This week’s bone-rattlers may be making you wonder” and says: “way too many people are way too complacent this summer. Here are 10 reasons to watch out.” And without further ado…

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?
2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.
3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that’s reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.
4. Deflation is already here. Consumer prices have fallen for three months in a row. And, most ominously, it’s affecting wages too. The Bureau of Labor Statistics reports that, last quarter, workers earned 0.7% less in real terms per hour than they did a year ago. No wonder the Fed is worried. In deflation, wages, company revenues, and the value of your home and your investments may shrink in dollar terms. But your debts stay the same size. That makes deflation a vicious trap, especially if people owe way too much money.
5. People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It’s the debt, stupid. According to the Federal Reserve, total U.S. debt—even excluding the financial sector—is basically twice what it was 10 years ago: $35 trillion compared to $18 trillion. Households have barely made a dent in their debt burden; it’s fallen a mere 3% from last year’s all-time peak, leaving it twice the level of a decade ago.
6. The jobs picture is much worse than they’re telling you. Forget the “official” unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That’s the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it’s 66.9%. Back in the ’50s, incidentally, that figure was around 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job. This is bullish? (Today’s bonus question: If a laid-off contractor with two kids, a mortgage and a car loan is working three night shifts a week at his local gas station, how many iPads can he buy for Christmas?)
7. Housing remains a disaster. Foreclosures rose again last month. Banks took over another 93,000 homes in July, says foreclosure specialist RealtyTrac. That’s a rise of 9% from June and just shy of May’s record. We’re heading for 1 million foreclosures this year, RealtyTrac says. And naturally the ripple effects hurt all those homeowners not in foreclosure, by driving down prices. See deflation (No. 4) above.
8. Labor Day is approaching. Ouch. It always seems to be in September-October when the wheels come off Wall Street. Think 2008. Think 1987. Think 1929. Statistically, there actually is a “September effect.” The market, on average, has done worse in that month than any other. No one really knows why. Some have even blamed the psychological effect of shortening days. But it becomes self-reinforcing: People fear it, so they sell.
9. We’re looking at gridlock in Washington. Election season has already begun. And the Democrats are expected to lose seats in both houses in November. (Betting at InTrade, a bookmaker in Dublin, Ireland, gives the GOP a 62% chance of taking control of the House.) As our political dialogue seems to have collapsed beyond all possible hope of repair, let’s not hope for any “bipartisan” agreements on anything of substance. Do you think this is a good thing? As Davis Rosenberg at investment firm Gluskin Sheff pointed out this week, gridlock is only a good thing for investors “when nothing needs fixing.” Today, he notes, we need strong leadership. Not gonna happen.
10. All sorts of other indicators are flashing amber. The Institute for Supply Management’s manufacturing index, while still positive, weakened again in July. So did ISM’s new-orders indicator. The trade deficit has widened, and second-quarter GDP growth was much lower than first thought. ECRI’s Weekly Leading Index has been flashing warning lights for weeks. Europe’s industrial production in June turned out considerably worse than expected. Even China’s steamroller economy is slowing down. Tech bellwether Cisco Systems has signaled caution ahead. Individually, each of these might mean little. Collectively, they make me wonder. In this environment, I might be happy to buy shares if they were cheap. But not so much if they’re expensive. See No. 1 above.

Also, watch the following interview with a well respected market strategist, Rosenberg.

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Long before Before Jim Cramer became a TV icon, he used to participate on Silicon Investor bulletin board. Circa 1998-2000 I had a few nasty exchanges with him. I once told him (paraphrasing), “Jim, when history is written about the Go-Go 90s,  you will go down in the books a icon of the cheer leading culture that led millions of investors to losing their life savings. And, you can quote me on that.”

He shot back at me and said, “What’s the matter Mohan? If you feel so down, go kick your dog or something.” That was the last exchange I had with him. He later became an even more hyper nut and caused a lot of damage to a lot of portfolios. Off late, this bozo lost almost all the credibility – especially after Jon Stewart obliterated Jim’s hyperbole on the Daily Show in March of 2009. But for the couple of newbies out there, my warning is: caveat emptor.

Yesterday Jim said, “The Fed said good things. Buy.” If that wasn’t your sell signal, what is? The market is down 262 points – how do you feel, now, punk?

