling three-month basis (i.e. April through June).....still reflecting the last dying gasp of the home buyers' tax credit. Again, a little context:

[chart]

And how the markets rallied.

Friday's bulls, reinvigorated after a powerful (and low volume) start to the month, launched their attack on a new front: employment. Long a forgotten weapon in the bulls' arsenal, private payrolls climbed by a larger-than-expected 67,000 in August, beating expectations for a 45,000 gain. At that rate, it would only take a little under 9 years to rehire the 7,000,000 people who lost their jobs during the recession but have yet to find new work (assuming no increase in population). Only 7,000 permanent government jobs were shed during the month, though economists expect that number to rise as state and local governments face crippling budget deficits. The other 114,000 new claims represent the last major layoff of temporary census workers, who rejoin an army of job seekers that have collectively become one of America's most structural economic challenges.

[chart]

Obviously plenty of reason for the markets to celebrate.

Now for the bad news.

On the same day as the ISM Manufacturing survey was released to considerable fanfare, July's construction spending was released by the Census Bureau and confirmed a worsening year-over-year decline of nearly 11%. Month over month, spending was down 1% in July and suggests another downward revision to third quarter GDP.

More from Goldman:

Construction outlays dropped 1% in July from a level that was revised down a whopping 2.7%. This dismal construction report flew below the market's radar, as it normally does since it usually comes out alongside the ISM manufacturing survey. One might dub construction outlays the Rodney Dangerfield ("I don't get no respect") of US economic indicators. Of all the data released this week, it has the most direct bearing on the real GDP "bean count" next to the monthly consumption report. Hence, since consumption was only modestly better than expected, a case can be made that third-quarter growth might actually be lower now than we thought a week ago despite all the upside surprises.

[chart]

Wednesday also revealed that another source of bullish sentiment in July may have been a little premature: auto sales. After months of steep retail incentives and easy year-over-year growth comparisons, cash- and credit-strapped Americans returned to a more cautious consumption path. As the second largest leveraged purchase in a typical household, auto sales reflected that shift. Only Chrysler, the runt of the litter, managed to squeak out an increase in sales in an otherwise sluggish retail environment.

[chart]

Finally, on Friday the latest ISM Non-Manufacturing survey was released and was every bit as disappointing as everyone expected the manufacturing survey to be. The index slowed to 51.5% in August from 54.3% in July and 55.4% in May, and its components were even less rosy. From Econoday:

A new optimism after today's jobs report -- not so fast. The ISM non-manufacturing report shows broad and deeper-than-expected slowing. New orders at 52.4 are down more than four points in August for the slowest rate of month-to-month growth so far this year. Employment, which in this report includes government workers, is signaling contraction, at 48.2 for a nearly three point decline for the worst reading since January. The composite headline index at 51.5 is down exactly three points for what is also the worst reading since January. Backlog orders are basically flat, export orders are down, deliveries are showing less delays, and general business activity is slower. Imports did rise as did raw material prices.

[chart]

In response, the market cut its morning gains in half, only to rally into the close to retest the morning highs. What makes this week's schizophrenic ISM interpretations so dangerous is that the upside surprise on Wednesday was based on data that captures roughly a third of the economy, while Friday's non-manufacturing disappointment approximates activity in roughly two-thirds of the economy. So of course the markets ended the week up 3%.

Once again, Goldman's analysts try to walk a fine line between sell-side optimism and buy-side skepticism:

On the whole, it's been a good week for US economic data...reports on factory activity, pending home sales, and the labor market have surprised to the high side. In fact, some of these readings have benefited from positive judgmental adjustments, as factors not readily apparent in the headline indicator have also been better than expected. However, this does not mean that the outlook for US economic activity has improved, except insofar as the better-than-expected news eases market worries about a "double dip". At least some - perhaps most - of the improvement ... reflects what Paul Krugman once called, in a much different context, "The Age of Diminished Expectations". In the current setting, we note that several prominent forecasters have marked down forecasts of economic activity and therefore may also have lowered their sights on the higher frequency indicators.

Interpretive bias is inevitable when any new data is released. Optimists will quickly find a silver lining in any dark cloud, and pessimists will pick apart even the most robust reports of growth and tease out a bearish narrative. Investors should think twice when these competing forces fall out of balance -- when markets are as unabashedly bearish as they were in late 2008, or as unapologetically bullish as the were during the second half of 2009.

If the first few days of September are any indication of how the month will unfold, we may be back on the perma-bull track. When disappointing data is released, investors cheer for more fiscal and monetary stimulus. When data is surprisingly positive, investors cheer at the prospect of a sustainable, organic recovery. As we saw in early 2010, this "heads I win, tails you lose" mentality is particularly vulnerable to rapid and substantial correction, and a September that entered as a lion may finish the third quarter as a lamb.

Disclosure: Long safety, short risk (no specific stocks mentioned)’

Correlation and the S&P 500 [ I really think this author was a bit too diffident in talking about the computerized churn-and-earn scam which eats away at the real economy , but the discussion highlights at least this immense problem area ] ‘The immense correlation between the market, and almost all risk assets on Earth is not a new subject to FMMF readers. [Jun 30, 2009: Bloomberg - Correlation Among Asset Classes Highest Ever] I beat this dead horse monthly, mostly out of abject frustration. [Sep 2, 2010: Why Bother with Individual Stocks in the Perfectly Correlated Market?] I don't have an issue when the market is up 2-3% or 90% of stocks move in the same direction, it is all these days the market is up or down 0.7% when it drives a person nuts.

Friday, for example, every position I had but one was up. As I type this every position but one is down.

This correlation madness started to become an issue in 2007 as we were told that hedgies control 40%(ish) of each day's trading volume. As I said then, since mutual and pension funds are relatively staid players, the 'fast money' is the marginal buyer, and 'hot money' in the form of hedge funds - especially of the quant variety - are the marginal buyer. The problem now is they seem to be the only buyer as equity fund withdrawals continue on pace as the retail guy floods into bond funds.

So we have a market dominated by computers trading to computers, all using related algo's - happy, happy, joy joy. Now we hear things such as 60-70% of trades flow through these players... and since EFTs are the weapon of choice, computerized trading of EFTs have taken over the market. [Jun 29, 2010: Correlations Among Asset Classes Reach Ever Higher Extremes as HAL9000 Algos Dominate Life] The SPY ETF is now about 9% of ALL volume as of last check, and we had a time about 7-8 months ago where Citigroup (C), AIG (AIG), Fannie (FNMA.OB), and Freddie (FMCC.OB) were 40% of all volume. Pathetic.

Frankly, it makes the market a frustrating and 'less fun' place. The market used to be a four-dimensional jigsaw puzzle, comprised of fundamental, technical, psychological, and 'animal spirits.' Now it's just the dumbed down two-dimensional Etch a Sketch. Shake it at 4 pm every day, because it has no memory from day to day. Sure you can adjust (in fact you must adjust) if you plan to stick around, but when everything is a 1:1 correlation, it simply reduces the market to 'stoopid' and coming in each day, checking your brain at the door, and staring at the S&P 500 chart trying to guess where it will be in 3 hours, 3 days, and 3 weeks gets to be boring. [Jul 15, 2010: WSJ - Correlation Soars on S&P 500 Shares]

But this is the casino market we have built, and I don't see anything changing anytime soon. The other issue is it makes it so much more difficult to outperform the market. Surely there are a handful of stock names that still outperform (or underperform) but with almost everything swaying in the exact same direction as the market, creating alpha is difficult. Most of the performance nowadays is not about stocks, but due to calling turns in the greater market - increasingly hard to position for as you scale in size. Especially when the majority of the turns are due to binary reactions to economic reports or Fed announcements - it's simply placing your bets on red and black, not a stock market.

I've written about said frustration in the past amongst the "human" hedgies, [July 8, 2010: Hedge Funds "Frozen in Headlights" as BiPolar Market with 1:1 Correlation in All Things Not Named U.S. Treasuries Causes Confusion] and this is taking a toll on the mutual fund managers as well.

One of my big beefs with the mutual fund industry is that many players - especially in the bigger funds - are closed index funds. They all have super cool names but almost anything in 'large cap value' or 'large cap growth' were hybrid closet indexers. They basically flip an Exxon (XOM), Intel (INTC), or a Microsoft (MSFT), with a Walmart (WMT), Verizon (VZ), or a Cisco Systems (CSCO) -- change the order, weighting, and indeed are able to charge a nice fee for doing nothing other than being the S&P 500 with a small twist. I cannot tell you how many 401k plans I reviewed for people, where I went to look at the top 10 holdings of the 12-15 mutual fund choices and 90% of them were identical (just in different order in weightings!). The statistic of 0.99 correlation amongst the S&P 500 and many of the largest funds is quite remarkable and points to my 'closet index' beef, but with the mechanics of our new paradigm market, it has taken it to a whole new level. It also says a lot of people are wasting their money paying management fees for what is an S&P 500 ETF clone.

That said, even with the closet index situation that has been growing for a decade+ you used to be able to try to outperform if you plied your trade in small or medium caps (or international markets), but the HFT + EFT = GLEE environment we now live in has made that increasingly moot, since most of those stocks now move in unison as well. If your stock is not in a major EFT it generally sits ignored with low volume... if it IS in an ETF than it doesnt matter the company specifics - as long as the algo's are buying (or selling that ETF) as flavor of the day, every component in that ETF is a winner (or loser)! Stoopid is as stoopid does in the market with 1st grade logic.

