McHugh's Expanded Weekend Market Report, October 16, 2010

From McHugh


Friday's internals were weak, in spite of being a mixed market. The NASDAQ 100 had a huge price move up, but a significant chunk of the price gain came from one stock, Google. Google rose $60.52 per share, or 11.10 percent, in one day, Friday. Google is one of those stocks that a market manipulator can buy to move an index in the hopes it starts bandwagon buying. During the 2003 and 2006 rallies, we saw MMM move the Industrials with bizarre isolated rising price days. At the time, it appeared to us a market manipulator was moving the Industrials higher with 3M purchases. From time to time we see concerted efforts to push markets higher. Now is one of those times. But each time this happens, it causes the subsequent decline to be worse than would otherwise have been the case, like stretching a rubber band too far. The snapback is nasty. Deep pockets can only delay the inevitable. They cannot stop it. Quantitative Easing talk is raising expectations for liquidity infusions that people think will seep into stock markets. Hedge funds are buying stocks ahead of the actual Quantitative Easing from the Fed. QE2 is simply a fancy name for the Federal Reserve printing U.S. Dollars and buying fixed income securities from large Wall Street firms, buying junk bonds, corporate bonds, mortgage backed securities or Treasuries. It is essentially a fraud on U.S. Dollar holders, is a fraud on the taxpaying U.S. Consumer and Small Business, a fraud on the working person who has to get his money through hard labor. We will discuss this further later, and why this policy will destroy what is left of this fragile economy, and will eventually help drive stock market values down toward zero, and drive the U.S. Dollar down toward 40ish. QE2 is wonderful for large Wall Street firms' short-term profits. They love it. Imagine having a business where the Federal Reserve is interested in helping you make as much money as possible at the expense of everyone else? That is QE2.

We learned Friday that the U.S. Federal Deficit for the Fiscal Year Ending September 30th, 2010, was $1.3 trillion. With a total Federal Budget of $3.5 trillion, this means that for every dollar spent by the Federal Government, they had to borrow 37 cents to cover that expense. Can you imagine running your household or small business like that? You would go bankrupt in short order.

Quantitative Easing will some day be looked back upon as we now look at healing the sick through bleeding back in the 1700s. It is terrible economic policy, in fact should be considered criminal activity. Criminal for many reasons, such as debasing the value of the Dollar, but more importantly because it will be the final nail that destroys our economy. Wall Street is the key beneficiary. Households (consumers) which account for 70 percent of GDP, and small businesses, which account for 70 percent of employment, will not benefit from this fraudulent activity by the Federal Reserve. Where on earth is it right for someone to print trillions of Dollars out of thin air and then buy legitimate legally binding debt instruments in exchange for this printed paper? Anyone else doing this would be arrested and thrown in jail, with the key tossed into the deep blue sea.

But forgetting that this is probably a criminal act, and assuming that it is legally acceptable because the Central Planners enact legislation to permit QE2, let's explore why it is a fraud on pretty much everyone except the sellers of the fixed income securities the Fed will be buying, primarily mega Wall Street firms, surrogates for the president's Working Group (the Plunge Protection Team).

Bernanke suggested in his speech in Boston Friday on the subject of QE2, that he is justified in doing this to raise the inflation rate, which he believes is too low, and to increase employment. His economics are dead wrong. He believes it is perfectly appropriate to print trillions of dollars of U.S. Federal Reserve notes (Dollars) out of thin air, and then send this money from the Fed's print shop across the invisible wall that separates the real economy from the non-economy (the Fed) to the lucky recipients of this cash. Here is the problem: This transfer of printed cash for securities in the market are normally known as open market operations, and the point of this exercise is to lower interest rates in the market to spur lending and filter cash through Wall Street intermediaries to banks to borrowers which would stimulate the economy and multiply the money supply in the market. However, short-term interest rates are already zero, and long-term interest rates are at historic lows. So QE2 will not reduce interest rates. Therefore it will not increase borrowing. Therefore it will not multiply the money supply or spur spending, ergo it will not improve GDP, will not help households or small businesses. The cash will simply move from the Fed to Wall Street where the mega banks can then leverage their investing and trading activities which will improve their short-term profits. There will be no trickle down benefits to households or small businesses. Without benefits to households or small businesses, there will be no improvement in spending (GDP) or employment.

What will result from QE2 is the devaluation of the U.S. Dollar as there will be too many Dollars floating around, in relation to hard assets such as precious metals, and foreign currencies. This reduces the purchasing power of Dollars, and reduces the value of cash in bank accounts. In other words, the consumer gets hurt.

