The Chinese Have Stopped Laughing (Michael Pento)

Euro Pacific Capital
Friday, July 29, 2011

By: Michael Pento       

 

The economy continues to prove that it didn’t need a stalemate between democrats and republicans over whether or not we should expand our credit limit in order to poop the bed. Gross Domestic Product climbed a paltry 1.3% in the second quarter of this year following a severely downgraded Q1 print of just 0.4%. Growth in the first quarter was revised down from a 1.9% prior estimate. Also today, the Institute for Supply Management-Chicago Inc. said its business barometer fell to 58.8 in July, from 61.1 in the prior month. And the Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7 this month, which was the weakest since March 2009, from 71.5 in June.

 

Where are all those shills who assured us last year that 2011 would display a “V” shaped recovery in jobs and the economy? I know, I heard some of them today saying that the second half of this year is going to be great! Their reasoning was the same as it always is. Earnings are going to be wonderful because half of S&P 500 companies' earnings are in foreign currencies. Then, thanks to our crumbling currency, those foreign earnings translate into a ton of U.S. dollars—those dollars don’t buy you very much, but who cares as long as we are able to say we beat Wall St. expectations.

 

The poor, lonely Tea Party is vilified as being inhuman and behaving as insane children for not allowing the country to bankrupt itself as quickly as possible—even by members of their own party (read here what John McCain had to say for yourself). I guess the philosophy of McCain and his friends is that we should raise the debt ceiling to infinity and beyond and just pay our creditors back with more printed money. After all, the National Debt has grown from $400 billion in 1971 to $14.4 trillion today, so what’s a few more trillion between now and 2013? The dollar has lost 98% of its purchasing power in the last 40 years, so why not keep on defaulting on our debt through inflation and destroy the last few vestiges of the middle class. Sounds like a plan to me. It’s just business as usual. They urge us to keep up the spirit of cooperation and goodwill that has served to render this country insolvent.

 

The only problem is that the Chinese have stopped laughing at Geithner’s so called “strong dollar policy” and are now allowing the Renminbi to rise against the greenback (up nearly 6% in the last year). If we continue down this road much longer the only buyer of U.S. debt will be the Fed. That’s the real down grade to come. Not from the credit rating agencies, but from our foreign creditors. Once we have a failed Treasury auction, it will engender a vicious cycle. Debt service expense will soar, which causes out of control deficits. The Fed will be forced to purchase more of the debt and inflation rates become intractable, thus destroying GDP growth. Runaway debt, interest rates and inflation is what the Tea Party is trying so hard to avoid and it is a cause worth fighting for!

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

The Extinction of Retirement (Michael Pento)

As of this writing, the S and P 500 is now no higher than

it was in January of 1999. For over 12 years the major averages

 have gone nowhere in nominal terms and have declined significantly

in real (inflation adjusted) terms. The dreams of becoming rich from

 investments have crashed along with Pets.com and Bernie Madoff.

Euro Pacific Capital
Michael Pento
June 15, 2011

For the better part of a century the foundations for a semi-comfortable retirement for many Americans have rested on the financial pillars of rising real estate and equity prices, positive real interest rates on savings, the continued solvency of public and private pension plans, and the reliability of national entitlement programs (Social Security, Medicaid). But in the last few years, the economic sands have fundamentally shifted and these pillars are no longer sturdy, some have cracked completely. For many Americans, the traditional idea of a comfortable retirement, filled with golf carts, cruises, and fishing trips, is going the way of the dodo bird.

Over the last decade incomes and job growth have stagnated, causing savings rates to drop. According to Jim Quinn author of the Burning Platform, 60% of retirees have less than $50,000 in savings. Such sums won’t last very long, especially when consumer prices are up 3.6%, import prices are up 12.5% and commodity prices are up 35% year over year. What’s worse, any savings placed in a bank will pay next to zero interest and will likely not even pay for the fees associated with the account. With cash savings essentially non-existent, the other pillars of income take on paramount importance. But these former bastions of financial security are being washed away by a torrent of red ink.

For years the essential Ponzi-like structures of Social Security and Medicare were concealed behind positive demographics. But once taxes collected from current payers fall short of the required distribution owed to current recipients, the ruse will be laid bare. That day is now in the foreseeable future. With insolvency a real and present danger, at least a consensus is now forming that Social Security must be structurally altered if it is to survive.

According to the Social Security Administration, in 2008, Social Security provided 50% of all income for 64% of recipients and 90% of all income for 34% of all beneficiaries. With these numbers, it’s not hard to see how even small cuts will spark big protests. Now try cutting the $20 trillion prescription drug program and the $79 trillion Medicare entitlements and watch the political sparks fly! However, given the realities, it’s hard to see how the program can escape deep cuts.

In the past many retirees could count on accumulated stock market wealth to help fund retirement. Not so much anymore. As of this writing, the S and P 500 is now no higher than it was in January of 1999. For over 12 years the major averages have gone nowhere in nominal terms and have declined significantly in real (inflation adjusted) terms. The dreams of becoming rich from investments have crashed along with Pets.com and Bernie Madoff. Then there is always the supposedly safest asset of all—a retiree’s home.

Despite a misguided faith that real estate prices could never fall, they have done just that…with a vengeance. According to S and P/Case-Shiller, the National Home Price Index has declined some 30% to levels not seen since the middle of 2002. And prices are still falling, with the rate of decline accelerating. The National Index dropped 4.2% in Q1 of 2011, after dropping 3.6% during Q4 2010. This means that only those retirees who have owned their homes for at least 10 years have any hope of selling at a profit. Ownership of significantly longer periods may be needed to have built up significant equity.

That leaves public and private pension plans. But here again there are serious issues. Let’s just look at state public pension shortfalls. According to the American Enterprise Institute for Public Policy Research, “States report that their public-employee pensions are underfunded by a total of $438 billion, but a more accurate accounting demonstrates that they are actually underfunded by over $3 trillion. The accounting methods that states currently use to measure their liabilities assumes plans can earn high investment returns without risk.” Huge returns without risk? Bond yields are the lowest they have been in nearly a century! What world are these states living in? With few options, the states will undoubtedly look to the Federal government (taxpayers) for a bailout. Failing that, cuts are inevitable.

