Tuesday, September 7, 2010

Morning Update/ Market Thread 9/7

Good Morning,

I hope everyone had a great holiday weekend… I think it’ll be the last one for a long while with the market above the heavily fortified and well defended 10,000 level on the DOW!

Equity futures are down despite massive lip flapping from our President. I swear that every time his lips move at least one billion dollars spills out. I remember listening to his campaign speeches well, a lot of rhetoric and I kept asking myself, “where is the money coming from?” And I’m still asking that, too bad he’s not. In the mean time, bonds are higher, the dollar is stronger, oil is down sharply, and gold is spiking higher.

Pay attention to the connection I drew… Obama flapping lips, no money to pay for it, oil down, gold higher. That’s it in a nutshell, a very dangerous combination.

Earlier this weekend Obama (and when I say Obama, I mean the mouthpiece for the central banks) announced a $50 billion stimulus program to rebuild our infrastructure according to the AP,

The goals of the infrastructure plan include: rebuilding 150,000 miles of roads; constructing and maintaining 4,000 miles of railways, enough to go coast-to-coast; shorter, high speed rail projects; and rehabilitating or reconstructing 150 miles of airport runways, while also installing a next generation air navigation system designed to reduce travel times and delays.
What a joke! $50 billion was the size of the New Deal, but in today’s dollars, it won’t even light a firecracker. America is in the hole at least $1.6 trillion just in infrastructure repair – that’s just to bring back up to standards what we’ve already built! $50 billion only gives Obama something to flap about – and it’s very limited size shouts volumes about the corner in which the Administration is backed into. Damned if they do, damned if they don’t – it’s a lesson in history that they have ignored but one that will haunt them. If any insider is reading this, the corner you’re in is created as a function of WHO controls the production of money.

Oh, and simply repairing our current infrastructure does NOTHING for the future as Obama says it does. None of that money will build the infrastructure of TOMORROW that will create jobs and make America a leader once again. Totally off the mark, not nearly enough. And in the meantime American citizens sink further underwater in their homes. They are trapped, prisoners in their own homes. They can’t sell them which means that they can’t move, and they can’t change jobs. America is stuck in central banker hell – a debt money prison. I can’t tell you how many people, many old friends and relatives, I have talked to in the past couple of weeks who are in this predicament. Very sad, they did not listen when I told them earlier and now they are trapped.

I took a drive through my old golf course community this weekend. I learned of several more foreclosures and bankruptcies. I saw several “$1.5 million +” homes that were built and now are standing derelicts… zombie homes with boarded up doors and windows and five foot tall grass and weeds for landscaping. Sad, but driving through I felt like I had “escaped from New York.” I own no real estate and while everyone I talk to is a prisoner, I am completely free and enjoying it while keeping one eye out for deals. "Beware the danger, but look for the opportunity."

The other part of O’s lip flapping (sound of loose money falling into a hole in the background) comes to the aid of businesses:

Obama to introduce another business tax cut

(CNN) -- In another move aimed at stabilizing the still-shaky economy, President Barack Obama on Wednesday will introduce a new $200 billion tax cut giving businesses across the country an incentive to buy new equipment in the short term, according to a senior administration official.

The tax cut would allow businesses to write off 100 percent of new investments in plants and equipment made between now and the end of 2011, according to the senior administration official.

The new tax cut will be in addition to a $100 billion permanent extension of the business tax credit for research and development, as well as $50 billion in new infrastructure spending included in a package that the president will officially unveil Wednesday during an economic speech in Cleveland, Ohio.

Again, woefully inadequate to quell the powerful forces of debt deflation. The ability to instantly write off investments is just another attempt to pull future demand into the here and now. Similar attempts have failed miserably and so will this. Businesses already write off so much that they effectively pay little tax, so the net effect of this may help some, but it will not bring our economy roaring back, I can guarantee you that. Again, what did it do to help debt saturated Americans? Is it really going to create jobs? Nothing meaningful.

If the Administration really wanted to help the economy, without exiting the debt backed money box in which we live, they must find a way to clear out the debt of the PEOPLE. This is because we are a consumer economy in which 70% of economic activity is driven by the consumer. That is a ratio that is probably not sustainable, and that may also be a part of the cleansing that needs to take place.

For those comparing now to the “recovery” of 2004, I ask you, “Where is the next bubble that makes the consumer more wealthy?”