Listen to the disclaimer at the end of the video! UFB. Why CNBC is even keep putting this nutcase on air?

Related posts:

1. Stock Market Outlook
2. CNBC’s Fortnight of Hell (March 2009)
3. Is a regulation-free market practical ? A discussion

With current financial turmoil entering its fourth year, it is time to reflect on things that got us here. Today Ben’s bandits at the Fed announced that they will buy US debt (“in small quantities”, yeah – right!) to stimulate the weakening economy. Call this quantitative easing 2 or plain old printing, it only means one thing if you are a saver and/or retiree who did not want to be a part of this ‘spend-it-today-and-mortgage-your-tomorrow’ economy: you are an idiot. In other words, the Federal Reserve Board has once again told the savers: screw you!

What Greenspan’s reign of free money meant to this economy is that for every economic malaise, the solution is lower interest rates. This Ayn Rand’s disciple who believed in unfettered free markets as an economic utopia has himself meddled with financial markets. He has ignored, or even encouraged fraud in the form of bailouts.

Lest we forget that Greenspan was appointed by none other than the Conservative God, President Reagan. Reagan felt that Volker’s tight money policies and his tendency to regulate fraud would hamper economic growth. In Greenspan, Reagan saw a ‘free market’ champion. These are the foundations of an unprecedented cycles of boom-and-bust for over 25 years. Every boom in this period was a bit bigger than the previous one and every bust is much more painful than the previous bust.

One of the most despicable outcomes of Reaganomics is the obliteration of the so called middle class in this country. Stephen Colbert has a perfect illustration of  Regan’s trickle down economics, which the right in this country came to take for Gospel Truth.

The assault on investor trust started with the bailout of S&L by Bush Sr., which is then followed on a larger scale by Clinton-Rubin’s bailout of Mexico in 1994. That followed even bigger bailout of LTCM in 1998. Despite these huge warning shots, Summers and Senator Grahm championed the dismantling of Glass-Steagall act in 1999. That opened the gates for Foxes to guard the hen houses. That is, since 1999 Wall Street got even more creative in fleecing the main street and we all know what happened when they ran out of suckers.

I have been investing in this country for nearly 20 years. In the last 18 months, I have nearly cut-down my participation in the market to near zero. I have never been so skeptical about the financial markets, the Wall Street interests, the Feds, and the US Treasury than I am now. This whole game is a giant fraud. I have a feeling that I am not alone with this mistrust in the system. Zero Hedge weighs in (Main Street’s Boycott Of Capital Markets Succeeding):

For the longest time it was consensus thought that only Wall Street could f**k Main Street. The ride is now turning. After what the FT reports was a 16% decline in fixed income, currencies and commodities trading revenues for Q2, coupled with advisory revenues down 17%, the bank is now “planning to cut up to several hundred employees following a sharp fall in market activity in the second quarter. Sources close to the bank say that the job losses, which could be announced as early as Wednesday, will be spread across BarCap’s sales and trading staff as well as its back office support functions.” Too bad the SEC has not, and will not realize that its only function is to restore the faith of the retail investors in the credibility of the capital markets. Yes, the same retail investor who both on margin and in total has always been the primary driver of stocks. Alas that has not happened and tens of thousands of Wall Streets will soon feel the wrath of Main Street as the boycott of stocks by the broader population comes to fruition, allowing the former “strategists” to experience just how real the difference between the U-3 and U-6 rate is first hand.

I don’t wish anybody ill. But, when the best and brightest minds gravitate to making fast buck with computer trading and exotic derivatives which add absolutely no value to the economy or to the society, it is time to shake the imbalances to the core. It is time to say good bye to an economy where paper products are created and sold ad-infinitum and return to an economy where useful goods are made and sold.

I will feel safe to return to the market when I see tens of thousands more layoffs are announced at Wall Street firms.