The sad facts are; Americans are broke, the real estate market is still in secular decline, stock prices are in a decade’s long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are structurally unsound. If the pillars that seniors have relied on in the past fail to miraculously regenerate (and there is certainly no reason to believe they will), all that most retirees will have will be freshly printed greenbacks that come from a never ending policy of federal deficits and an obliging Federal Reserve. Unfortunately, the inflation that will result from such a policy will sap most of the purchasing power that those notes possess. In other words, for most people retirement is now an illusion, and many Americans will find themselves working far longer, for far less real compensation, then they ever imagined. The quicker we realize this, and plan accordingly, the better off we will be.



Ominous-Looking Market Top (Comstock Partners)

All in all, both fundamental and technical

factors point to a coming major decline

in stock prices at a time when the

majority is still bullish and

contrary to conventional wisdom

market valuations are historically high.

Comstock Partners
May 12, 2011

The market is giving distinct signs that the previously strong rally is fading and that investors and speculators alike are paying greater attention to the headwinds that we have been discussing in these comments for the last few months. Last week we pointed out how suddenly everything that was going up turned sharply down and that everything that was going down moved up.

On a more gradual basis we note that stocks have made no progress now for almost three months. The S&P 500 reached 1344 on February 18th and today closed virtually at the same level---1348. Since investors invariably try to buy on dips what they most recently missed, some bouncing around is likely as the market forms a top. Nevertheless we believe the groundwork for a big decline is now being set at a time when the vast majority is still bullish. The following sums up our concerns.

1) Underlying all of the specific problems is the massive debt, both government and household, built up over the last few decades, but particularly the most recent one. Household debt has averaged about 55% of GDP over the last 60 years, but recently peaked at 98%, and is now still at 91%. As a percent of disposable personal income, household debt has averaged 75% with a recent top of 130% and is currently at 117%. Similarly, government debt has averaged 66% of GDP and is now at a peak of 108%, as government debt has recently risen more than private debt has dropped. The need to cut back on debt will inhibit economic growth for many years to come.

2) QE2 is ending on June 30th. The program will, by that time, have pumped $600 billion into the economy, meeting Chairmen Bernanke's stated goal of jump-starting the stock market. The end of the program is a defacto tightening of monetary policy. While the Fed's balance sheet won't be reduced anytime soon, the key point is that it won't be increasing by an average of $3.8 billion a day as it has since mid-November.

3) Fiscal policy is about to tighten as well. This is obviously what the ongoing discussions in Washington are all about. The fact is, that one way or another, both sides are more or less in agreement that the Federal deficit has to be reduced. So, whatever the merits, both monetary and fiscal policy will be less easy in the period ahead. That is a headwind against economic growth and the stock market.

4) The European Union's (EU) sovereign debt problem is not just a headline risk; it's a real one. As those who know far more than we do about the situation have pointed out, the EU's weak sisters are not facing a mere liquidity crisis, but a solvency crisis. It seems that a restructuring is virtually inevitable, causing severe damage to a number of major European banks. Furthermore, the EU will be lucky if the restructurings are limited to Greece, Ireland and Portugal without spreading further.

5) China is battling against soaring inflation even on the officially suspect government numbers. It has steadily raised interest rates and reserve requirements over the last six months in an attempt to slow down the economy. Although the pundits, as usual, are looking for a so-called soft landing, the vast majority of government attempts to slow down an economy result in recessions. This would have a major impact on the global economy including the commodities markets, emerging market suppliers and multinational corporations.

6) The Japanese earthquake is yet another headwind to the economy. In addition to being a severe blow to the Japanese economy, it is having an important impact on the global supply train. Since the quake occurred late in the first quarter, it is likely to have a far greater impact in the current quarter. Indeed, part of the renewed jump in initial unemployment claims may be due to the quake. We'll find out more when companies start to give warnings about second quarter results.

7) The Mid-East turmoil is continuing and is showing no sign of slowing down. Although the eventual outcome is unpredictable and can go in any direction, it is not likely to be conducive to further risk-taking in the markets.

8) The economic recovery appears unsustainable without additional government stimulus, which is politically off the table. Household savings rates have to move higher in order to deleverage debt at a time when only reduced savings rates can induce stronger consumer spending. Home foreclosures in the pipeline are enormous. This will add to already bloated inventories and sink home prices by another 15% to 20%. Almost a quarter of all homes with mortgages are underwater, and this number will rise more as prices drop.

All in all, both fundamental and technical factors point to a coming major decline in stock prices at a time when the majority is still bullish and---contrary to conventional wisdom--- market valuations are historically high.

Comstock Partners Bios

The itsy bitsy $SPDR went up the water spout. It's okay now, the spout is clear...

The itsy bitsy $SPDR went up the water spout.

Down came the flash crash pain, and washed the spider out.

Up came the Bernank, and dried up all the pain,

and the itsy bitsy SPDR went up the spout again.

Happy Anniversary Flash Crash

5/6/11
Themis Trading, LLC
By: Joe Saluzzi

There has been much hype this week about today’s Flash Crash Anniversary.  We have certainly contributed with some comments about what we think has not changed and how we think another flash crash could happen again.  But up until now, the pro-HFT, status quo crowd has been pretty quiet.  Guess they think if they don’t call attention to it, then maybe the critics will just go away.  Well, apparently, they couldn’t hold out any longer and we have been treated with some quotes from the “don’t change anything or I’ll take my liquidity and go home crowd”.  We will first post the pro-HFT comment and then offer the Themis translation.  First we have the COO from the CME Group making some comments read article here.

Comment: “The SEC came in quickly with the circuit breakers proposal and was implemented in record time”

Translation: The public thinks they are protected know from flash crashes but the current circuit breakers only cover the Russell 1000 stocks and some ETF’s

Herb Greenberg calls out Stock Analysts: Too Scared or Too Stupid for Sell Ratings?

So far this year, with the S&P 500 at

1,337, a mere 338 of 10,557 rankings

or 3.2 percent received outright sells.

CNBC Stock Blog
By Herb Greenberg
April 28, 2011

Among the long-running jokes to those of us watching Wall Street: Analysts almost never put an outright “sell” rating and recommendation on a stock.

Reasons are varied and obvious — including fears of being frozen out by a company or bawled out by a client.

Earlier this week, Reuters columnist Felix Salmon tackled the subject, after he had challenged me on some comments I had put out on Twitter.

But the level of stinginess with "sells" is pathetic and even surprising, especially as stock market races to post-crash highs.

How pathetic? I recently asked Factset to cull its database on sells in the S&P 500, and here are the result:

So far this year, with the S&P 500 at 1,337, a mere 338 of 10,557 rankings or 3.2 percent received outright sells. Another 191 or 1.81 percent received a ranking of “underweight,” which is the the politically correct equivalent of “sell.”