The only way QE2 makes any sense at all is if it is conducted in such a way that the cash being printed by the Fed finds its way directly into the hands of households and small businesses, instead of Wall Street. The only way for this to happen is if newly issued debt from the U.S. Treasury is sold to the Fed for newly printed Dollars, and then the trillions of QE2 Dollars sent to the Treasury from the Fed are sent directly to U.S. Households in the form of a massive income tax rebate, and tax cut, with a minimum amount of $50,000 rebated to every household, since many good folks did not have jobs over the past few years to receive rebated taxes. Then half the income tax rebates, which would be ideally two years worth, would be required to pay down debt, with the other half available to be used at households' discretion. The result would be an immediate improvement in household and bank balance sheets, and an increase in comsumer spending (GDP). This would increase small business revenue, which would increase hiring, which would result in an increase in demand for large firms' products and services, which would mean more investment banking business for Wall Street. The economy would grow, increasing the overall pie for all to share and prosper, with a resultant corresponding desirable modest level of inflation. Local, State and Federal governments would benefit immensely as they get an increase in tax revenues from the trickle up economic growth, capturing taxes at every level of spending, which can be used to reduce government deficits and debt. Stock Markets would rise as corporate revenues and profits rise.

If the intent of QE2 fails to include the household, it should not be allowed to happen. Congress must put a stop to QE2 immediately, and require a full explanation of the intended program before Bernanke destroys our economy. There should be an open debate in Congress on the merits of QE2, with testimony from all interested parties, in front of television cameras, for the American public to study before QE2 is effectuated. This is not something the Fed should conduct in secret. This is new turf, new territory for the Fed, and warrants careful scrutiny. The Justice Department needs to study if in fact the Fed is legally empowered to conduct QE2. This is serious stuff, an intentional devaluation of the U.S. Dollar, and thus needs to be treated as such. Intelligent, thoughtful contemplation is essential in an open public forum. Households and small businesses need to be able to weigh in by calling their congressional representatives before QE2 happens. QE2 should require an act of Congress. The Fed should not be allowed to do this on their own.

Unfortunately, the language of the markets, price patterns and indicators, have been warning for months that the U.S. Dollar is headed to 40ish (it knew QE2 was coming), and is telling us the stock market will react very badly once QE2 starts.

It does not look like there is any stopping QE2. The Central Planners are convinced that the more they do, the more control they take, the more they couch their activities with terminology that makes it impossible for the average Joe and Mary to understand what they are doing, the more they involve mega Wall Street firms in their fixes, the better. It is becoming very difficult to know if the Central Planners are simply misguided in their policies, that their intentions are good, that they really care about households and small businesses and the economy, or is this all an intentional game to benefit only the few large and powerful Wall Street banks, to build an oligarchy of Centralized power by design. That is for those who can figure out the schemes to decide for themselves.

The market's language, technical analysis, suggests that regardless of intention, mistakes will be conducted, and the worst will occur.

This weekend we see that the Bearish Divergences between stock prices and the 10 day average of Advancers/Decliners are worsening, extending, which is a leading indicator warning that a nasty stock market decline, albeit delayed, is coming.
We got a new Sell Signal in the VIX on Wednesday, as the VIX closed back inside its upper and lower Bollinger Bands Wednesday, and remains in effect this weekend. Sell Signals in the VIX have been very reliable and led to sharp declines over the past three years, however we did not get a sharp decline after September 7th, 2010's VIX Sell. For two consecutive VIX Sell Signals to fail in a row would be extremely rare, so the odds are that today's Sell Signal will lead to a sharp decline, starting sometime over the next week. Sometimes VIX Sell Signals come early. We show charts of these Sell Signals over the past three years and the subsequent declines on pages 10 through 13 in this weekend's newsletter to subscribers.

Both Gold and the HUI Mining Stocks Index hit new All-time Record Highs Thursday, October 14th, 2010, great for our Conservative Portfolio.
technicalindicatorindex.com


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Obama's BP Oil Spill speech

Full text of President Obama's BP Oil Spill speech - Yahoo! Finance

Some home truths on oil for a president showing the strain

From the UK's Financial Times.....a view on how Omaba is handling the Gulf oil situation

InfoViewer: Some home truths on oil for a president showing the strain

President Obama boldly told Americans: "We are out of money."

Well...maybe the President is beginning to recognize the problem. Now the search for workable solutions. I do not think printing money really works.

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From the Drudge Report
'WE'RE OUT OF MONEY'
Sat May 23 2009 10:32:18 ET

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."

An Alarming Trend

Be afraid. Be very, very afraid.

That appears to be the Obama Administration’s latest tactic to achieve greater government control over liberty, the economy, and mankind’s ability to tread water. And again, it’s with phony science. Anxieties were raised last week to the highest levels yet about islands sinking into the sea, the elimination of entire nations, and even the reduction of coastlines to certain U.S. states if, of course, carbon emissions are not immediately reduced.