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2. Market Manipulation: Exhibit 1 Stock Action on Feb 25, 2010
3. Bombay Sensex was up 81% in 2009

He echoes my sentiment, “European Stress Test is a total waste.” Zero Hedge has a better take on his latest appearance on CNBS Europe :

A “cheeky” Jim Rogers appeared earlier on CNBC Europe (which incidentally is orders of magnitude better than its US equivalent), and confirmed the depths to which the once relevant and informative TV station has now fallen. In a discussion over the European Stress BS, the topic turned to the role of PR agencies when it comes to shaping popular perceptions, at which point this slipped: “The whole purpose of PR is to make stocks go higher. That’s what CNBC and many many PR agencies are all about. Yes, they make things look better for a while. Are they really better? No.” Propaganda, in other words. And in the corporatist circle jerk world, advertisers still flock to it, even as the broader public reaches levels of skepticism never before seen courtesy precisely of such blatantly fraudulent media contraptions, and vacates the GE soon to be spin off in unprecedented quantities. The American public may be lazy, but it sure is getting more intelligent, and wiser to the tricks of the media propaganda trade.

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1. Greece: A View from Inside (News Reel)
2. CNBC’s Fortnight of Hell (March 2009)
3. Jim Cramer at it Again: Yesterday, He Said “Buy”, and the Market Down 260 today

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Guts, or kahunas as some would call it, look like this:

In this video, Dylan raises temperature on the congressman who does nothing but divert the topic to criticize the Govt and spew Republican talking points.

Talking point #1: Indict the Federal Government

Talking point #2: Divert the topic to all Republican talking points

And the ending is just fantastic….

“>> You’re just doing weird republican talking points. I’m done with you. I wish you luck.

>> I’m really here to talk about jobs.

>> I don’t think you are. but you are doing a good job of spouting republican — I’m sure somebody in the republican party will give you a pat on the back. Congratulations and thank you for nothing..”

Don’t under any illusion that I am a Democrat. For years I have been very critical of Clinton’s handling of the economy. In fact, Dylan exactly reflects how I feel about the mess both parties have created.

Watch the whole clip…

Visit msnbc.com for breaking news, world news, and news about the economy

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3. Go-Go-90s: Introduction (1 of 3)

When Congressman Alan Grayson asked this question, Bernanke said in a written statement, “No!”

But a lot of market participants believe that the government does in fact intervene in markets in many overt and covert ways, one of which is to buy S&P futures. CNBS guys debunk this. [This via Zero Hedge]

A highly amusing exchange occurred earlier on CNBC when guest Damon Vickers of Nine Points Capital had an unexpected moment of truthiness and turned some heads when he said that “unless the plunge protection team comes in over the next couple of days, the markets are looking very dicey here.” When a disgusted Joe Kernan asks if Vickers was making a joke about the PPT, the response is “absolutely not – it’s common knowledge that the government steps in and does things to step on the gas and buy stock here and there.” To which Byron Wien has a strong retort: “I don’t believe it.” All that and much more in the clip below. In the meantime, the market is sure having a field day with stocks as once again bad news are discarded and the smallest glimmer of positivity serves as a springboard for yet another ramping short covering spree.

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You may recall one of my earlier posts in which I featured a Frontline documentary on Brooksley Born. Well, this visionary and caring woman got to take on the chief criminal himself. From Huffington Post:

The panel created to investigate the roots of the financial crisis escalated the government’s assault on Goldman Sachs on Thursday, criticizing the Wall Street firm for failing to turn over basic documents and accusing it nearly lying under oath.

For a second consecutive day, the bipartisan Financial Crisis Inquiry Commission reiterated its request for additional data from Goldman, namely figures regarding the firm’s derivatives activities. And for a second consecutive day, Goldman’s top executives demurred.

“We generally do not have a derivatives business,” David Viniar, Goldman’s chief financial officer, told the panel Thursday under oath.

Goldman Sachs holds more than $49 trillion in notional derivatives contracts, making it the third-largest derivatives dealer among U.S. banks, according to first quarter figures from national bank regulator the Office of the Comptroller of the Currency. The commission has found that Goldman is a party to more than 1 million different derivatives contracts, Commissioner Brooksley Born disclosed Thursday.

“We don’t separate out derivatives and cash businesses,” Viniar clarified under questioning. The derivatives units are “integrated” into the firm’s cash businesses, making it difficult for the firm to isolate its derivatives data, he said.

In January, the panel asked Goldman chairman and chief executive Lloyd C. Blankfein for a breakdown of the firm’s revenues and profits from its derivatives activities. He said the firm would comply. The commission reiterated that request Wednesday and Thursday.