At this time last year, when arguably stocks were a better bargain with the S&P at around 1,208 — 4.15 percent of 9,141 rankings were sells and 1.65 percent underweight.

Now for the hammer: This time in 2009, with the S&P at a death-watch 843 — as the market was just crawling out of the depths of its depression — analysts had double the number of sells that they do now: 6.4 percent, with 3.74 percent underweights. It was the most negative they’ve been in years, and still a pathetically low number.

Goes to show: Not only are they stingy, but some (in retrospect, of course) look downright stupid.

Stock Market in Denial (Comstock Partners)

In sum investors are in a state of denial

similar to when they denied the dot-com boom

was a serious problem in early 2000,

or that subprime mortgages

were a problem in 2007

Hope is the denial of reality.

Margaret Weis

Comstock Partners
March 24, 2011

Those of you who watch financial TV or read the financial media have probably heard the current market referred to as the "nothing matters" market since it is supposedly ignoring a spate of negative news. According to this view, the negative news is exogenous and temporary while the true backbone of the market is the so-called strengthening recovery that has a long way to go. We have a number of disagreements with this point of view.

First, you may have noticed that the market has not exactly ignored the problems. The S and P 500 peaked about five weeks ago at 1344 and then proceeded to fall 7.1%. It has since climbed back by 4.6% in a rally that looks somewhat anemic by past standards. This type of action is actually typical of the way most bear markets begin. Generally bear markets go through three psychological phases----denial, concern and capitulation. Most often, but not always, the market rallies between each phase. The denial phase is the initial downleg from the bull market high, and we are only at the start of that downleg now.

During the denial phase the majority of investors are still in a bullish frame of mind after seeing continual profits in their account and having seen the market bounce back from prior corrections. They look upon the decline as merely another buying opportunity and think that stocks are cheap. In addition the fundamentals during this period are still perceived as positive and any negative news is downplayed.

Second, we don't regard the negative news as necessarily temporary, and only the tragic Japanese earthquake is truly exogenous. The European sovereign debt problem is a spillover from the massive 2008 credit crisis, and is not going to be resolved anytime soon. When the crisis initially emerged in Greece it was reasonably clear that the problems could spread to Ireland, Portugal and Spain, and, so far, has continued along that path. The Mid-East, North African crisis was always of a matter of "when" rather than "if" and was a recognized risk. It is not going away soon. China is engaged in the high-wire act of attempting to rein in inflation without causing a recession, a feat that historically has had a low chance of success.

It is also far too early to dismiss the Japanese earthquake as a passing phenomenon.  We still don't know how this will all play out.  With high levels of radiation in the water and farmland of the affected area, we don't know if this will become a "dead zone" for years to come. We have also heard about the possibility of significant global supply disruptions and reduced output that could presage lower demand and scarcities.

Third, the so-called strengthening recovery that supposedly more than offsets all of the above is highly fragile and subject to reversal. The second dip in housing that we have expected is now upon us. House prices are falling and inventories are extremely high while close to a quarter of homes with mortgages are underwater. The further dip in prices will put even more mortgages underwater, leading to even more foreclosures and an undermining of consumer net worth, confidence and spending. Real wages have decreased in four of the last five months and even new orders for durable goods, a precursor for capex, has weakened in the last two months.

In addition let's not overlook the point that QE2, which is pouring about $3.5 billion into the economy every weekday, is due to end on June 30th, and is unlikely to be extended. Both the economy and the market slowed significantly after the conclusion of QE1 and came back only with the announcement of QE2. At that point monetary policy becomes a headwind instead of tailwind at a time when political pressures are reining in fiscal policy as well.

In sum investors are in a state of denial similar to when they denied the dot-com boom was a serious problem in early 2000, or that subprime mortgages were a problem in 2007. This is typical of investor behavior at tops in all publically traded markets over hundreds of years, and human behavior is not likely to suddenly change now.

The Party is Over for the Stock Market (Comstock Partners)

Comstock Partners
March 10, 2011

The party is over. The major factors facing the economy and the market that we have been discussing in past comments (please see archives) are coming to a head as the reality of a post-credit crisis economy becomes more and more apparent in the period ahead. The massive monetary and economic stimulus that saved us from another great depression and led to the current weak economic recovery is now creating more problems than solutions and there is no way out that does not involve some economic pain.

Virtually all of the problems facing the economy today are a result of the massive increase in household debt over the last few decades, particularly the last two. For years we have staved off the problems by keeping interest rates near zero for extended periods of time and using fiscal and monetary policies to pump up housing. Consumers are overburdened with record debt loads at a time when income is stagnant and house values are dropping. As a result the government has substituted government debt for private debt in the hopes of getting the economy to grow on a self-sustained basis. The problem is that increasing the federal debt much more places the nation in great jeopardy, and we are rapidly reaching the breaking point.

At the risk of oversimplification, modern economies need rising amounts of credit (debt) to grow, and we are faced with problem of reducing debt instead. At best, this means slow growth for years to come interspersed with more frequent recessions. At worst, it means outright collapse into another great depression.

Currently the federal government is facing a deficit of $1.5 trillion while the states have a shortfall of about $125 billion. What is more, the nonpartisan Congressional Budget Office (CBO) forecasts major budget deficits for years to come if nothing is done. According to CBO calculations, entitlement spending and interest on the debt alone will equal all of the federal revenue by 2025. Obviously, that leaves nothing for anything else.

The conclusion is that the government deficit has to be reduced in a major way. Unfortunately, that's a problem too. The Republican-controlled House of Representatives has recently passed a resolution reducing spending $61 billion over the last seven months of the current fiscal year, a pro-rated annual drop of about $100 billion from the 15% of budget that doesn't include entitlements or defense. While that's only small part of the total deficit, a Goldman Sachs economist has concluded that even that reduction would reduce 2nd and 3rd quarter GDP by 1.5%-to-2.0% annualized. In addition Moody's Analytics Chief Economist Mark Zandi says that the resolution would cost 700,000 jobs by the end of 2012 and reduce GDP by 0.5% this year and 0.2% next.

So there you have it. We can continue spending and do nothing and go over the cliff, or we can balance the budget and endure a period of slow growth (if we're lucky) with a resulting reduced living standard for a long time to come. And we didn't even touch upon the problem of how, at the same time, we maintain our infrastructure and raise our currently inadequate educational system.