One gentleman I've admired for many years is Will Danoff at Fidelity Contrafund. [Sep 9, 2008: Will Danoff in Kiplinger Magazine] His fund has been huge in size for years on end (I'm talking multiples the size of the biggest hedge funds - Contrafund is now up to $62 BILLION), yet he has been able to somehow outperform his peer group (and until the past 5 years the S&P 500) by a wide margin, mostly by being somewhat contrarian. This despite holding many positions and not being extremely concentrated - a feat I find quite remarkable since once you start owning 200-250 positions I don't know how you can beat the market over time. (Contrafund owns 445 positions as of last quarter!) Danoff is highlighted in this piece, which is why I mention him - he is no dummy.

Via Bloomberg:

• Fidelity Investments’ William Danoff, the stock picker who led the Contrafund to benchmark- beating returns, isn’t looking very contrarian these days. Danoff’s $62 billion Contrafund, which seeks to beat the market by picking stocks whose value hasn’t been fully recognized, has tracked the Standard & Poor’s 500 Index more closely this year than in any year during its four-decade history.
• “Danoff usually finds ways to go against the grain, but these days there isn’t much that’s contrarian relative to the macro theme,” Adviser Investments’ Lowell said. “This is a trendless market and it’s not providing him any room to break away from the S&P 500.”
• Investing abroad hasn’t helped stock pickers like Danoff because correlation has shot up even between regions.
• Danoff isn’t alone. Six of the 10 largest U.S. stock funds show correlations of 0.99 this year, meaning they moved almost completely in sync with the market. Managers are struggling to stand out and attract new money as fear of another crisis prompts investors to move in and out of markets without discriminating between securities, industries or geographies.
• Robert Doll, BlackRock Inc.’s chief equity strategist, said while stocks moved in lockstep before, this is the longest he has seen correlation persist across markets. “We were expecting 2010 to be the year when stock selection would add value, but that hasn’t been the case.”
• Doll says even the most high-quality stocks have been hurt among a larger sell-off in risky assets. “We’ve scratched our heads many times during this year as the macro picture is driving everything,” Doll said. “It can be frustrating along the way, but we’re just focusing on the fundamentals and eventually we’ll get paid for it.”
• The correlation between the U.S. equity benchmark and its individual members was 0.81 in the 50 trading days through July 7 and has since remained close to that level. That’s almost twice the historical average of 0.45 over the past 30 years.
• The increase in correlation is making it difficult for actively managed funds to beat their benchmarks and produce better returns than lower-cost index products. “You can’t pick any mutual fund, even if has previously been a winner, and expect it to outperform in this market.”
• Mohamed El-Erian, the chief executive officer of Newport Beach, California-based Pacific Investment Management Co., says investors have a “risk-on/risk-off” attitude that leads to sometimes “violent” swings, such as the sell-off in markets worldwide on Aug. 11, after the Federal Reserve indicated that the economic recovery had lost momentum. “We were particularly struck by the size and correlated nature of the market moves,” said El-Erian.
• Correlation may be linked to the increased use of exchange-traded funds and index funds in the stock market, especially those that focus on particular industry groups, said Brian James, co-director of equity research at Boston-based Loomis Sayles & Co. Assets in U.S. ETFs have grown to more than $821 billion from $608 billion at the end of 2007, according to Investment Company Institute. “It is almost axiomatic that if you have an increased presence of single-purpose ETFS and futures traders, it moves stocks in one direction,” said James.
• Correlation has been particularly pronounced for companies with larger market capitalizations, and for the larger funds. James said that 90 to 95 percent of large-capitalization stocks have tended to move in the same direction this year, up from about 70 percent prior to the 2008 financial crisis.
• The largest U.S. stock fund, the $148 billion Growth Fund of America, has seen correlation increase to 0.99 this year, from 0.84 in mid-2008. For the $37 billion Dodge & Cox Stock Fund, run by San Francisco-based Dodge & Cox, the correlation measure was also 0.99 this year, compared with low of 0.81 prior to the height of the crisis in late 2008.

Disclosure: None’

Obama seeks $100 billion business tax credit (Washington Post) [ All just monopoly money now! And, of course, pre-election talking points as war spending ramps up in Afghanistan. Sounds like … uh … uh … plan? Bankruptcy plan? Drudgereport: MORGAN STANLEY: Government Bond Defaults Inevitable … ]

Economic events for this week (Washington Post) [ Well, I’ll stick with nobel prize winner Krugman (infra) among other similar dire but realistic forecasters who, beyond the spin and fake market-frothing data (especially so close to the mid-terms) have a track record of being right when everyone else was ebulliently wrong, mr. fraudulent-wall-street-glass-half-full-though-empty. ] After a busy week of economic data, this one should be quieter, offering the Federal Reserve's compilation of anecdotal information on the job market and new details on trade.

Obama defends policies and offers new proposal (Washington Post) [ No you can’t wobama … b*** s*** everyone again! ‘Yes, we can … NOT!’ That dog don’t hunt anymore wobama. Drudgereport: Obama takes aim at Boehner... 'They talk about me like a dog'… [ If the shoe fits, wobama … keep gearing up Afghanistan … sounds like a plan]... ]Faced with twin challenges of boosting the economy and saving congressional seats, the president tries to do a little of both on Labor Day.

Krugman: It's All Downhill From Here Cullen Roche Love him or hate him Paul Krugman has been awfully right with regards to the macro picture in the last few years. He’s one of the rare economists who had the foresight to see the housing bubble and the likelihood of economic downturn that would result from it. Krugman recently caused a stir when he said the US economy was headed for the third depression. He isn’t back down from that outlook:

I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion — and I’ve discovered that there are two comforting delusions still out there.

Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.

But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.

Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. I tried to deal with this last year. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked; GDP growth on the rate of change in the rate at which funds are being spent, which peaked last year. It’s all downhill from here.

If you can ignore the schizophrenic market for just a second it’s hard to reject Krugman’s macro outlook. The private sector has been running on fumes since the debt bubble burst in 2007. The government’s extraordinary actions helped bolster the economy, but merely papered over what was a very weak private sector. As we see the government step aside it’s difficult to imagine that the weakness at the private sector won’t again be exposed for what it really is.

(9-7-10) Dow 10,340 -107 Nasdaq 2,209 -25 S&P 500 1,091 -12 [CLOSE- OIL $74.09 (-54% for year 2008) (RECORD TRADING HIGH $147.27) GAS $2.74 (reg. gas in LAND OF FRUITS AND NUTS $3.11 REG./ $3.26 MID-GRADE/ $3.35 PREM./ $3.69 DIESEL) / GOLD $1,259 (+24% for year 2009) / SILVER $19.91 (+47% for year 2009) PLATINUM $1,555 (+56% for year 2009) / DOLLAR= .78 EURO, 83 YEN, .65 POUND STERLING, ETC. (How low can you go - LOWER)/ 10 YR NOTE YIELD 2.60% …..… AP Business Highlights ...Yahoo Market Update... T. Rowe Price Weekly Recap – Stocks / Bonds / Currencies - Domestic / International This Is a Secular Bear Market and The End of Buy and Hold … and Hope MARKET MANIPULATION AND HOW THE LATEST BUBBLE-FRAUD PRE-COMING CRASH IS BEING ACCOMPLISHED 3-11-10 6 Theories On Why the Stock Market Has Rallied 3-9-10 [archived website file] Risks Lurk for ETF Investors The bull market that never was/were beyond wall street b.s. when measured in gold Property Values Projected to Fall 12% in 2010 Jan 31, 2010 The Week Ahead: Risk Is Off the Cliff; Unwind Has Begun Jan 31, 2010 01-13-10 Forecast for 2010 from Seeking Alpha Contributor THE COMING MARKET CRASH / CORRECTION 1-28-10 Maierhofer (01-15-10) 11 Clear Signs Economy Sinking Economic Black Hole 1-22-10: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover Current Economic / Fiscal Charts Trendsresearch.com forecast for 2009 1-7-10 Crash is coming! ‘WORST ECONOMIC COLLAPSE EVER’ Must Read Economic / Financial Data This Depression is just beginning The coming depression… thecomingdepression.net MUST READ: JEREMY GRANTHAM’S QUARTERLY UPDATE 25 January 2010 (850 on the S&P) by TPC The Next Wave of Collapse is Coming Sooner than you think Sliding Back Into the Great Depression ABSOLUTELY, ABSURDLY, RIDICULOUS! SELL / TAKE PROFITS WHILE YOU CAN SINCE MUCH, MUCH WORSE TO COME!

Government Bonds: Can the U.S. Maintain Confidence in Its Debt? Cliff Kule Massive, unsustainable government debt - it's everywhere. Especially in America. At some point, will the world begin to lose confidence in America's growing debt? Will interest rates then skyrocket? Will a Greek-style crisis in U.S. government bonds then ensue? Is there any way out?

America can claim its debt problems are not as bad as some countries. But that ignores some important points:

1. See an interesting chart on how America's financial condition is worse than several other countries.
2. Even the most respected bond manager in the world, Pimco's Bill Gross, believes there are several countries including the U.S. whose financial ratios are in dangerous territory - the "ring of fire".
3. A loss of confidence in the U.S. dollar and U.S. debt could bring a "Greek-style" crisis to the whole world. Consider that the U.S. dollar has been the world's reserve currency since 1944; it has been accumulated by the whole world as a form of trusted and secure savings. There are trillions of dollars of U.S. government debt accumulated as reserve savings by banks around the world (see chart below courtesy of Hugo Salinas Price) and realize that most reserves are held as U.S. government bonds. A loss of confidence in the U.S. dollar and in the ability of the U.S. to service its growing debt could trigger an epic disaster. [chart]

Is there any way for America to maintain the confidence?