You see, in 2004, we had shifted from a tech market bubble to a housing bubble. The “consumer” was getting more wealthy on paper as their home values shot up and they were able to leverage that into spending. Now we have a bubble in DEBT INSTRUMENTS, and we’re trying like mad to create a bubble in food and other commodities, but those bubbles are different in that they act as a TAX to the consumer, the opposite of the housing bubble. Let that sink in, it’s very important.

Just this morning, Japan and Australia issued warnings about the condition of the U.S. economy. But make no mistake, the condition of debt saturation that inflicts the U.S. also inflicts most of the globe:

U.S. Outlook Prompts Warnings by Japan, Australia

Sept. 7 (Bloomberg) -- Japan’s and Australia’s central banks signaled that the outlook for U.S. growth is deteriorating, making it tougher for them to set monetary policy.

The Reserve Bank of Australia extended a pause in raising interest rates “for the time being” today, even after the nation’s gross domestic product rose the most since 2007. The Bank of Japan said it’s prepared to add more monetary stimulus after last week’s emergency decision to expand a credit program that followed a tumble in the dollar against the yen.

Both banks singled out the U.S., with the RBA saying growth there looked “weaker” in the second half, and the BOJ citing “uncertainty about the future, especially for the U.S.” The statements highlight the threat of any return to recession for the world’s biggest economy, even for nations benefiting from surging demand in Asian emerging markets, led by China.

The entire globe is quickly headed deeper into the exponential math of debt backed money. This is systemic, the problem does not go away or get truly fixed until we change out the money changers of the world.

Oh, poor money changers:

Sept. 7 (Bloomberg) -- After two months bankers would like to forget, Wall Street may need a September to remember to avoid closing the books on the worst quarter for investment banking and trading revenue since the peak of the financial crisis.

For the number of shares traded on U.S. exchanges to match last year’s third quarter, average daily volume for the rest of the month would have to top that of any trading day in the last three years. Debt trading also needs to pick up, as corporate bond trading in July and August was down 8 percent from the same period in 2009, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Did you catch that? Share volume is so low that it would take an entire month of max volume days just to be even with last year’s third quarter! What does that say to you? It says to me that there are no more real players left, that the HFT machines are playing with themselves. Without the POMO operations by the FED, the fuel to hold the market up is gone. This market is SHOUTING its future direction, and Obama’s speeches are not going to change that future direction, not taking the path he is currently on.

There is no economic data released today and it’s very light all week.

Friday produced several signs of at least a temporary top. Let’s start with the VIX which closed below the lower daily Bollinger band… when it closes back inside the Bollinger’s, which is likely to happen today, that will trigger a very reliable and infrequent market sell indication. The last one of these occurred about a week and a half prior to the April top and we have been lower ever since. There can be a lag following one of these VIX sell signals, but I sincerely doubt the market progresses too much higher beyond Friday’s high:

The other sign of a top occurring Friday came when the SPY and DIA ETFs created topping hammer candlesticks. These look different than the SPX because of they way the candle is drawn on a gap up open, should prices close lower today, these hammers will be confirmed:

There were also hammers on BANK and somewhat on the XLF. In addition, IYR created a hung man above the upper Bollinger and is opening lower today.

The best guess for the Elliott Wave count is that we have probably just finished wave a of 2 of 3. That means that we should descend a little for wave b, and then rise again in wave c. Will wave c exceed Friday’s top? Possibly, but probably not by much if it does.

Note on the SPX that the 200 day moving average (red line) stopped the advance once again, as it has done seven of the last 9 up waves. The dashed green line is the down channel’s upper boundary from the April top, prices so far remain contained, and the daily fast stochastic is now overbought with the shorter time frames just beginning to diverge against rising prices:

Have you followed the Afghanistan bank run situation? The criminals are running on the banks… and that is prompting everyone to run on the banks as well. The U.S. first says they will help, then denies direct money help. What will happen is that the U.S. will flood the government with cash so that they can stem the run themselves, effectively YOU will be the bag holder once again as our elected officials can’t let a central banker or a true criminal face their just rewards. It won’t be too long before the bank in the background of this picture says CHASE. I’m looking forward to that actually, because at that time it will be close to real and meaningful change – once the cartel falls, then I will have real hope.

There is a Bradley model turn date at the end of this week that also corresponds to a McHugh Fibonacci turn date. It’s likely that we move down in wave b, and then back up again in wave c of 2. It is also possible that all of wave 2 has topped and that it is over. It is wave 3 of 3 that we are stalking, it will incite fear again when it comes as the hopes and dreams for a 2004 repeat wane. Oh, the gnashing of central banker teeth – poor, poor pitiful debt pushers…