Viniar said the firm doesn’t “keep” records outlining its revenues from its derivatives dealing.

“I am very skeptical that you can’t measure these revenues and profits,” Born told Viniar. “I urge you to provide us with this information. It’s been about six months we’ve been asking for it… and it makes one wonder also why Goldman has the incentive or impetus not to reveal this information.

“You’re suggesting you don’t give it to your regulators. You don’t put it in your financial reports… so you don’t give it to the market… [or to your counterparties],” Born continued. “And you’re refusing to give it to us. I hope very much that we will see this very shortly.”

Viniar took exception to that last comment.

“Commissioner, again, we’re not refusing anything,” Goldman’s chief financial officer said. “We don’t have a separate derivatives business.”

Viniar then said that Goldman isn’t alone in not breaking out its derivatives-specific revenues and profits.

Born quickly shot back.

“They don’t,” Born, the nation’s former top derivatives regulator, conceded. “But some other firms have provided us with that data when we’ve asked for it, and Goldman Sachs hasn’t.”

Phil Angelides, the panel’s chairman, could barely contain his incredulousness.

“Are you telling me you have no system at your company that tracks revenues or assets of contracts, and liabilities and payments under contracts?” Angelides asked. “You have no management reports, no financial reports that track these contracts?”

“I’ve never seen one,” Viniar responded. Pressed further, Viniar added that the firm doesn’t track these things because it’s “not meaningful.”

Viniar again was asked to provide the data.

Later on, Byron Georgiou, another commissioner, reiterated the panel’s request for information pertaining to Goldman’s contracts with AIG. Goldman “aggressively” demanded increasing amounts of collateral from the insurer beginning in 2007 to cover what it perceived as the deteriorating value of those contracts’ underlying securities, Angelides said.

Goldman may have marked those securities at a lower value than what it marked comparable securities for its own clients. In other words, it may have undervalued securities from AIG in order to get more cash while overvaluing them when dealing with other counterparties in order to hold on to its own cash.

The panel has asked for that data. Goldman has not handed it over.

“When you tell us that you don’t know how much you make in your derivatives business, nobody here really believes it,” Georgiou said. “It’s crazy. It doesn’t make any sense. Goldman Sachs is, if not the most sophisticated investment bank, certainly one of the most sophisticated investment banks in the world — and nobody here believes you don’t know how much money you’re making on various aspects of your business. It doesn’t make any sense.”

Georgiou then asked for a specific breakdown of what Goldman paid AIG to insure specific securities, and what Goldman charged its own clients for the same protection. That insurance came in the form of credit default swaps, which are derivative contracts that act like insurance against default. Georgiou wants to know the premium, if any, Goldman received. It’s not the first time the panel has asked for this information.

Viniar said he’d provide the data.

Related posts:

1. Goldman: Don’t Blame Us
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3. Sex Scandal in the Middle of the Goldman Fraud Case?

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Bill weighed in today about markets. Watch and think.

“after having completely ignored the bursting of the dot com and the real estate bubbles, i think this a function of the fact that since Greenspan took over the Fed and serially bailed out bigger and bigger problems with more and more easy money, the market evolved into much more of a speculative casino, and a lot more momentum type traders began to operate and everything always resolved itself on the upside… We have had much more of a speculative market that seems not to discount problems.”

and this…

13 times is only cheap relative to the last decade and a half. In the 70s and 80s, the market was trading at 8x and dividends were double where they are. I don’t know how much of those S&P earnings are due to financials: all the financial earnings are pure nonsense, they are making it all up, we don’t know where assets are priced necessarily and they are bailed out on the back of the Fed putting rates at zero. So I don’t believe the earnings and I don’t know what the multiple’s going to be. It could easily trade at ten times.”

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Here is an excellent summary on GLD. Please be careful and read the fund’s prospectus, if you are invetsed in it. The emperor is naked.