One way would be for America to become fiscally prudent, simply stop creating money and debt, let the massive deflationary forces of credit contraction and consumer de-leveraging run their natural course. This would cleanse the system of toxic debt. It would also clearly and immediately cause another Great Depression.

Another way would be for America to simply print more money, create more debt, blindly following Keynesian economics that brought us into this mess in the first place. Attempt to "inflate away" the debt without losing the confidence of investors that buy the U.S. government bonds. This has been tried many times throughout history with disastrous consequences.

The chart below (courtesy of Economic Edge) shows how increases in debt are recently giving less and less “umph” to economic GDP growth to the point now of negative GDP growth. Eric Sprott has produced an excellent study suggesting that 9 cents of "growth" is coming with every dollar we go deeper into debt. Bud Conrad has produced calculations that are equally discouraging. This massive debt-driven money printing would therefore likely lead some form of hyperinflation in a futile attempt to stimulate economic growth.

This leaves one other option.... a direction that is hardly ever considered... a policy tool still waiting to be tried!... America could return to the gold standard... Why? Because the gold standard system would back the U.S. dollar by real money, and enforce a responsible discipline of fiscal and monetary policy that Congress and the Federal Reserve cannot currently do. In turn this would maintain confidence in America's debt.

“The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its advantage. It is a form of protection against spendthrift governments.” Ludwig von Mises (1881-1973)

Monetary systems on a gold standard system cannot increase money supply as needed. Under a gold standard system, paper money is backed by something of real tangible value. The total amount of gold limits the total amount of paper money that can be created. New money must be backed by additional gold. Omnis’ Jim Rickards suggests this possible solution: a “gold backed currency at a non-deflationary price… sound money leads to sound growth and the creation of real, not illusory, wealth.”

In 1971, President Nixon simply severed the tie between gold and U.S. dollars. As he closed the gold “window,” Nixon proclaimed “We are all Keynesians now” (referring to the Keynesian economic school of thought where gold has no function). Austrian School economists and Cliff Küle would like to say – We are not all Keynesians.

Did severing the link between the dollar and gold work to strengthen confidence in the U.S.? Please consider:

1. Within a generation of that move, the U.S. went from being the world’s largest creditor nation to the world’s largest debtor.
2. TIME Magazine of 1979 said:

Until the greenback is once again made as good as gold, many millions of people will persist in believing that the barbarous relic is still a better bet.

Recently speaking about Goldman Sachs’ problems at the Peter G. Peterson Foundation, former President Bill Clinton said,

There is a bigger problem here… too much of our growth was in finance ever since went off the gold standard.

The dollar “tie” to gold might be “re-tied” just as simply as it was untied. In a certain respect, America never really went off the gold standard. The tie between gold and U.S. dollar was simply adjusted to 0%. So, simply adjust it back. What tie would be needed today to restore America back to the gold standard? Let’s do the simple math.

Official figures for the total amount of gold reserves held by the U.S. Treasury are 8133.5 tonnes of gold. This gold is owned by all Americans and is held in trust by the government for the people. Given that 1 metric tonne is 32150.746 ounces, that amounts to:

8133.5 tonnes x 32150.746 ounces/tonne = 261498092.591 ounces

If we look at recent Federal Reserve data, we note that the total U.S. M1 seasonally adjusted money supply is at $1712.2 Billion of currency. Therefore if we were to take the total currency and back it by the total amount of gold, this would give:

$1712.2 billion divided by 261498092.591 = US$6547 per ounce

There you have it – if the U.S. were to devalue the U.S. dollar, setting gold at 6550 U.S. dollars per ounce of gold, the country could position to go back on the gold standard. Global confidence in the U.S. dollar and in America's debt would be maintained. It may be as simple as finding the right price for the government gold holdings to give "backing" to every dollar in circulation.

$6550/ounce is approximately the current value necessary to give "gold backing" to the current level of M1 money supply. If the U.S. wanted to expand the money supply further to stimulate the economy, it would need to set a new price for its gold holdings which is even higher than $6550/ounce or somehow get more gold. The U.S. could then be in a position to expand money supply as necessary to stimulate growth and able to extend credit to other nations. This is an essential ingredient to restoring confidence and keeping the title of reserve currency. After all, a reserve currency should be able to extend credit to nations in need, not be in need of credit from other nations.

As Jim Rickards states, this one-to-one ratio backing of gold with the U.S. dollar

would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.

Perhaps only then could global confidence in the U.S. dollar and in U.S. debt be maintained – if not, either a deflationary depression or a hyperinflationary depression could be in store as confidence wanes with increasing levels of public debt.

Back to the Future

Nick Barisheff, President and CEO of Bullion Management Group, emphasizes that gold is money:

Gold is not and never has been a currency. Gold is something entirely different and far more valuable. It is money.

Cliff Küle suggests that to maintain confidence in its debt, America must bring back the gold standard, anchoring the U.S. dollar back to real money - gold, as Article 1 of the Constitution of the United States commits it to be.

Disclosure: No positions

Work Until You’re Dead? That May Be the Only Option for Many Americans Huffington Post | Given that the first wave of Boomers is scheduled to turn 65 in 2011, Attention Must be Paid.

Gold Could Double over Five Years – Headed Higher with Government Resentment: Holmes Gold has the potential to double within the next five years, and if governments stumble with their policies, it can go even higher, said Frank Holmes, CEO of US Global Investors.

As Americans Celebrate Labor Day 2010, U.S. Factories Are Closing In Droves Labor Day 2010 comes in the midst of a stunning wave of U.S. factory closings that stretches from coast to coast. Once upon a time America was the greatest manufacturing machine that the world has ever seen, but now it seems as though the only jobs available for working class Americans involve phrases such as “Welcome to Wal-Mart” and “Would you like fries with that?”

Burry, Predictor of Mortgage Collapse, Bets on Farmland, Gold Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, said he is investing in farmable land, small technology companies and gold as he hunts original ideas and braces for a weaker dollar.

Unemployment in U.S. May Rise Toward 10% on `Feeble’ Growth As Bob Chapman outlined on the show today, once the real figures that the U.S. Labor Department hides are factored in, real unemployment is over 21 per cent – approaching great depression levels.

Manipulation Of Money – David Icke David Icke explains how money is created out of fresh air and how debt is used to enslave us.

Globalism Destroys America: 10 Reasons Why The World Trade Organization Is Bad For The United States Economy In 2010, education has been so “dumbed down” in America that most Americans don’t even know what the WTO is, and even fewer understand why the WTO is important. The truth is that the World Trade Organization is essentially a global government for world trade.

Economists Herald New Great Depression The world is currently experiencing the modern day equivalent of the Great Depression, according to a prominent economist who has added his voice to scores of others now forecasting ongoing economic doom on a scale not seen since the 1930s.) , and my position and that of demographer Dent (This is a global depression. This is a secular bear market in a global depression. The past up move was a manipulated bull (s***) cycle in a secular bear market. This has been a typically manipulated bubble as has preceded the prior crashes with great regularity that the wall street frauds and insiders commission and sell into. This is a typical wall street churn and earn pass the hot potato scam / fraud as in prior crashes’. This national decline, economic and otherwise, will not end until justice is served and the wall street frauds et als are criminally prosecuted, jailed, fined, and disgorgement imposed.

Harry Dent, Jr. Economy will be in a Depression by 2011
The worst of this next depression is likely to hit between mid-2010 and mid-2013, especially around early 2011, but if the banking system continues to implode a deep downturn or depression could begin sometime in 2009 instead of 2010.
Dow will Fall to 3,800 – 4,500 by 2012
Nasdaq will Fall Below 1,100, its 2002 low, by late 2010 or mid-2012 at the latest.
Inflation will Increase until mid- 2010 and then turn to Deflation
Interest Rates will Increase
U.S. Dollar will Decline
Housing will Decline by 40 – 60% from Today’s Levels
Greatest Economic and Banking Crisis since the 1930s will Occur Between 2010 and 2012).

National / World

FBI Warns of Possible Terrorist Response to “Burn Koran Day” Kurt Nimmo | Violence expected in response to Koran burning demo in Florida.

Everything you need to know about the events in NYC We Are Change | To be sure everyone is keyed in on all details, we here in NYC decided to write up an extremely detailed schedule.

The Reckless Mess Created by The Fed Bob Chapman | The 3-card Monte game continues.

Exclusive: Internal FBI Memo: Government Bracing For Violence Over “Burn Koran Day” Infowars.com has received a leaked copy of an internal FBI memo warning of a possible terrorist response to “International Burn A Koran Day,” an event scheduled for the ninth anniversary of the September 11 attack to be held by the Dove World Outreach Center in Gainesville, Florida.

Condoleeza Rice: Everyone Thought Flight 93 Had Been Shot Down When United 93 came down Ms Rice and other officials believed it may have been shot out of the sky. Miss Rice added: ‘Everyone in that room thinks that perhaps it’s been shot down.’

The White House Attempts To Refute The Scariest Jobs Chart Ever You’ve certainly seen the chart that we’ve dubbed The Scariest Jobs Chart ever, which shows how meager the jobs recovery has been since the start of the recession, compared to other recessions.

Obama Did Create 3 Million Jobs — in China President Obama should be saying, “My economic stimulus plan has preserved or created 3 million jobs — in China.” He keeps leaving out the words “in China.” His plan is stimulating American demand for imports, not demand for American products.

Obama: Sounding Bush-like? David Swanson said President Obama sounded like he embraced all the lies about this war, including the falsehood about the surge which created “mythical success”.

Abortionists Kept Aborted Babies in Jars I used to think that the abortion industry were simply capitalists who allowed their greed to override their humanity. I used to think that maybe it was just feminism run amok and that cooler heads would eventually prevail. I used to think that pro-lifers were simply up against the extreme of secularized logic. Over the past few years though I’ve come to believe that it’s more than that. It’s worse than that. We’re immersed in a culture with a death fetish. Our fascination with death is boundless.