In sum, there is no easy way out of the dilemma.

If there were, someone would have come up with a solution by now. The stock market dropped sharply today even during the period that oil prices were dropping. China announced a big trade deficit and fears emerged that a slowdown in China would drag down the global economy. Moody's dropped their rating on Spanish debt, bringing attention back to Europe's sovereign debt problems that have been papered over. Investors are also becoming worried (and rightly so) about the imminent ending of QE2. All of this is related to the domestic and global debt problems and the unintended side effects of attempting to deal with it.

The S and P 500 has cracked down through both its upward trendline and 50-day moving average for the first time since early September with particular damage to the technology, commodity and momentum stocks that that led the upward charge. In our view this will prove to be a significant turning point and the trend will now be to the downside despite the usual attempts to rally.

Investment Philosophy & Comstock Partner Bios

Comstock’s approach is wide-ranging, including the analysis of specific equities, general stock market strategy, interest rates and real estate as well as long term macroeconomic themes centering on the interaction of inflation, debt, interest rates, economic growth and their effects on the stock, bond, commodity and currency markets. Comstock Partners started implementing these strategies when they began managing the Dreyfus Capital Value Fund (presently the Comstock Partners Capital Value Fund) in 1987 and launched the Comstock Partners Strategy Fund in 1988. In May of 2000 the Shareholders of Comstock Funds voted to join the Gabelli Family of Mutual Funds.

Bernanke and Federal Reserve: Bubbles "R" Us, 3rd Bubble in 11 Years (Comstock Partners)

It seems incredible that the Fed is creating

the third bubble within 11 years,

but that is what is underway.

Comstock Partners
February 17, 2011

It seems incredible that the Fed is creating the third bubble within 11 years, but that is what is underway. In the late 1990s the Fed kept the pedal on the gas and helped engender the dot-com bubble that collapsed with a 75% decline in the Nasdaq and 50% in the S and P 500. To prevent the economy from correcting the imbalances created in that era, the Fed kept the funds rate at 1% for an extraordinarily long time, thereby fostering the backdrop for the historic housing boom that also collapsed and came dangerously close to bringing down the global economic and financial system.

The initial gargantuan efforts by the Fed and the Administration and Congress to keep the economy from collapsing were necessary and effective. Since then, however, further stimulative programs have resulted in only a tepid economic recovery along with the addition of dangerous amounts of new debt and a soaring stock market that seems doomed to disappointment once again as in 2000-to-2002 and 2008-2009.

The Fed jump-started the stock market with two rounds of massive easing commonly known as QE1 and QE2. Not coincidentally, the market bottomed in March 2009 just as QE1 got underway. When that program, consisting of the Fed's purchase of $1.5 trillion of Treasury Bonds and mortgages, ended in April 2010, stocks dropped 17% in a few months. When stocks declined and the economy faltered Chairman Bernanke, at a late August meeting in Jackson Hole, announced the Fed's intentions to institute QE2, a program to buy $600 billion of 2-to10-year Treasury notes by June 30, 2011. Since that time the market began rising and hasn't stopped since. Notably the program, which actually began in October is pumping about $3.4 billion into the economy and assets every workday of the week.

The stated purpose of QE2, as outlined in a Washington Post op-ed column by Bernanke, is to pump up asset values with the hope that it would feed into the economy and to lower mortgage rates in an effort to aid the housing market. QE2 did goose the stock market, but appears to be failing miserably on a number of other fronts. It has not helped housing, which is still in the doldrums, and has only marginally helped employment. Furthermore the policy has created a lot more commodity inflation with higher prices for energy, food, cotton and a wide number of other items. It has led to inflation in emerging nations that have begun tightening money to slow down their economies. It has also caused a rise in long-term bond and mortgage rates, contrary to initial expectations. In addition let's not overlook the contribution of food price inflation to the unrest in Tunisia, Egypt and the rest of the Mid-East.

Underlying all of these problems is the massive debt, both government and household, built up over the past few decades, particularly in the most recent one. Household debt has averaged about 55% of GDP over the last 60 years, but recently peaked at 98%, and is now down to 91%. As a percent of disposable personal income, household debt has averaged 75%, with a recent top of 130% and is currently at 117%. Similarly, government debt has averaged 66% of GDP and is now at a peak 108%, as government debt has recently risen more than private debt has dropped.

The problem, as everyone belatedly realizes, is that, as a nation we have far too much debt, both public and private. But debt is the fuel that enables economic growth. Without an increasing amount of debt the economy cannot grow and, in fact, shrinks. The hope is that by substituting government debt for household debt we can get the economy back on a normal growth path while also getting consumer balance sheets back into shape.

In our view the chances for success are dim. After all is said and done, debt is debt whether it's the government debt or private debt. And as Greece has shown, even governments cannot keep increasing their debts without severe consequences down the road. It seems the only way out is to reduce total national debt, both public and private. That would have dire consequences for the economy in the short run. On the other hand, continuing to increase debt as we have been doing may work in the very short run but in the end, is unsustainable. And note that QE2 ends in June. After that, any further stimulus is probably politically impossible anyway, given the climate in Washington and the various state governments.

This will all become obvious to the market soon enough,

and once again they will say nobody saw it coming.

Comstock Special Reports

The stock market is overbought and is losing momentum (this is not a test)

In summary, the current excitement about

the market reminds us of the

extreme bullishness exhibited near the

tops in early 2000 and late 2007.

The outcome is likely to be the same.

Comstock Partners
February 3, 2011
The stock market is at a highly vulnerable point, both fundamentally and technically. Fundamentally, the current rate of economic growth is unsustainable and the valuation of the S and P 500 is significantly above its long-term average. Technically, the market is overbought and is losing momentum. We cite the following points.