“The Gold ETF is an excellent conduit to redirect physical demand into paper. The Gold ETF is similar to a fractional reserve bank. As long as customers don’t fear for their money, the bank can service the cash demands for a small percentage of its customers. A run on the bank develops when too many customers request their cash at once. A large ETF holder, fearing for the return of their gold, will demand delivery as stated in the prospectus at some point. If the fear spreads beyond a small group, a run on the ETF will occur. Unfortunately, unlike banks, there’s no such thing an ETF holiday, or Federal Deposit Insurance Corporation. The market price and revised investors expectations towards its holdings will be quickly discounted into the share price.”

http://edegrootinsights.blogspot.com/2010/06/gold-etf-swells-to-pass-50-billion.html

The risk of ETFs is higher.

http://ftalphaville.ft.com/blog/2009/10/08/76621/gold-etfs-caveat-emptor/

I would say even the bank vaults are not safe. Do you believe the banksters?

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Add to this, Japan is at new 52 week low. 2.5 to 4% losses in a day don’t come that often. Tomorrow is shaping up to be another big loser in Asia. So far this year, market is propped by computers buying and selling to each other. Few sane participants are still left in the market.

Simply stated – most critical technical levels in many indices are broken. Some technicians are calling for 865 on S&P 500. You are warned again….

This is not a surprise to many who study the fundamental forces at work. The formula that worked thus far with US economy was burdening the consumer with debt and securitizing that debt so that more debt can be taken by the consumer. Fraud Street Banksters are complicit in a Ponzi scheme of mammoth proportions. Now, chickens are coming home to roost. In other (Telugu) words….

“గోడ వీధి”లో  ప్రళయ తాండవం

నటరాజా శత సహస్ర రవి తేజా

నట గాయక వైతాళిక మునిజన భోజా

దీనావన భవ్య కళా  దివ్య పదాంభోజా

చెరిసగమై రస జగమై చెలగిన నీ చెలి ప్రాణం

బలి పశువై  యజ్ఞవాటి వెలిబూదిద  అయిన క్షణము

సతీ వియోగము సహియించక – దు

ర్మతియౌ దక్షుని మదమడంచగా

ఢమ, ఢమ, ఢమ, ఢమరుక ధ్వనుల

నమక చమక  యమ గమక భయంకర

సకల లోక జర్జరిత భయంకర

వికటనటస్పద విస్పులింగముల

విలయ తాండవము సలిపిన నీవే

శిలవే అయితే పగిలిపో-

శివుడే అయితే రగిలిపో-

విన్నాడా ఆ పరమ శివుడు?

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1. Could Wall Street be About to Crash Again?
2. One of Many Different Faces of Fraud (The “Healthy” Bank)
3. Understanding Fraud Through Analogies

This is my first posting. If you are really want to know what a “Dollar” is please see this
presentation.

Collapse of the Dollar: Testimony on MT Sound Money Bill (HB 639) from Constitutional Money on Vimeo.

Some brave folks who shine the light -

http://www.gata.org/

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The kneejerk reaction to the completely unsurprising FOMC statement was down… Which is why the corresponding 12 handle move up in the ES is perfectly understandable… as long as one understands that our market is totally broken. 12 handles in 1 minute as the market went offerless! Have fun with that. As we noted earlier, ignore the record low new home sales number: the algos will not let this market go until they melt it up to some level which Obama believes is sufficiently high to sneak at least 4 or 5 congressmen and senators in at the midterms. Good work computers – once again you have thrown out any marginal homo sapiens investors as anyone who doesn’t think in binary has now lost all faith in stocks for good.

If you haven’t already gotten out of this market – give a serious consideration to getting the hell out. This utterly crazy market with barely any human participation will get thermo-nuked one of these days. Gone will be the days of multi-million dollar bonuses by Fraud Street banksters for mediocre performance. Soup-lines for the Ivy League MBAs who destroyed the world’s financial infrastructure. I sure don’t hope so… For, no matter how much they deserve this outcome – it will make the rest of us suffer even more.

Look at the vertical ascent circa 11:45 AM today. You might think that there was some significant news at that time. There wasn’t any. In the 20 years since I have been engaged in stock market, I have never see this kind of bizarre action. If you still believe that the market is not manipulated, I have a bridge to sell to you.

Related posts:

1. Market Manipulation: Exhibit 1 Stock Action on Feb 25, 2010
2. Stock Market Outlook
3. Is a regulation-free market practical ? A discussion

The Cartoon Says it All

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