The Establishment Media Smear Machine Is Officially Dead Ashes to ashes, dust to dust. The establishment media smear machine is officially dead and buried. Rand Paul has extended his lead over Democratic opponent Jack Conway to a massive 15 points, proving that when the distrusted and discredited corporate media attacks anyone now, it actually increases their popularity.

Drudgereport: Petraeus Speaks Out on Quran Burning...
Endangers Troops...
Pastor Says Church Not Deterred...
Hartford City Council meetings to begin with Muslim prayers...
2 SOLDIERS KILLED IN IRAQ, 9 WOUNDED

ADDICTED TO STIMULUS: $50,000,000,000 MORE
Dems wary of WH's huge new spending plan...
Obama takes aim at Boehner... 'They talk about me like a dog'… [ If the shoe fits ... President Obama calls African-Americans a ‘mongrel people’ President Obama waded into the national race debate in an unlikely setting and with an unusual choice of words: telling daytime talk show hosts that African-Americans are “sort of a mongrel people.” ]

'They talk about me like a dog'...
FLASHBACK: President-Elect Obama: Mutt 'Like Me'...

Muslims Protest Plans to Burn Quran...
'Death to America'...

Fears rise as EU nations aim to raise borrowing...
Roubini: More than 400 US Banks Will Fail...

'COMBAT OVER': US TROOPS BATTLE IN BAGHDAD...

Obama to call for $100B business tax credit (Washington Post) [ Just in the nick of time … riiiiight! … for the elections … you know, ‘talking points’ though of no economic effect … and to make america, only slightly more bankrupt ... at this point, who’s counting? ] Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, president seeks to boost research and development

Afghan bankers' assets frozen (Washington Post) Authorities bar sale of properties held by principal owners, but freeze excludes Karzai's brother [ Yeah … don’t want to get him too angry … he’s too valuable to the heroin trade resurrected by america. ].

Small businesses feel squeezed by Obama policies (Washington Post) [ Well, the grim reality for them is that they just don’t pony-up those big campaign dollars like those non-performing corporate welfare recipient conglomerates / big businesses. The other reality, reiterated again here is that everybody’s on to the fact that wobama’s great at delivering speeches, albeit teleprompted, but as we now all know, he doesn’t deliver. It’s rather pathetic to see that old loser and jingoistic fake war hero fraud, senile, incompetent mccain who never saw a new war opportunity he didn’t like despite america’s defacto bankruptcy (a policy the post-election wobama’s promulgated) because of same being given air time as some sort of wise old sage when he’s really just an old, stale joke who would have been even worse than wobama but not by much, failed presidencies both. ]

Charles Manson & the Scientific Dictatorship Jurriaan Maessen | Just like Manson, the scientific dictatorship would like to see the bodies piled up high.

Obama, Corporate Media Ignore Widespread Health Problems On Gulf Coast Kurt Nimmo | Obama gets to declare another mission accomplished while residents of the Gulf suffer.

Charles Manson: Global Warming Prophet Paul Joseph Watson | James Jay Lee, along with many prominent environmentalists and academics, share their eugenicist belief system with the man who many consider to be evil incarnate.

Gender bender chemical atrazine widely contaminates U.S. public water supply David Gutierrez | Research indicates the U.S. water supply is widely contaminated with the endocrine disrupting chemical atrazine.

The Impact of Fiat Money as the World’s Reserve Currency David Redick | Nations can’t afford our exorbitant privilege of being both a fiat currency and the world’s primary reserve currency.

The Imperial Anatomy of Al-Qaeda. The CIA’s Drug-Running Terrorists and the “Arc of Crisis” As the 9th anniversary of 9/11 nears, and the war on terror continues to be waged and grows in ferocity and geography, it seems all the more imperative to return to the events of that fateful September morning and re-examine the reasons for war and the nature of the stated culprit, Al-Qaeda.

Climate Scientist: Manipulating Earth’s Climate Will Not Cost Taxpayer More than $1 Billion… Annually! David Keith, director of the Institute for Sustainable Energy, Environment and Economy, has proposed releasing engineered nano-sized discs in the earth’s atmosphere to “offset global warming”- and that for just $ 1 billion of your taxpayer-money annually.

Dollar falls to 15-year low against yen The dollar fell to a 15-year low against the yen Tuesday, plunging at one point to 83.52, as the Japanese unit took advantage of its status as a refuge currency amid global economic uncertainty.

Austerity Strikes Hit France, Britain In France, unions called for a day of mass strike action shutting down trains, planes, buses, subways, post offices and schools in protest against President Nicolas Sarkozy’s pensions reform bill.

Former N.Korea soldiers to form group to topple regime Scores of former North Korean soldiers who defected to South Korea will this week form a group aimed at toppling the regime with the help of serving soldiers there, one of its leaders said Monday.

Celebrating Job Losses ‘For now I will stick with the belief that Friday's action was just another oversold rally in the context of a falling market. I would love for the economy to right itself … Unfortunately I still don’t see or understand how we are going to accomplish those things in the near term. I do see many technical indicators flashing warning signs … Until then cash is the safest investment and all celebrations should be put on hold.’

Sellers Cut Prices on 50% of Homes Homeowners are slashing prices more drastically and more frequently, according to recently released data from ZipRealty. The average price reduction is now 7.1 percent of list price.

Roubini: India May Overtake China within a Year Roubini warned that world growth leader China was too dependent on exports to the struggling West and predicted that within a year its economic growth will be overtaken by India, a huge nation much more reliant on its domestic market for development.

10 Reasons Why Conservatives Should Be Against Unfair Trade With China And 10 Reasons Why Liberals Should Be Against Unfair Trade With China Liberals and conservatives should both be able to agree that it is not a good thing for millions of American jobs to leave the United States and go to China.

CNN’s ‘Glass One-Quarter Full’ Spin: Emphasize Private Job Gains The Bureau of Labor Statistics released its “all-important” jobs report on Sept. 3, the morning before Labor Day weekend. CNN rapidly found the “bright spot” in a report that showed a net loss of 54,000 jobs and a higher 9.6 percent unemployment rate.

Targeting American Citizens: CIA Takes Global Murder Policy to Next Level Kurt Nimmo | The CIA has a long track record of targeting untold numbers of people for elimination.

Vaccinate the World: Gates, Rockefeller Seek Global Population Reduction Daniel Taylor | The war against population is an ongoing effort on part of the global elite.

Irish protesters hurl bottles, eggs, shoes at phony tony blair (phony tony’s a total fraud) during book signing Agence France-Presse | One woman said she tried to make a citizen’s arrest on Blair once he was inside the bookshop where the event was taking place.

Democrats running on austerity (Washington Post) [ Wee doggies! … The new republican party is born … Actually, despite the myth, the reality is that under Reagan ( and the bushies, and of course, wobama – clinton caught a break with the peace dividend but the bureaucracy grew ) government spending significantly increased along with the government bureaucracy. ] Fearing midterm wipeout, party hopefuls embrace budget cuts with the zeal of Reagan Republicans.

Palin calls reporters 'impotent' and 'limp' (Washington Post) [ I must reiterate, she, palin’s so embarrassingly dumb! She truly is the joke that keeps on giving! I really mean it! I mean, what next? ] The former Alaska governor weighed in herself: "Those who are impotent and limp and gutless and they go on their anonymous -- sources that are anonymous -- and impotent, limp and gutless reporters take anonymous sources and cite them as being factual references," she told Sean Hannity. "It just slays me ( this could be a somewhat Freudian slip as she contemplates the uselessness of sexually non-interested reporters while she meant lays and I think her supposed / purported attractiveness / desirability is vastly overstated; but, this makes for great SNL skits; you know, those reporters not man enough to service her ) because it's so absolutely clear what the state of yellow journalism is today that they would take these anonymous sources as fact."

Ex-bank executives say their dismissals caused panic withdrawals in Kabul (Post, September 4, 2010; 8:52 AM) Karzai urges Afghans not to panic as bank withdrawals accelerate (Post, September 4, 2010; 3:11 AM) Suicide bombing kills at lesat 55 (Washington Post) Pakistan… After Iraq war, uncertainty and seemingly mixed messages (Post, September 2, 2010; 4:26 PM) [ What do these nations have in common? An american presence … and from the foregoing it’s clear that this sounds like a reporting job for Rosanne Rosanna Dana of SNL fame who has insight into such scenarios as this ‘cause her mama always said …it’s always something! ]

U.S. to temper stance on Afghanistan corruption (Washington Post) [ Sounds like a plan! After all, in america’s own image of corruption, ie., bribery, heroin trade, etc., they’re remolding Afghanistan replete with good old american style corruption and they don’t want no noses pokin’ around to see america’s direct involvement in the corruption, bribery, etc., and particularly the heroin trade, the american raison d’etre there where the Taliban had all but eradicated the heroin production / trade which surged thereafter with the american participation. The American rationale seems to be, continue the corruption, etc., since to eliminate same would help the Taliban. Riiiiight! My, oh my! You can’t make this stuff up.] Military officials conclude that effort to drive out all but the most corrosive abuses in region would create a power vacuum that Taliban could exploit.

Economy treading water as jobless rate rises (Washington Post) [ Ah yes, sweet Neil Irwin! He might just have those rosy fraudulent wall street glass half-full word pictures on his mind. But, not to rain on his parade, I’d say that drowning victim, Mr. Economy’s gone down for the third time! ] Neil Irwin The unemployment rate rose to 9.6 percent, the Labor Department said Friday, but private employers added 67,000 jobs -- data that offer a mixed portrait of the labor market in an economy that is neither growing fast enough to bring down joblessness nor sinking back into a new downturn.