• Consumer spending has been outpacing the ability to spend. Spending has exceeded income in five of the last six months. During this time nominal spending has increased 2.8%, compared to only 1.9% in personal income. In order to accomplish this, households took their savings rate down to 5.3% of income from 6.3% six months earlier. As we have pointed out numerous times, household debt is still near record levels and consumers still have a long way to go in deleveraging their balance sheets.
• Housing remains a major weak spot with a rising pipeline of coming foreclosures, excess inventories and falling prices. In addition rising bond rates are causing mortgage rates to climb. (UPDATE: 30 year mortgage rate jumped to 5.05% this past week from 4.81% prior week)
• States and local governments are slashing budgets through a combination of raising taxes and cutting spending. This, obviously, is a major drag on the overall economy.
• Private jobs have increased at an average of 112,000 a month over the past year, but about half of that has been in low-paying health care, social services and temporary employment. (UPDATE: on 2/4/11, BLS reported a net +36,000 jobs in January)
• QE2 is scheduled to end in five months. Just as the anticipation of QE2 in August led to a substantial rise in the market, the anticipation of its ending may well have the opposite effect, combined with the other factors we mention.
• With commodity prices soaring and consumers unable or unwilling to accept price increases, a large number of corporations will undergo major cost increases that will squeeze profit margins, a factor not calculated into current earnings forecasts. (UPDATE: Kraft Foods states revenue growth will be from higher prices versus higher volume)
• Europe's sovereign debt problems have not been solved and the crisis will continue to fester. Any real solution will not be friendly to economic growth.
• The crisis in Tunisia and Egypt are not random exogenous events. Soaring food prices, high unemployment and wealth disparities are as much a factor as repressive governments. People tend to tolerate dictatorships more when they aren't hungry.
• China is a bubble waiting to burst. Think back to the late 80's when everyone was as optimistic about Japan as they are about China today.
• At today's closing price the S and P 500 is selling at 19.2 times cyclically smoothed reported earnings, compared to a historical average of about 15. (UPDATE: the S and P 500 is up another 34 points/2.7% as of the close on 2/11/11)
• In addition to the above fundamentals the market is technically vulnerable. It has climbed about 95% over the last 23 months and 30% since the July low. Sentiment has become heavily bullish while the market is losing momentum as fewer stocks are moving higher on each successive top. Volume for advancing stocks is dropping while volume for declining stocks is rising. The number of new daily highs is also dropping as is the percentage of stocks making new 50-day highs.

In sum, the current excitement about the market reminds us of the extreme bullishness exhibited near the tops in early 2000 and late 2007. The outcome is likely to be the same. Add'l Posts/Articles by Comstock Partners

Wall Street Gives Uncle Sam Too Much Credit (Michael Pento)

By: Michael Pento
More Michael Pento
Monday, December 13, 2010

Despite the fact that the S and P is up over 80% in the last 21 months, US financial firms are currently tripping over each other in their zeal to raise their S and P 500 and GDP targets for 2011. JPMorgan's chief US equities strategist, Thomas Lee, came out on December 3rd with a target of 1425 on the S and P for 2011, which would be a 15 percent gain.

Barclays Capital last Thursday released a 1420 estimate. Not to be outdone, Goldman Sachs also recently released its forecast, and it sees a more-than-20 percent increase next year, to 1450. Meanwhile, PIMCO’s idea of a “new normal” has translated into a 2011 GDP forecast raised from 2-2.5% to 3-3.5% due to “massive” government stimulus.

In the midst of this collective 'hurrah,' very little attention is being paid to what is going on over in the bond market. With my due condolences to Fed Chairman Bernanke, the yield on the 10-year Treasury note has increased from 2.33% on October 8th to 3.29% today. And, if there is any notice at all given to that recent run-up in yields, it is merely explained away as a sign of robust growth returning to the economy.

In reality, growth doesn’t cause an increase in interest rates; it is either lack of savings or inflation that is responsible. To refute the 'robust growth' reasoning, turn your attention to the fact that the spike in yields just happened to coincide with the news that the unemployment rate jumped to 9.8% in November.

A slightly broader explanation for the surge in borrowing costs might be the failure of the Bowles-Simpson deficit commission to implement any cost cutting measures. Or, perhaps it was the intimation from Bernanke himself that QE III may already be under construction in his infamous interview on 60 Minutes. Or, maybe it is the fact that the $150.4 billion November budget deficit was the highest total for that month... ever, and was the 26th straight month of red ink! I often wonder to myself, where in the midst of all this good news do I summon a bearish attitude?

I think it's pretty clear that 'robust growth' is going the way of 'green shoots' and knickers – right into the dustbin of history.

So, what will the increase in interest rates – ignored by all of Wall Street – actually mean for the economy in 2011?

For starters, the National Home Price Index already fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower year-over-year, and 15 out of the 20 cities measured were down over the last 12 months. On a month-over-month basis, 18 cities posted a price decline in September, compared to 15 MoM drops in August, and just 8 cities experiencing price reductions in the July report. Therefore, home prices, which were already headed lower before this recent spike in mortgage rates, are set to take another tumble downward. According to Freddie Mac’s weekly survey of conforming mortgages, the average rate on the 30-year fixed is at its highest level in six months. 30-year rates averaged 4.61% for the week ending Dec. 9, up from 4.46% last week.

It’s the fourth week in a row that the mortgage rate has increased. The ramifications for the real estate market and bank lending are clear. Lower home prices will send more mortgages under water and force many more homes into foreclosure. Higher borrowing costs will lower the demand for borrowing and place more strain on the capital of lending institutions.

On top of that, household debt as a percentage of GDP still stands at a lofty 91%. It should be clear that with near double-digit unemployment, the last thing consumers can now tolerate is a significant increase in debt-service payments.

The rising cost of money is even worse news for the federal government and its chronically ballooning debt problem. According to the Federal Reserve’s Flow of Funds Report, total non-financial debt reached an all-time high of $35.8 trillion in the third quarter of 2010. In fact, household debt, business debt, and government debt increased at a 4.2% annual rate last quarter.

To put that record level of nominal debt into perspective: in 1980, the total non-financial debt-to-GDP ratio was 144%. In the height of the credit boom, at the end of 2007, that figure was 226%. Today, the figure stands at a mind-blowing 243%! So you can forget about all that deleveraging talk. The US is in fact still leveraging up, both in nominal terms and as a percentage of GDP.

I think the rising cost of money will become the story of 2011. Its effect on consumers, the real estate market, and government borrowing costs will be profound. Apparently, most major brokerage firms have no fear of soaring interest rates causing our economy to implode. However, it's clear to me that the bond market has already started to crack due to inflation and massive oversupply from the Treasury. Prudent investors should think twice before overlooking what could be the initial holes in the biggest bubble in world history – the full faith and credit of the United States.

Market Still Facing Major Risks...a view from the real world

Yes, the Bulls (all five of them) continue to push the market higher on abysmal volume. The market remains in a state of denial, (what could possibly go wrong) and complacency based on the VIX is nearing a comatose reading. Comstock Partners provides a non-CNBC recap of real life, fundamental risks facing the market. Last grandpa checked, HOPE is not an investment strategy and unless one is hoping for a new bicycle, this is yet another 4 letter word that should be banned from the financial news network airways.