According to Energy Secretary Steven Chu, the earth's temperature is rising so fast that a “very, very scary” scenario will unfold. Island nations, especially those in the Caribbean, may disappear. Portions of Louisiana and Florida will go underwater, reducing the size of those states. New Orleans will be flooded. Said the Secretary, “I think the Caribbean countries face rising oceans and they face increase in the severity of hurricanes. This is something that is very, very scary to all of us. The island states in the world represent—I remember this number—one-half of 1 percent of the carbon emissions in the world. And they will—some of them will disappear.”

Fortunately for the American people, the fragile economy, and beachgoers everywhere, Mr. Chu’s alarming prediction is based upon a faulty hypothesis: Melting ice caps would cause sea levels to rise. They would not. This is scientifically falsifiable claim. It is, in fact, provably false.

As a matter of fact, ice displaces more water than does its liquid counterpart. According to Chemistry.About.com, “Ice floats because it is about 9% less dense than liquid water. In other words, ice takes up about 9% more space than water…” Therefore, ice—which expands when it freezes—takes up less space when it melts, and could not result in sea levels rising.

One could even prove it. If Mr. Chu’s hypothesis is correct, then one should be able to fill up a glass of water, add some ice, place it in the sun, and then watch as the glass overflows. But it does not. In fact, the volume decreases. Therefore, Mr. Chu’s claim is falsified by a simple experiment. He would not even pass a 7th grade earth science exam.

The only way for the sea levels to rise is if enough water melted off of land masses. To make matters worse for the Hot Earthers, some 97.5 percent of the water is already in the seas and oceans. And for the remaining 2.5 percent to find its way to the oceans is actually impossible, since much of that will always be water vapor trapped in the atmosphere. Also, topography plays a role: Given the presence of lakes, it is clear that not all water has an outlet to the sea. Another obstacle is plate tectonics: How far will mountain ranges be raised by rising plates, thus trapping more water in the form of snow and ice on mountain peaks?

These are all factors that make sea levels rising at an alarming pace impossible. There is no cause for governmental policies to turn back the tides. King Canute could not do it, and neither can Uncle Sam.

More on this from GetLiberty.Org

Omaba's economic plan...that should work!

The Taxpayer...

A Rookie President

We can lose some very big games with this rookie. National Review

The Ghost of Soviet Past

Where are we going? Is this what we really want?

A spectre is haunting America—the specter of unbridled Big Government command-style economics. The ghost of Soviet past is paying America a little visit. And its chilling effects are getting worse by the day.

A New Order Rises: President Fires GM Agency Head

The GM and Chrysler took the bait, I mean the bail out. They are now told what to do. These companies have been taken over. GM and Chrysler are no longer independent companies, these are now de facto agencies of the federal government.

Ford has rejected the bail out funds. Guess what, that company is gaining market share.

Who wants to buy a car made by the government?

Team Obama fired GM CEO Rick Wagoner Sunday afternoon - A ‘Truly Breathtaking’ Departure

Foreign Relations - Syria

Syrian Reactions to Initial Contacts with Obama Administration: The U.S. has Capitulated to Syria and Iran; The Resistance, has Changed the World - not Omaba

Stocks Drop Most in 3 Weeks as U.S. Warns on Banks, Carmakers

It continues.... World Markets fall again

March 30 (Bloomberg) -- U.S stocks slumped the most in three weeks as the Obama administration warned that some banks will need more government aid and that General Motors Corp. and Chrysler LLC have one last chance to restructure. The Standard & Poor’s 500 Index fell 3.5 percent to 787.53 and the Dow Jones Industrial Average tumbled 254.16 points, or 3.3 percent, to 7,522.02.

UK PM...The devalued Prime Minister of a devalued Government

I caught this clip last week by Daniel Hannam, MEP. It was good. Thousands have seen it. The same will be said of the Omaba.

Wall Street or Washington - Who is to Blame?

Debate of the week was who is to blame for the economic mess. Wall Street or Washington?

Good debate....and results of this debate ended up that it is Washington.

However, I am not sure the right question was asked, it was limited. And if it is Washington, then really is not the people who voted for Washington?

Washington is created, by the people, for the people. If people believe policitians' promises of something for nothing, then is not the real fault the people. There is no free lunch, there is no cost free promises. The more promises, the more it costs, and not only directly, but indirectly as well as the government processes, policies and spending disorts the economy, until economy starts to collaspe and fail. That is what we are seeing now in the US. This is not new stuff, we have seen through out history the results of government led and directed economies. They always end up the same....in failure and collaspe.