Not-so-dire jobs report gives stocks a boost (Washington Post) AP Business Highlights [ Wow! ‘Private employers hired more workers over the past three months than first thought’ … Riiiiight! Especially with 2 months to the mid-term elections (time for federal term limits and the abolition of lifetime appointments for anything owing to the nation’s defacto bankruptcy), desperation with fake / false data / reports; and, that negative but better than expected thing as unemployment rate inches up to 9.6% (the real unemployment rate is approximately 20+% with that ‘stopped looking’ fudge-factor giving them the false positive). I mean, come on! Private reports on non-farm payrolls down each week, but suddenly from out of nowhere defying virtually all economist estimates the ue claims are up, and prior gov’t reports revised up. This is a great opportunity to sell / take profits! ] ‘(AP)Companies add 67K workers, but jobless rate rises WASHINGTON (AP) -- Private employers hired more workers over the past three months than first thought, a glimmer of hope for the weak economy ahead of the Labor Day weekend. But the unemployment rate rose because not enough jobs were created to absorb the growing number of people looking for work ...’

Mark Hulbert's Take: What Are the Odds of a September Decline? at Seeking Alpha (Fri, Sep 3) ‘Some of the work Mark Hulbert does is nothing more than telling us what the gurus in the universe he follows are thinking individually and, more frequently, in the aggregate. But of late, he also has been doing some far more interesting analysis in the “Yale Hirsch” mode – and the results are not satisfying if you are a bull.

The bullish case seems to rest on two platforms: (1) August was really bad therefore September should be good in reaction to that, and (2) “Everyone” now expects the current crop of politicos to suffer major setbacks in November and, since the market is a predictive mechanism, investors are positioning themselves today for what they believe will be wonderful news post-November (like an extension of the current tax rates and a reduction in pork-barrel spending by irresponsible pols.)

The Dow rallied more than 300 points the first two days of September so, making the usual straight-line assumption, bulls believe that today is the day to get invested, Hmmm. Let’s examine each of the above platforms in turn.

Quoting Mr. Hulbert’s conclusions based upon his historical analysis:

I have good news and bad news when it comes to slicing and dicing the historical data as it pertains to September.

The good news is that it is possible, by carefully reading the statistical tea leaves, to get advance insight into whether any given month is likely to do better or worse than average.

The bad news: Those tea leaves provide no such hope that this September will be able to beat its historical reputation as being awful for stocks.

His research shows that since 1896 (the year the Dow Jones Industrial Average was created,) the Dow has lost an average of 1.15% in September. The average gain for all other months was 0.71%. Worse, a look at the historical record shows that Septembers did not show a 1.15% decline following a bad August – they showed a 2.7% decline! Typically, when August is down, as goes August, so goes September -- only twice as bad as usual.

Worse than that, Hulbert notes, “During each of the past nine decades... September's rank relative to other months in terms of performance was never higher than ninth. It was dead last in five of those nine decades -- including the most recent one.”

He adds a final bit of gasoline to this bonfire by noting that the CBOE's Volatility Index (VIX) is relatively low going into September, the month tends to do better. Uh-oh. The VIX at the end of August was quite a bit higher than 20. (And for those who have followed our comments on the VXX and VXZ ETFs in the past, we believe they have now entered an excellent buy area.)

As for the second platform, the market seldom reacts favorably to the same news twice. I’ve been writing for two years that the pendulum will swing, that the 2008 election was a rejection of the guns-and-butter policy of the previous administration and was little different than the voters’ rejection of President Johnson’s guns and butter policies in 1968 (thrusting Richard Nixon into office with disastrous consequences we hope are not repeated this time around), and that mid-term elections are almost always about mitigating the euphoria of the previous presidential election. This is not news!

The rally of September 1^st and 2^nd may have occurred as a result of Johnny-come-latelies reaching the conclusion Wall Street reached about the mid-term elections weeks or months ago. If that is the case, I imagine the smart money is rubbing their hands with glee and using this rally to lay on bigger short positions.

The current rally was ostensibly about the fact that the Chinese Purchasing Managers Index rose to 51.7 in August from 51.2 in July, followed by the news that the U.S. ISM Manufacturing Index improved from 55.5 in July to 56.3 in August. I don't see it – these incremental numbers are nothing but decimal dust in the grand scheme of things! Easily manipulated by the bureaucrats in charge of such numbers, the “improvement” is so small as to be barely measurable – and to raise not a stir among the media when they are “revised” from “up 0.5%” to “down 0.1%” or whatever in another month.

The other economic numbers that form the backdrop to this rally include: Canada’s GDP fell to an annual rate of 2% in the 2^nd quarter, down from 5.8% in Q1; auto sales absolutely plunged in the U.S. and around the world; there was a continued drop in U.S. construction spending; there were declining retail sales in Euro nations; and the ADP employment report indicating that we didn’t just grow jobs at too slow a pace to cover all the new workers entering the labor force, but we actually lost some 10,000 private sector jobs! Government is still hiring, of course, but we must always remember: the private sector is income, government is overhead. That doesn’t mean we don’t need certain government workers – what hellish existence would it be without fire and police protection, or good teachers to educate our children? But it is still overhead even if we collectively choose to pay for it in order to enhance our safety or literacy.

Bottom line: September tends to do worse in years that August has been bad. August was bad. The news of the mid-term elections is already old news and will most likely follow the historical path of all mid-term elections. We will return more to the center. And the good news to propel the market higher is likely to be short-lived. Clearly, we aren’t out of the woods yet. If the market is in a news-dominated phase, we are likely in big trouble.

For our clients we are stressing safety, with inverse ETF protection from the likes of ProShares Short S&P 500 (SH), ProShares Short Russell 200 (RWM), ProShares UltraShort Nasdaq (QID) and ProShares Short MSCI Emerging Markets (EUM). (If the US and Europe aren’t consuming, who is going to order stuff from the emerging nations? They will fall if our markets and economies fall…) We are also buying VXX and VXZ and are keeping our bond positions short and inflation-resistant, as we do with WIP, TIP, BWZ, and MINT. Finally, we own some special situations in precious metals, energy and agriculture. (See previous articles for specifics, including this and this...)

AP Business Highlights [ Wow! ‘Private employers hired more workers over the past three months than first thought’ … Riiiiight! Especially with 2 months to the mid-term elections (time for federal term limits and the abolition of lifetime appointments for anything owing to the nation’s defacto bankruptcy), desperation with fake / false data / reports; and, that negative but better than expected thing as unemployment rate inches up to 9.6% (the real unemployment rate is approximately 20+% with that ‘stopped looking’ fudge-factor giving them the false positive). I mean, come on! Private reports on non-farm payrolls down each week, but suddenly from out of nowhere defying virtually all economist estimates the ue claims are up, and prior gov’t reports revised up. This is a great opportunity to sell / take profits! ]Companies add 67K workers, but jobless rate rises WASHINGTON (AP) -- Private employers hired more workers over the past three months than first thought, a glimmer of hope for the weak economy ahead of the Labor Day weekend. But the unemployment rate rose because not enough jobs were created to absorb the growing number of people looking for work ...’

Stocks Churning in Trading Range: Dave's Daily ‘This will be short. Perhaps the image [old lady (wall street) churning (scam) butter (stocks)] and title should suffice as a summary of the week. After all, I indicated "possibly" I might post on Friday. The current market is a reprise of early July's rally from June's selloff. Now into September the August lows are reversing. How durable will this be is anyone's guess. Economic data was greeted with bullish enthusiasm as markets were oversold after Monday's slump. The unemployment data was just about the same as previous once you look deeper inside the data. The birth/death model is just an estimate made out of thin air. Once you view the data ex-that, things look pretty grim. There are very few players involved this week and perhaps in the future. It's interesting many major banks are closing their proprietary trading operations. This removes another important prop to markets as retail investors have left the scene. Further, for stock mutual funds, the exodus continues for the 16^th straight week. Cash balances at these funds are at historic lows of 3% as the outflow continues. Curiously, short interest is also at an all-time low near 4% meaning few for bulls to squeeze. We only have hedge funds and overseas investors in the game. And, it does seem like a game more than ever now. Bulls jumped on the oversold conditions on Wednesday as a DeMark 9 was registered on Tuesday for most major market daily charts then. A rally on that technical condition was no surprise ...’

Important Manufacturing Indicators Look Weak at Seeking Alpha (Fri, Sep 3)

Consumption Contraction Approaches 2008 Low at Seeking Alpha (Fri, Sep 3)

Beware the Big Red Leading Indicator at Seeking Alpha (Fri, Sep 3)

Small Investors Turns More Bullish (contrarian indicator) at Seeking Alpha (Fri, Sep 3)

Unemployment Rate Edges up to 9.6% at TheStreet.com (Fri, Sep 3)

AAII Sentiment Survey: Bullish Sentiment Improves, But Bearishness Still Dominates at Seeking Alpha (Fri, Sep 3)

Monthly Markets Review: Risk Aversion Rises in August as Double Dip Concerns Grow at Seeking Alpha (Fri, Sep 3) ‘…The ECB keeping rates at a record low of 1% and zero interest policies in the US and in most western economies remains bullish for gold as the opportunity cost, the lack of yield, of owning gold is negligible, especially with inflation having picked up recently in many economies internationally. Further signs of burgeoning food inflation were seen in the surge in the price of global meat prices which have risen to 20 year highs … (chart) September can be the 'cruelest month' for stocks. Conversely, more years than not, precious metals prices perform well in September and many analysts reckon this year will not disappoint those owning gold. Given the uncertain financial and economic outlook, it is important that investors remain diversified with allocations to cash, short dated government bonds, international equities, and gold…’

More than 400 US Banks Will Fail: Roubini CNBC | More than half of the 800-plus US banks on the “critical list” are likely to go bust, according to renowned economist Nouriel Roubini.