Thank you Comstock Partners for a dose of reality as reality has become as rare a commodity as common sense.

Market Still Facing Major Risks
by Comstock Partners

The deal between President Obama and the Republican congressional leadership is not likely to have a significant positive effect on an economy facing severe headwinds pulling in a negative direction. The key fact to remember is that we are in an economic recovery that will remain restrained by the after-effects of a major credit crisis and the need to deleverage the enormous household debt built up during the boom.

As was true for the original stimulus package, any additional spending occurring as a result of the compromise will be temporary with no sustainable follow-through once the stimulus wears off. And while the possible blip in growth is temporary, the addition to the deficit created by the package will remain with us for a long time. In the following paragraphs we cite the severe headwinds creating a drag on economic growth.

1) First and foremost is the explosion of household debt over the last 45 years, particularly the last ten. As a percentage of GDP, household debt went from 45% to 68% in the 35 years between 1965 and 2000, and then soared to 98% over the next nine years to its peak in 2009. Since the deleveraging process started the percentage dropped to 91% by September 30th. In our view the deleveraging has a long way to go. Just to get back to the level reached in 2000 (which itself was historically high), household debt would have to decline by $3.4 trillion. Since this amounts to a full 32% of personal consumer expenditures, it’s easy to see why the debt has been and will continue to be such a drag on the consumer.

2) No sustainable economic expansion has ever taken place without a strong boost from the housing sector, and this is not likely to happen anytime soon. Sales of both new and existing homes are slogging along at the bottom and prices are dropping. Inventories remain exceedingly high while the backlog of coming foreclosures is huge. If anything the new compromise package has caused mortgage interest rates to rise, putting even more of a burden on the beleaguered industry. Furthermore the mess regarding the unconstitutional (due process anyone?) legal shortcuts taken in efforts to foreclose on delinquent mortgages will be difficult to untangle and could end up getting banks in a lot of legal and financial trouble.

3) States and local governments remain in bad shape with large budget deficits leading to spending cutbacks, layoff and higher taxes. This is another potential crisis in the making in the period ahead.

4) Monetary policy is essentially impotent in the current crisis. The Fed has used all of their conventional weapons and is left with untried and untested weapons with potential unintended and unknown consequences.

5) Banks went into the 2008 credit crisis loaded with toxic assets, and, to a large extent, they still have them. While TARP was originally proposed by Treasury Secretary Paulson as a buyout of toxic assets, the program was almost immediately changed to generalized bailout. The accounting rule-makers were then pressured to do away with mark-to-market accounting, thereby papering over the problem and leaving most of the toxic assets the banks’ books, where they remain today. This is one of the reasons banks are hoarding cash and are so reluctant to lend. They know what they have.

6) Sovereign debt is another problem that has not been dealt with, and therefore doesn’t go away. While the Ireland and Portugal situations may temporarily be papered over, a number of weaker EU nations are essentially insolvent and will eventually need to have their debts restructured with severe damage to the European banks that hold their debt. This will continue to be a drag on economic growth in the EU.

7) With inflation threatening to get out of control Chinese authorities are trying to tighten monetary policy gradually to engender a soft landing. With the leading economies of the U.S. the Eurozone and Japan in such weak condition, China has been a major catalyst for global growth. Any substantial slowdown in China would therefore have a serious impact on global growth.

The stock market has recently gotten everything it wanted—-QE2, no expiration of tax cuts, additional stimulus and strong earnings reports. Still the S and P 500 is about where it was in April and has made no progress in over a month. Although the market can still break to the upside, the move off the March 2009 bottom has discounted a lot of good news while ignoring all the real pitfalls that may be ahead. In addition the market is substantially overvalued at 18 times smoothed trendline S and P 500 earnings. At this point we believe the downside risks far outweigh the potential upside rewards

David Rosenberg's Wall of Worry

From David Rosenberg
Thanks to Zero Hedge for the head's up
11/12/10

At a time when sentiment is wildly bullish and economists are taking up their numbers, it is time to remind investors that the best time to have put on the risk-on trade was three months ago when everybody was wringing their hands and knuckles were turning white. At the summertime lows in the S and P 500, Market Vane sentiment was closer to 40% versus 54% today, and the VIX index (a measure of volatility in the equity market) was closer to 30x than 20x.

It does not take much to turn fear into greed — just a few comments at a Jackson Hole symposium. The mid-term elections in the U.S., the unveiling of QE2 and the apparent end to double-dip risks are all in the market now. But concerns linger and here they are:

• Post-election political gridlock is not good. There is no guarantee that a lame-duck Congress will move to extend either the Bush era tax cuts or extended jobless benefits. And, the clock is ticking on the debt-ceiling file.
• China’s inflation rate has accelerated to 4½% and there is risk of more rate hikes coming as a result — see Inflation Leap Sparks China Overheating Fears on page 3 of the FT.
• Economists are placing bets on a Q4 pickup in U.S. GDP growth based on faulty seasonals with oil import data — we are not sure this effect will be as large as some believe.
• Widespread discounting and promotional activity suggests that the holiday shopping season will disappoint and the retailers have loaded up on inventory and staffing this year.
• There is tremendous dissention on the Fed regarding QE2, which may mean that this is Bernanke’s last kick at the can.
• Municipal bonds have been getting clobbered as default and liquidity concerns come to the fore.
• Sovereign default risks in Europe are clearly back on the table — Angela Merkel has made it clear that the EU’s pocketbook isn’t going to be there and that investors are going to have to take a haircut in the next bailout go-around. See Bailout Fund Stands By For First Big Test on page 4 of the FT and Irish Debt Woes Feed Eurozone Contagion Fears (Spanish-German bond yield spreads have widened out to new highs this week). Risk premia is clearly on the rise; the fact that Spanish GDP stagnated in Q3 has only made matters worse in this respect.
• The wink-wink weak U.S. dollar policy is being met with resistance abroad and it looks as though Brazil is set to again take action to reverse the Real’s gains.
• A negative Cisco surprise in both 2000 and 2007 proved to be leading indicators of the equity market.
• The view that the U.S. economy is out of the woods has not been confirmed by the Household employment data, chain store sales or home prices, all of which have come in soft lately.
• Oil prices have approached the $90/bbl mark and the latest surge has more to do with speculative investor demand than any acceleration in global economic activity. Moreover, when oil was first at this level in October 2007, the recession was only two months away and the bull market in equities ran its course.
• A 1%-plus yield on the 5-year Treasury note reveals a U.S. economic backdrop that is fraught with structural headwinds.
• Didn’t the Fed just use the words “slow”, “weak”, “depressed” and “constrained” to describe various aspects of the U.S. economic environment? You can look this up in the opening salvo of the November 3 post-FOMC meeting press release.
• The rally in gold to new all-time highs in virtually every currency is testament to the lingering concerns over the integrity of the global monetary system.
• Currency wars typically lead to trade wars and protectionism is coming our way soon (see Leaders Warn on Doha Deadlock and Failure on US-Korea Accord Hits Trade Hopes on page 2 of the FT). This is bullish for hard assets like commodities and precious metals.
• Fiscal support for the economy is soon to subside and in a major way — see Top Earners May Face Big Hit on page A4 of the WSJ as well as Liberals Press Obama Not to Extend All Bush Tax Cuts on page A5.