There needs to be a fundamental change with all of us and our expectations. The economy only grows based on production and savings. Debt led growth and expansion will not provide substainable economic growth. It just can't. The compounding affect of interest assures that it can not.

Financial Crisis Debate March 2009

Rolling Stones on the Economy, Wall Street and Washington

Rolling Stone magazine has an article on the economy, Wall Street and Washington. Think that maybe the people are beginning to understand that nothing has really changed, that the government is continuing with its mismanagement of the economy and markets, but now doing more of it, bigger and faster.

It is amusingly wild-eyed stuff from on AIG, the Fed, etc. it is enthusiastically written, even if somewhat hyperbolic in its claims. For example, just because the writer hasn't seen the hodge-podge -- Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, etc. -- of Fed credit programs on billboards doesn't make them "secretive".

Anyway, it's worth a read:

It's over — we're officially, royally f__k_d. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit.....

Obama's Fear-mongering - Obama's Rule No. 1

"Rule 1: Never allow a crisis to go to waste," reports White House Chief of Staff Rahm Emanuel to WSJ. Over the weekend, Secretary of State Hillary Rodham Clinton told an audience at the European Parliament, 'Never waste a good crisis.' Then President Obama explained in his Saturday radio and Internet address that there is 'great opportunity in the midst of' the 'great crisis' befalling America. Numerous commentators, have pointed to this never-waste-a-crisis mantra as ideological evidence that Obama's budget priorities are a great bait-and-switch. He says he wants to fix the financial crisis, but he's focusing on selling his long-standing liberal agenda even though his proposals have absolutely nothing to do with addressing the housing and toxic-debt problems. Indeed, some -- particularly on Wall Street -- would argue that his policies are making the crisis worse. But those policies aren't the real scandal, the real scandal is that this administration thinks crises are opportunities for governmental power-grabs." --National Review editor Jonah Goldberg

More needed?

Earlier this week, WSJ report that said the ink is barely dry on the $787 billion economic stimulus package enacted by Congress, and talk is already beginning by the Capital Hill ruling party that there is needed! (And just how does pork and debt spending add economic growth, stronger economy? If little is good then lots more must be better! Hey, has anyone take basic economics out there?)

In another WSJ article it was mentioned that while AIG received a taxpayer bailout of more than $170 billion dollars it did not forget its executives and their $165 million in bonuses for doing such a great job. The US taxpayers must feel all warm and fuzzy about being able to help out the friends of Treasury Secretary Geithner, Omaba, B Frank and Nancy Pelosi.

Keep it up guys! You're doing a great job!

Quotes...

You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat" --investor and Obama supporter Warren Buffett

We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." --American hunter, frontiersman, soldier and politician Davy Crockett (1786-1836)

US Banks - Insolvent

“All the major [US] banks are basically insolvent at this point. Until that changes and until credit gets flowing again, it’s hard to see how we have any real recovery.” – David P. Prokupek, chief executive of the Denver portfolio manager Geronimo Partners in Bloomberg article Thursday.

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It could be years before recovery starts. It has been years for the excessive credit spending. The solution to the problem is not more credit spending that the government is promoting. This problem will not be solved overnight. It will take time. The question is how do we want to correct the problem that has been created; and the blame can be laid at Bush...he deserves it; he started it. However, I fear that Omaba is following Bush but in much bigger way, and that is not real change! Just more of the same...only faster!

Obama's budget may be one of the great wealth destroyers of all time

CNBC financial analyst Jim Cramer believes Obama's budget may be one of the great wealth destroyers of all time.

When Obama Press Secretary Robert Gibbs openly criticized Cramer for publicly blasting Obama's voodoo economics, Cramer had to respond:

Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope. He's done it by pushing a huge amount of change at a very perilous moment, by seeking to demonize the entire banking system and by raising taxes for those making more than $250,000 at the exact time when we need them to spend and build new businesses, and by revoking deductions for funds to charity that help eliminate the excess supply of homes.

We had a banking crisis coming into this regime, but now every area is in crisis. Each day is worse than the previous one for this miserable economy and while Obama's champions cite the stimulus plan, it's really just a hodgepodge of old Democratic pork and will not create nearly as many manufacturing or service jobs as we hoped. China's stimulus plan is the model; ours is the parody.

Sure there's going to be some mortgage relief, but the way to approach that problem is to eliminate the overhang, which a $15,000 tax credit for existing home sales could have dented if not consumed. I have offered a comprehensive plan of 4% refinanced mortgages for all by the government, not just those many considered deadbeats, to eliminate moral hazard. I have come up with a novel plan to cut the principal and spare the banks regulatory problems by offering them a certificate of equity, making them whole over time when the house appreciates in value, which will happen if demand is stoked and supply is shrunk. ...