U.S. unemployment soars to 9.6% after economy loses 54,000 jobs The U.S. unemployment rate rose to 9.6 per cent in August, official figures released today have shown. The data from the U.S. Labor Department showed the economy lost 54,000 jobs last month as the United States continues to struggle to recover from the recent global recession.

Government Economic Leaders Surprised that Real World Isn’t Responding to their Magic Pixie Dust Many have tried to explain to the neoclassical economists running the show exactly how bad the economic collapse would be, why it was so bad, and how to mount an adequate response to fix things. But Bernanke, Romer and the rest of the gang ignored them.

Why Lessons From The First Great Depression Mean The Next Four Months Will Be Very Painful For Stockholders Scott Minerd, CIO of Guggenheim Partners, parses through the years of the Great Depression, and focuses on the pivotal 1936, which contained in it the seeds for the destruction of the period of relative economic growth and stability from 1932 to 1936.

Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation Zero Hedge | Pento also goes into explaining why housing is facing a “deflationary depression,” and a further collapse in pricing, why inflation benefits only those closest to the money, i.e., the banks and the military complex.

The U.S. Path to Collapse National Inflation Association | The pain that was felt after the collapse of Lehman Brothers is nothing compared to the pain that will come when we begin to feel the effects of bailing out the rest of Wall Street.

National / World

Globalist Soros Launches Frontal Assault Against Tea Party Kurt Nimmo | Soros and the foundation left have launched a website designed to go after the growing Tea Party movement.

ABC Nightline Hit Piece Smears Alex Jones As King of “Paranoia Porn” [ Yeah! This is unequivocally indefensible on the part of abc (or nbc, fox, cbs, etc. if they shared a similar mainstream media view) because there are so many substantial nation-damaging behaviors that are in plain sight yet go unreported (and unprosecuted). I’d feel more comfortable with a Washington Post Network (possibly as a wholly owned subsidiary to militate against the risks inherent to such a venture and the establishment of same). While I do find Alex Jones’ somewhat overstated vaunted opinion of the so-called elite a bit much, it’s not because these mental cases are not trying to do as he has accused / shown, but rather because I find his ‘elite’ to be as I’ve previously stated totally inept, incompetent vegetables who are incapable of doing anything well or of substance. I’m really not exaggerating when you look at their track records of inscrutable failure, if only because of a lack of focus on and attention to such failure / corruption. This also includes the ‘pols’ who make the case for term limits based upon any previous service at all. I think people should be thankful that Infowars, Prison Planet, Jones, et als, value the people / humanity enough to take the very real risks, and expend his time and energy in sifting through the plethora of b*** s***, obfuscation, and cover-ups to reveal the truth. Given the inherent state of human nature, their lack of courage, integrity, etc., including that of americans generally, another area where I part company with Jones et als and which, truth be told led them to censor my comments to some of their articles (very hypocritical), such sacrifice by them seems very difficult to justify; but the discomfort they give the dysfunctional mainstream media is certainly a good thing of itself. ] Paul Joseph Watson & Kurt Nimmo | Dan Harris proves yet again why the establishment media is increasingly shunned and distrusted.

The True Cost of the War Paul Craig Roberts | America’s “war on terror,” a fabrication, has resurrected the unaccountable dungeon of the Middle Ages and the raw tyranny that prevailed prior to the Magna Carta.

Fluoride: Direct Engagement to Incite Public Inquiry Travis Crank | Wichita public servants outwardly deny the fluoridation of our water.

Eugenics Alert: World Bank Population-Reduction Lending Schemes Already Underway Jurriaan Maessen | The World Bank works in concert with all the other arms of the octopus.

As Usual, MSM Gushingly “Predicts” Our Fascist Future [ This is quite shocking inasmuch as they’d then be able to easily ‘off’ the recipient of such with a few simple modifications of the chip for any of a multitude of bad reasons / motives. I would never, under any circumstances, permit this for myself, etc..] David Kramer | From the broadcasting arm of the number one New World Order industrial corporation, General Electric, comes this story about the “convenience” of being microchipped for identification.

Drudgereport: UNEMPLOYMENT JUMPS TO 9.6%...
Economy LOST 283,000 jobs during 'Recovery Summer' months...
NPR: 'Recovery Summer' Ends With Economic Pothole...
Labor Sec. Declares: 'There are jobs out there'...
TREASURY HEAD RUSHES BACK FROM VACATION; AIDES SEARCH FOR OTHER JOBS PACKAGE...
120 Days to Go Until Largest Tax Hikes in History...
President Claims Job Creation; Doesn't Mention Net Job Loss of 54K...
HE NEEDS A VACATION: OBAMA TO CAMP DAVID...
Taxpayers to face initial loss on GM IPO; Treasury to sell first shares below break-even...

David Rosenberg: The U.S. Is Suffering a Japanese-Style Depression Burrows ‘Presciently bearish David Rosenberg, the chief economist and strategist at Gluskin Sheff who called the global meltdown back when he was still at Merrill Lynch, isn't budging from his view that the U.S. is in a depression -- and a prolonged, Japanese-style one at that. Rosenberg reminded clients on Wednesday that here we are 33 months after the Great Recession began, and yet home prices, gross domestic product, credit outstanding, organic personal income and employment are all lower now than they were prior to the onset of the downturn. "We can understand that this is not exactly cocktail conversation, but this is a Japanese-style (even worse perhaps) modern-day depression," Rosenberg writes. "It's not the 1930s because soup lines have been replaced with unemployment insurance lines -- over 10 million checks and for up to 99 weeks. The poor souls who endured the bitter 1930s had no such relief." And as for the U.S.'s vaunted labor flexibility and superior demographics saving it from a Japanese sort of lost decade or two, well, Rosenberg is having none of it. "Government policy and the record number of people upside-down on their mortgage have seriously impaired the flexibility of the labor market," Rosenberg writes. And the U.S. birth rate has declined for two consecutive years and is at its lowest level in a century, he notes. Of course, it's no surprise to buy-and-hold investors that U.S. equities have already notched a lost decade and then some. Take a look at this 10-year chart of the S&P 500 ($INX): See full article from DailyFinance: http://srph.it/aZTYr7’

[$$] U.S. Equity ETFs Implode ‘U.S. equity ETFs hemorrhaged assets during the month of August as investors sought out emerging-market equity and debt along with fixed-income picks. According to National Stock Exchange data (nsx.com) released today, U.S. equity ETFs shed nearly $11 billion in assets last month. Here's something remarkable: One U.S. equity ETF accounted for more than half of these outflows. The SPDR S&P 500 ETF, arguably the ETF industry's most iconic fund, saw net outflows totaling more than $6.6 billion last month. Who were the biggest losers besides SPY? You'll recognize some of these names: the PowerShares QQQ ETF, the iShares Russell 2000 ETF and the SPDR DJIA ETF saw net asset outflows of $2 billion, $1.7 billion and $616 million, respectively. At the other end of the spectrum, the Vanguard MSCI Emerging Markets ETF and the iShares MSCI-Emerging Markets ETF attracted $1.9 billion and $1.8 billion, respectively, while the...’

David Rosenberg: The U.S. Is Suffering a Japanese-Style Depression Presciently bearish David Rosenberg, the chief economist and strategist at Gluskin Sheff who called the global meltdown back when he was still at Merrill Lynch, isn’t budging from his view that the U.S. is in a depression — and a prolonged, Japanese-style one at that.

The U.S. Path to Collapse The combination of more government spending and less taxes equals massive inflation, but this represents the state of mind in Washington today. Inflation is still the last thing on their minds because they don’t see it yet.

Can A Family Of Four Survive On A Middle Class Income In America Today? When I was growing up, $50,000 sounded like a gigantic mountain of money to me. And it was actually a very significant amount of money in those days. But in 2010 it just does not go that far. Today, the median household income in the United States for a year is approximately $50,000.

The Reckless Mess Created by The Fed Quantitative easing will put the American public at ease, at least temporarily. They do not realize it but the American and world economies are in a deliberate state of slow collapse. Yes, the Fed has created a terrible mess. They have been totally unprofessional and reckless.

US Retail Sales Top Estimates on Tax Holidays, Discounts Bloomberg A family walks toward the entrance to the Kohl's store in Round Rock, Texas. Photographer: Jack Plunkett/Bloomberg US retailers reported August sales that beat analysts' estimates as ...

Retail sales, home contracts rise modestly (Washington Post) [ Forced / Distressed / Underwater pending / foreclosure sales the impetus for short-covering / suckers’ rally on light and hence, easily manipulated, pre-holiday computerized trade volume. The government, desperate and defacto bankrupt, is back to their fake / false data reporting; you know, the kind that spurs the fraudulent wall street rallies and gets revised by 35% + down later as with GDP just recently, but the wall street frauds will get their commissions again on the way down. YAHOO [BRIEFING.COM]: ‘…Early participants had little reason to alter their mood since the initial jobless claims count for the week ended August 28 came in at 472,000, which is in on par with the 475,000 initial claims that had been widely expected. The latest tally was also little changed from the prior week total of 478,000. Continuing claims saw a more substantial slip as they fell to 4.46 million from 4.48 million. Final nonfarm productivity readings for the second quarter also offered little surprise. Productivity in the quarter fell 1.8%, which is in stride with the 1.7% decline that had been widely forecasted. Unit labor costs for the quarter increased 1.1%, as expected. Pending home sales for July provided participants with a positive surprise. They posted a 5.2% monthly increase, which contrasts with the call for no change from economists polled by Briefing.com. That data overshadowed news that factory orders for July increased 0.1% instead of 0.3% as had been widely expected…’ Stocks rise on economic hopes ahead of payrolls (Reuters) Riiiiight! Sounds like a plan! ]

Nation / World

Gun Confiscation in Response to Hurricane Earl? Kurt Nimmo | In New Orleans, police and National Guard confiscated weapons and violated the Second Amendment.