Dumb Money Back in Stocks...Are You Really Sure??

By Kelly Evans
11/8/10
The Wall Street Journal

Individual investors are wading back into the U.S. stock market. That ought to make über-bulls think twice.

Positive forces including strong corporate earnings, improving economic data and more bond buying by the Federal Reserve have fueled a 17% rally in the Standard and Poor's 500-stock index since late August. The market has now punched through its prior 2010 highs, set in April, to reach levels last seen in 2008 before the collapse of Lehman Brothers.

Predictably, that has also triggered a rebound in bullish sentiment and helped coax investors back into the market. The American Association of Individual Investors finds 48% of investors surveyed are bullish on stocks as of last week—the highest level since February 2007. Bearish sentiment, at 27%, is at its lowest since January 2006.

And it appears their money is following suit. Roughly a quarter of recent flows into U.S. equity funds, including exchange-traded funds, have come from individual investors, according to EPFR Global. Since early September, such retail investors have poured about $2 billion into these funds, which have taken in about $8.4 billion. That is a marked turnaround from the $23 billion yanked out of equity funds in August, when double-dip fears raged.

For now, this support could help the market extend its recent run. Yet it may also mean it is late in the rally game. Retail investors are usually a lagging indicator, reacting to past performance rather than predicting future gains. Their flows, says Harvard University lecturer Owen Lamont, can create "a short-term lift" but it rarely lasts beyond a few months. He and Andrea Frazzini of AQR Capital Management have written a series of papers together on this "dumb money" phenomenon.

Admittedly, the flow of money from individual investors back into the market has been more a trickle than a flood—from January 2009 through August, individuals pulled around $162 billion from equity funds.

Even so, a return of retail investors argues for caution. The prior high in sentiment this year came in late spring, just as the market was headed for a bruising selloff. It may not be wise to fight the Fed, but it can be just as ill-advised to follow the crowd.

Grandpa:

Kelly, I question the accuracy of the alleged $2 billion of retail investor money flowing into U.S.; Equity finds since September.  Basis of questioning accuracy of an inflow: The Investment Company Institute reports the following outflows:

-$2.911 billion 10/27/10
-$218 million 10/20/10 
-$624 million 10/13/10 
-$5.385 billion 10/6/10 
-$14.701 billion for the month of September 2010

Grandpa's Withdrawal Wednesday Post

Under the surface, corporate earnings aren't quite as impressive as the headlines suggest

For the fourth quarter, expected earnings growth

drops from 32% to just 11%

if financials are excluded.

(U.S. Stock Market Built on Financials' Mark-to-Model)

By Kelly Evans
The Wall Street Journal
10/26/10
The third-quarter earnings season has helped the stock market find its footing again. But a solid foundation still is lacking.

About a third of S and P 500-stock index companies have turned in earnings, and the results once again look impressive. As of Friday, 83% of companies topped consensus earnings-per-share estimates, according to Thomson Reuters, which, if it holds, will be the highest proportion since 1994. Overall earnings are on track to rise 28% from a year ago, the fourth straight gain after nine prior quarters of decline.

While earnings activity peaks this week with results due from some 177 companies, only major misses from blue-chip companies at this point are likely to break the market's upward momentum. The S and P 500 has gained nearly 3% since Alcoa unofficially kicked off the season Oct. 7, extending its run since late August to an impressive 13.5%.

But that surge isn't really about this quarter's earnings. Recent economic data also have improved, and the Federal Reserve is expected to announce additional bond-buying measures at its Nov. 2-3 meeting to stimulate the U.S. economy. Bulls are further salivating over the fact that the S and P 500 last week formed a "golden cross," the 50-day moving average punched above the 200-day moving average, usually a bullish sign.

Skeptics, however, can be forgiven for not breaking out the champagne. The market's recent behavior looks eerily similar to its prior 15% run-up from February through April. That episode didn't end well. This one may not either.

Under the surface, corporate earnings aren't quite as impressive as the headlines suggest. Much of the overall growth has come from the financial sector, helped by its weak performance a year ago. Yet the foreclosure problems and concerns over future profitability recently have roiled those shares.

Exclude financials, and year-on-year earnings growth falls below 21%. The average "surprise" margin, by which earnings beat estimates, falls from 9% to 6.5%. Meanwhile, for the fourth quarter, expected earnings growth drops from 32% to just 11% if financials are excluded. Revenues for that period are seen up just 6.3%, excluding financials. That is hardly disastrous. But given growth is likely to slow further, it weakens the basis for a more lasting rally.

Thanks to Kelly Evans for a realistic delivery of data as it is a refreshing change!

SPY Flash Crashes: NYSE Cancels $500 Million Worth Of Trades. The market is a farce, wrapped in a joke, inside a tragicomedy.

Zero Hedge

Why bother with crashing individual stocks when you can crash the most traded entity of all. Today at precisely 4:15 the SPY flash crashed, sending the price of the most popular security in the world down to $106.46 from its opening price of $117.74.

Luckily for all the people who wrote in to us, and thousands more, who may have had MOC orders that got filled at 10% lower, the exchange has cancelled millions worth of trades. Per Bloomberg: "NYSE Euronext cancelled all trades in the $74.8 billion SPDR S and P 500 ETF Trust that occurred at almost 10 percent below the security’s opening price, according to an email sent by the exchange." And as presented below (which is a mere sample of all the DKed trades) there were about $500 million worth of notional that just got cancelled. The market is a farce, wrapped in a joke, inside a tragicomedy.

22nd Consecutive Week of Billions of Dollars Sucked Out of the U.S. Equity Market (or whatever the "market" is now called)

$20 Billion Sucked from the

U.S. Equity Market in September

and the S and p 500 Launches 8.75%

Washington, DC, October 6, 2010 - Total estimated inflows to long-term mutual funds were $3.26 billion for the week ended Wednesday, September 29, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Equity funds had estimated outflows of $3.02 billion for the week, compared to estimated outflows of $1.91 billion in the previous week. Domestic equity funds had estimated outflows of $4.15 billion, while estimated inflows to foreign equity funds were $1.13 billion.

Total Domestic Equity Flows/Week Ending
-$4.150 billion 9/29/10
-$2.524 billion 9/22/10
-$3.599 billion 9/15/10
-$2.235 Billion 9/8/10
-$7.705 billion 9/1/10
-$15.598 Billion for the month of August 2010
-$11.142 Billion for the month of July 2010
-$7.519 Billion for the month of June 2010
-$19.066 Billion for the month of May 2010

Since April 30th, 2010, $73.538 BILLION has been withdrawn from Domestic Equity Funds (This is the 21st sequential weekly outflow from US stocks).

Peter Schiff Responds to William Dudley and the Federal Reserve

By: Peter Schiff
Friday, October 1, 2010

NY Fed President William Dudley's outrageous statements today closely conform to recent pronouncements from other Fed officials and confirm that a massive round of dollar devaluation is poised to begin.

Seemingly overnight, the Fed appears to have altered its mandate, ditching its former goal of "price stability" in favor of "moderate price inflation." While no one is under the illusion that the Fed has kept prices stable over the last century, it used to be that the governors would at least pretend to fight inflation. Low inflation used to be the aim, now it's the enemy.

Although the inflation being created by the Fed may not be showing up immediately in rising rents or auto prices, it is nevertheless pushing up asset prices in other areas. Many commentators are celebrating the "best September for the Dow and S and P in 71 years," rising 7.7% and 8.8% respectively. Well, it was also a pretty great September for soybeans (up 9.5%), rice (up 10%), oil (up 11%), corn (up 12.2%), orange juice (up 13%), cotton (up 17.5%), and sugar (up 19.3%). In fact, the whole CRB is up 8.7%. The Swiss franc is up 4.6%, the euro up 7%, the Aussie dollar up 9%. Gold is at all-time highs, silver at 30-year highs, and copper at 3-year highs.

In other words, the box of Uncle Ben's in my kitchen cabinet had a better month than the Dow Jones Industrials. The same could be said for the boxer shorts in my dresser. Could it be that the Dow isn't rising, but the dollar falling?

Dudley says it may take "several years" before inflation returns to levels consistent with the Fed's mandate. Exactly when did the Fed establish a floor for "acceptable inflation?" Where is that floor, 2%? (The core PCE index is currently up 1.4% for the year) If we are below the floor, where's the ceiling- 3%? 4%? In 1971, President Nixon imposed price controls when inflation averaged 4%. That rate was considered so high that emergency measures were needed. Is that still the case? How much higher do costs have to go for cash-strapped Americans before the Fed can be expected to take its foot off the gas?

Without better understanding of where these parameters lie for the Fed, the markets will be flying blind through an impenetrable fog.

If the Fed were serious about maintaining long-term price stability, which is its actual mandate, it would need to allow prices to fall after the speculative booms that it helped create. As we saw in the 1980s, unemployment resolves itself when the monetary system is sound, but no one will hire under the uncertainty of a rogue, inflationary Federal Reserve.

As people on fixed incomes, increasingly impoverished by low yields and rising prices, desperately re-enter the work force, look for unemployment to head higher.

Stock Rally May Stall After Short Covering (David Rosenberg)

“It would stand to reason that a lot of this push-up

in the market reflects short-covering on very light volume,

which have exaggerated the price gains of late.”

By Lu Wang

Sept. 14 (Bloomberg) -- This month’s U.S. stock rally started with short interest at a 13-month high, suggesting the gains were driven by traders who had to buy back shares after betting against them, Gluskin Sheff & Associates Inc. said.

Short interest, or total number of shares sold short, climbed to 19.2 billion on the New York Stock Exchange and the Nasdaq Stock Market at the end of August, the highest level since July 2009, Bloomberg data showed. Since then, the Standard and Poor’s 500 Index has gained in eight of the past nine days, jumping 6.9 percent this month.

“The shorts had a field day in August,” David Rosenberg, chief economist and strategist at Gluskin Sheff in Toronto, wrote in a note yesterday. “It would stand to reason that a lot of this push-up in the market reflects short-covering on very light volume, which have exaggerated the price gains of late.”

The S and P 500 yesterday rose to its highest level in a month after surging Chinese production and a forecast for faster growth in Europe boosted confidence in the economy. The benchmark dropped 16 percent from its April peak to July low on concern the U.S. may slip into another recession.

“It is fascinating to watch how emotions shift so suddenly,” Rosenberg said. The current advance may turn out to be one of the market’s “huge headfakes,” similar to rallies in the summer of 2000 and the fall of 2007. “It doesn’t feel good to get head faked, but Mr. Market has made a living doing this to people,” Rosenberg said.

Past Slumps

In 2000, the S and P 500 climbed 7.1 percent from July to September before succumbing to a two-year slump. In 2007, a two- month, 11 percent surge from an August low heralded another bear market. After hitting an all-time high of 1,565.15 on Oct. 9, 2007, the benchmark plunged 57 percent over the next 17 months.

Rosenberg said the S and P 500, which has been stuck in an 80- point band between 1,050 and 1,130 in the past two months, will soon revisit its July 2 low of 1,022.58 as a slowing economy forces analysts to slash estimates.

It is likely “that when this prolonged trading range breaks, it will break to the downside,” Rosenberg said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

Grandpa

The Repetitive Anemic Volume Manipulative Short Squeeze

 During the initial 8 trading days in September, the S and P 500 launched 73 points (7 percent) on average daily trading volume of 3.617 billion shares.

During the final 8 trading days in August, the S and P 500 dropped 26 points (2.4 percent) on average daily trading volume of 3.809 billion shares or 192 million more shares per day than the initial 8 trading days in September.

Meanwhile, CNBC just realized High Frequency Traders might have an impact on the overall equity market and after pooling their coffee money, produced Man Versus Machine which surely places them in contention for a Peabody Award.

Remember the ramp to dig yourself out....