California Cops Taser Senior Citizen in His Own Home Kurt Nimmo | In America, now officially a police state, you will be tasered in your own home if you lip off to the police.

World Bank Threatens “Drastic Steps Necessary” if Nations Refuse Population Reduction Implementation Jurriaan Maessen | A World Bank report suggests introducing “sterilization vans” and “camps.”

British Attorney General moves toward re-opening investigation into mysterious death of Iraq weapons inspector Raw Story | The United Kingdom’s top law enforcement official has taken possession of secret files surrounding the murder of David Kelly, a prominent WMD researcher who was found dead in the months after the invasion of Iraq.

New Evidence Of Controlled Demolition On 9/11 In the video, at about the 0:59 mark, a high-pressure explosion occurs in one of the Twin Towers, below the impact zone, while the building is still standing.

Update: Mile-Long Oil Sheen Reported Spreading From Site Of Gulf Platform Explosion The Coast Guard is on the scene of another oil rig fire in the Gulf of Mexico. Officials are now reporting a mile-long oil sheen spreading from the site.

Karzai’s brother calls for U.S. to shore up Kabul Bank as withdrawals accelerate As depositors thronged branches of Afghanistan’s biggest bank, Mahmoud Karzai, the brother of the Afghan president and a major shareholder in beleaguered Kabul Bank called on Thursday for intervention by the United States to head off a financial meltdown.

Mexico drug kingpin says he received trailers of US cash A captured Mexican drug kingpin admitted to “investments” in Colombia and said he had received trailers full of dollars from the United States, in a first interrogation video released here.

‘Iraq war based on lies and deception’ Former Reagan Administration official Paul Craig Roberts says that we didn’t hear why we initially went to war with Iraq, although the world knows was based on lies and deception.

Pakistan military abandons US trips after being ‘mistaken for terrorists’ Pakistani officials said the officer, weary from the journey to the US, had said, “I hope this is the final plane to the destination” causing a female passenger, who believed he was threatening the aircraft, to panic.

Drudgereport: TIME: (WOBAMA) MR. UNPOPULAR... FLASHBACK: (WOBAMA) TIME MAN OF THE YEAR 2008...
Calls for USA to shore up Afghanistan Bank as withdrawals accelerate...
UPDATE: Oil rig explodes in Gulf of Mexico; 7 active wells on platform...
COAST GUARD: Mile-long 'oil sheen' spreading...

Russian police raid opposition magazine... [They don’t often do this overtly in america anymore since most media is in cahoots / controlled; but still, no excuse for putin who is often disengaged as when he is out shooting Siberian Tigers with sophisticated weaponry. ]

Pledge beaten by sorority sisters who warned her 'snitches get stitches'... ‘… In her lawsuit, excerpted here, Howard noted that she had originally planned to pledge Alpha Kappa Alpha, the oldest African-American women’s sorority. But since the sorority’s San Jose chapter has been suspended due to hazing activities, Howard opted to join Sigma Gamma Rho, believing that “they represented the ‘sisterhood’ she sought in a sorority.” However, Howard contends, that the group’s pledge process was far from sisterly. According to her complaint, she and fellow pledges were punched, slapped, kicked, slammed into walls, struck with a wooden spoon and a cane, and had books and coins thrown at them during a series of 16 nighttime initiation sessions. Howard recalled one evening when a sorority sister told her to close her eyes. She was then struck on the buttocks with what she later learned was a kitchen pot. The pledges were also frequently struck with a wooden paddle, Howard said, blows that left her with welts on her buttocks. Howard reported that pledges were repeatedly warned not to talk with friends and family about the initiation process, since “snitches get stitches.” They were also told that if they failed to participate in certain pledge activities, they would be “jumped out,” a gang term for a beating conducted by all members of the group. Howard’s complaint names as defendants San Jose State University, Sigma Gamma Rho, and various sorority members, including a quartet of women who, court records show, pleaded no contest earlier this year to misdemeanor hazing charges. The defendants--Princess Odom; Monique Hughes; Joslyn Beard; and Nicole Remble--were each sentenced to 90 days in jail, directed to serve two years of court probation, and barred from involvement with any sorority. Odom, Hughes, Beard, and Remble (all negroes) are pictured here, clockwise from upper left, in San Jose Police Department mug shots.’

Pearlstein: Put millionaires' tax money to good use (Washington Post) [ Nobody likes even the sound of higher taxes, particularly when the same goes for such waste as porkbarrel, political spending but especially the nation-bankrupting needless war spending, the black budgets, etc.. That said, Mr. Pearlstein is quite right, especially when one considers the source of the ‘largesse’, viz., nation-bankrupting war criminal moron dumbya bush who snidely smirked as he talked of ‘his (political) base’ and all the ‘politicking’ entailed in same. Remember… the nation is defacto bankrupt! Moreover, I don’t buy that ‘most productive’ sector being ‘disincentivized’ unless measured by the magnitude of their frauds (ie., wall street, etc.), transfer of the nation’s productive capacity (ie., u.s. ceo’s and politicians, etc., with few exceptions). Additionally, their marginal propensity to consume is less than that of lower wage earners (economics) ]

Bernanke: Regulators fell short in identifying problems (Washington Post) [ Now we know why and what the initials B.S. (for B*** S*** ‘no-recession-helicopter ben’) preceding bernanke stand for. Come on! Say the prosecution word and all’s forgiven. Everyone knows that the criminally insane on wall street have been / are engaged in a huge fraud and there are hundreds of trillions of worthless paper still out there and marked to anything to prove it. See Graham Summers’ exposé, infra. ] In a lengthy analysis of the financial crisis, the Fed chairman says the government did not do enough to protect consumers in the marketplace.

Karzai calls aide's arrest reminiscent of Soviet times (Washington Post) [ Exactly, eerily, certainly realistically reminiscent of the former soviet union is the american union in terms of economics (defacto bankrupt), geopolitics (intensely hated), and even factual similarity (the final straw), with an unmistakable modus operandi that gives rise to failure beyond the propaganda. After all, corruption is as american and pervasive in america as apple pizza pies and mother of hoods, etc. ]

Army supervisor was worried about leak suspect's mental health, attorney says (Washington Post) [ One cannot help but hearken back to a frequently deployed ‘government at its worst’ strategy, ie., Ellsberg/Pentagon papers, former soviet union, etc., in attempting to discredit such informants, etc., which of course is a telltale sign of america’s similar fate / decline / fall. ]

What if Roger Clemens is telling the truth? http://voices.washingtonpost.com/hard-hits/2010/08/what_if_roger_clemens_is_telli.html I ordinarily don’t comment on sports matters but this is one of those exceptions. While not in any way dismissing the seriousness of the prevalent use, for quite some time, of performance-enhancing drugs, my own position on the matter was to place an asterisk next to those who made the record-books so-doing (still matters of proof) with a more stringent policy going forward. Where does an incompetent, nation-bankrupting, non-performing congress get off going after a performance-driven baseball player when huge crimes, warcrimes, frauds from this same government are still unprosecuted? Ask the wall street frauds the tough questions … they’ll lie. Then, even assuming, arguendo, Clemens slipped up … picture the alice-in-wonderland surreal scene presided over by that mammalian rodent-like presence of that incompetent in the semblance of some beaver-toothed woodland creature as, ie., hedgehog, gopher, etc., amidst characters that would rival the famed mad tea party, mad-hatters all. There are far bigger fish to fry and of greater consequence to the nation but their lack of courage and incompetence is the only consistency on capital hill, and everyone knows it. How pathetic! After all, aren’t all three branches of the u.s. government a lie of themselves, and have a near single digit approval rates to prove it.

Pa. capital nearing bankruptcy (Washington Post) [ Sounds like a dry run for the nation’s capital. Drudgereport: MORGAN STANLEY: Government Bond Defaults Inevitable … Everyone who is capable of thinking knows america is defacto bankrupt. The question is, how did Morgan Stanley’s assessment escape scrutiny and follow-up by the press. Indeed, it is certainly a breach of duty to have done so in light of the implications. ] In a highly unusual move, the city of Harrisburg says it will not make a $3.3 million payment.

Automakers report weak sales (Washington Post) [ This really is sobering, yet totally lost on the frauds that be on wall street. ‘Cheapskates’? Mr. Whoriskey should be ashamed of himself. After all, you can’t spend what you don’t really have (unless you’re defacto bankrupt … america ) and, let’s not kid ourselves, Mr. Whoriskey has to be considered somewhat ‘ivory tower’. ] Chastened by the recession, more U.S. consumers have become cheapskates: They are saving more and driving older cars. And that, in part, explains the historically dismal sales reports released Wednesday by automakers.

Manufacturing rebound spurs stock rally (Washington Post) [ Riiiiight! That new global hub of (very high priced) manufacturing activity … Defacto bankrupt america …I don’t believe the ISM number for even a minute, even with the defacto bankrupt government’s market-frothing spending of money they definitely don’t have and believe the forecasters were closer to reality.] After their worst August in nine years, stocks kicked off September with a big snap-back rally, following the release Wednesday of surprisingly good news about the U.S. manufacturing sector.

Obama prods Mideast leaders (Washington Post ) [ The real question is … who is going to prod defacto bankrupt, war crimes nation america … on peace, that is. Then there’s that ‘oh, it’s just war crimes, illegal nuke-toting israel … laws, rules, un resolutions, etc., don’t apply to them factor and the concomitant skepticism attendant thereto. ] Israeli Prime Minister Netanyahu and Palestinian President Abbas are set to open direct peace talks.

Five reasons to be optimistic about the economy (Washington Post) Neil Irwin |(Very) Political Economy [The unflappable Mr. Irwin. Fraudulent wall street’s shill and man for all seasons falls in with the following as his glass half-full runneth over: Those Who Ignore History... [The aforementioned from The Pragmatic Capitalist is a cogent summary of extant problems which undoubtedly will end quite badly for the unwary (today’s folly represents a great opportunity to sell / take profits), infra, and should be read in tandem with Graham Summer’s exposé which follows. Yet, the situation as realistically bad as they’ve so presented same, is far more dire than even they posit for the u.s. particularly owing to structural problems now inherent to america’s economy / business model which bodes ill as never before in america’s relatively short history. U.S. Stocks Surge On Overseas Growth Riiiiight! Some of the same mainstream, (msnbc) ‘money honey’ drivel one would expect from Forbes faux ‘capitalist tool’ cheerleading squad, totally devoid of forward-looking analytical prowess and leaves you burned every time. Come on! Government Motors and Ford sales were down significantly, construction spending down, private sector jobs lost, and even BofA’s Merrill Lynch has sugar-coated the reality cutting the wall street frauds a break by calling this a ‘growth rececession’. The typical fraudulent wall street churn-and-earn computerized trade scam with built in commission volume for the way down. Sorry to say it, but the reality is: This is a global depression. This is a secular bear market in a global depression. The past up move was a manipulated bull (s***) cycle in a secular bear market. This has been a typically manipulated bubble as has preceded the prior crashes with great regularity that the wall street frauds and insiders commission and sell into. This is a typical wall street churn and earn pass the hot potato scam / fraud as in prior crashes’. This national decline, economic and otherwise, will not end until justice is served and the wall street frauds et als are criminally prosecuted, jailed, fined, and disgorgement imposed.]
Harry Dent, Jr. Economy will be in a Depression by 2011
The worst of this next depression is likely to hit between mid-2010 and mid-2013, especially around early 2011, but if the banking system continues to implode a deep downturn or depression could begin sometime in 2009 instead of 2010.
Dow will Fall to 3,800 – 4,500 by 2012
Nasdaq will Fall Below 1,100, its 2002 low, by late 2010 or mid-2012 at the latest.
Inflation will Increase until mid- 2010 and then turn to Deflation
Interest Rates will Increase
U.S. Dollar will Decline
Housing will Decline by 40 – 60% from Today’s Levels
Greatest Economic and Banking Crisis since the 1930s will Occur Between 2010 and 2012 Economists Herald New Great Depression The world is currently experiencing the modern day equivalent of the Great Depression, according to a prominent economist who has added his voice to scores of others now forecasting ongoing economic doom on a scale not seen since the 1930s.] The Pragmatic Capitalist ‘My position over the last 2 years has been as follows: this is a Main Street debt crisis. I have been highly critical of the government’s incessant interventionist policies over the last few years largely because they ignore the actual problems at hand. First it was Mr. Bernanke saving the banks because he believed the credit crisis started with the banking sector. The great monetarist gaffe ensued. Tim Geithner piled on with the PPIP. FASB jumped on board the bank rescue plan by altering the accounting rules. And then the icing on the cake was the Recovery Act, which, in my opinion, just shoveled money into the hole that had become the output gap, without actually trying to target the real cause of the crisis – those burdened by the debt. In essence, the various bailouts primarily targeted everyone except the people who really needed it.

A year ago I posted a story citing the many reasons why we were sinking into the deflationary Japanese trap. The primary flaw with the US response to the crisis was that we never actually confronted the problem at hand. I have often cited Japanese economists such as Richard Koo who appear to have a good grasp on the problems in Japan and now in the USA. In this case, I cited Keiichiro Kobayashi who is now looking most prescient:

We continue to ignore our past and the warnings from those who have dealt with similar financial crises. Keiichiro Kobayashi, Senior Fellow at the Research Institute of Economy, Trade and Industry is the latest economist with an in-depth understanding of Japan, who says the U.S. and U.K. are making all the same mistakes:

“Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.”…

Read that last paragraph again. These are scarily accurate comments. While the USA claims to have many economists who understand the Japan disease and/or the Great Depression the policy actions we’ve undertaken do not appear to be in line with any understanding of this history.

What we’ve done over the last few years is repeat the mistakes of Japan’s past. Instead of confronting the debt problems head on we have simply tried to fill the output gap with short-term spending plans and impotent monetary policies. As Kobayashi presciently said, the “bad debt is the root of the crisis”. I think most mainstream economists, the administration and the Fed have continually misdiagnosed our problems. They have attempted to save the banking sector and simply fill in holes with spending plans that prop up markets, entice more borrowing and largely ignore the actual cause of the current crisis. Some economists have argued that the Recovery Act didn’t fail, but that it was too small. This is like saying that the cancer patient didn’t receive enough percocet. More percocet isn’t the cure. Targeting the cancer and trying to cut it out is the cure. Yet, we continue to ignore the lessons of Japan despite having so many “experts” on the Japanese disease. Therefore, we appear destined to repeat their horrid economic history assuming our current path isn’t miraculously altered.’

WHO ELSE IS CLUELESS IN THE FINANCIAL SECTOR? [ As I’ve previously said and reiterate here, the lunatic frauds on wall street are criminally insane and the only way to stop / deter their debilitating churn and earn among other computerized frauds is prosecution, jail, fines, and disgorgement! Once again they’re back to their huge fraudulent gains as seen this reporting period despite growing problem bank list, worthless paper from the prior fraud in the (hundreds of) trillions now marked to anything, and look at August results and worse to come; that money for their commissions / premiums must come from someplace, viz., the bubble which will deflate / crash. ] Graham Summers ‘Here’s a zinger of a news story:

Barclays Plc had no idea how big Lehman Brothers Holdings Inc.’s futures-and-options trading business was when it considered taking over the defunct bank’s derivatives trades at exchanges in 2008, a Barclays executive said.“Lehman’s books were in such a mess that I don’t think they knew where they were,” Elizabeth James, a director of Barclays’s futures business, testified today in U.S. Bankruptcy Court in Manhattan. James worked on Barclays’s purchase of Lehman’s brokerage during the 2008 financial crisis.-- Bloomberg

I’ve railed for months that the central issue surrounding the Financial Crisis (derivatives) was not only misunderstood but completely ignored by the mainstream financial media. Here we are, nearly two years after Lehman Brothers went bust, and they’re telling us that Lehman had “no idea” what its options and futures exposure was.

Let’s put this into perspective.

The notional value of the derivatives market at the time that Lehman went bust was somewhere between $600 trillion and $1 Quadrillion (1,000 trillions). It was a market of inter-linked paper contracts entangling virtually every financial institution (including some non-financials), country (Greece, Italy used derivatives to get into the European union), and county (Birmingham Alabama is one example) in the world. As a market it was at least 20 times larger than the world stock market and somewhere north of 10 times World GDP.

In other words, this was the giant white elephant in the living room.

And here’s Lehman brothers, one of Wall Streets’ finest, most respected financial institutions which had been in business for over 150 years announcing that it had “no idea” “if it had sold $2 billion more options than it had bought, or whether it owned $4 billion more than it had sold.”

In today’s world of trillion dollar bailouts, $2-4 billion doesn’t sound like much, so let’s give some perspective here… in its golden days, Lehman Brother’s market cap was roughly $47 billion. So you’re talking about bets equal to an amount between five and 10% of its market cap. Not exactly chump change.

And Lehman had no idea where it was or how much it really owed.

Mind you, we’re only addressing Lehman’s options and futures derivatives, we’re completely ignoring its mortgage backed securities, collateralized debt obligations (CDOs), and other Level 3 assets. Options and futures are literally the “tip of the iceberg,” the most visible portion of the behemoth that was Lehman’s off balance sheet derivative issues. After all, these are regulated securities, unlike most derivatives.

Now, if the above statement doesn’t send shivers down your spine, have a look at the notional value of derivatives exposure at the top five financial institutions in the US (mind you, this chart is denominated in TRILLIONS). [chart]

If Lehman had “no idea” what it owned even when it came to options and futures (regulated derivatives), what are the odds that these other firms, whose derivative exposure is tens if not hundreds of times larger than that of Lehman’s, might similarly be “in the dark’ regarding their risk?

Moreover, who on earth might be on the opposite end of these deals? Other US counties like Birmingham Alabama (which JP Morgan transformed into 3rd world country status)? Other countries like Italy or Greece (who used Goldman’s financial engineering to get into the European Union)? My next-door neighbor’s house? Tim Geithner’s long-lost tax returns? WHO KNOWS?

The point is that the very same issues that nearly took the financial world under in 2008 still exist today. In fact, this time around the systemic risk is even more severe.

Consider that the Credit Default Swap (CDS) market which nearly took the financial system down in 2008 was roughly $50-60 trillion in size. In contrast, the interest rate based derivative market is in the ballpark of $500+ trillion.

Indeed, US commercial banks alone have $182 TRILLION in notional value of interest rate based derivatives outstanding right now. To put that ridiculous number in perspective it’s 13 times US GDP and roughly three times WORLD GDP…’