Primary Trend: Bearish

Monday, August 29, was established as the date for tracking purposes on the S&P 500 and the inverse index (SH).  S&P 500 and SH closed Monday at 1210.08 and 43.52, respectively.  The EMA strategy is now -8.71. 

It's Effective!

Well, the "Bear Cross (15-week EMA < 40-week EMA)" is effective as of Friday's close, August 26, on the S&P 500.  (See the following chart.) 

  

What does the Bear Cross mean for investors?  It simply means that the primary trend of the market, as measured by the S&P 500, is now bearish; because the 15-week EMA < 40-week EMA.  Therefore, the strategy implies that investors should move out of equity funds and into money market funds, preferably a Treasury Bill fund, and/or an inverse ETF, such as SH,  For tracking purposes, I will use Monday's close on SH.  The stop-loss trigger will be a weekly close of the 15-week EMA above the 40-week EMA for the S&P 500.

Bernanke

Some Interesting Dates

I was going through my stack of old notes on my desk yesterday, and I came across one where I had jotted down the following dates: March 23, 2008, April 19, 2009, June 13, 2011, and December 21, 2012.  So, what is the significance of those dates?  Well, those dates come pretty close to aligning themselves with key market turning points.  For instance, the March 23, 2008, came approximately two months after the 15/40 EMAs turned bearish; April 19, 2009 came one month after the market bottomed in March 2009; June 13, 2011 came one month after the market topped out on May 2; and December 21, 2012 is to be determined, but it would appear that date should correspond to some important intermediate low for the market.   Therefore, I more convinced that the 15/40 EMA Bear Cross, which would indicate the primary market trend is now down, will hold given the June 13, 2011 turning date.  However, saying all this, I will still let the “MARKET” tell what to do!  But, I just thought those dates that I had written down over three years ago were quite interesting. 

Jackson Hole 2011 Rally

Bear Cross!

We have a "Bear Cross" in place today on the 15/40 EMAs.  That is, the 15-week EMA < 40-week EMA. However, since this is a weekly indicator, we must wait until Friday's close to officially declare that the primary trend has changed from "Bullish to Bearish."  Stay in touch.

Close But No Cigar!

GM: Bankruptcy Excuses Us From Impala Repairs

Government Motors (GM)is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.  In a recent filing with the U.S. District Court in Detroit, GM noted that the cars were made by its predecessor General Motors Corp, now called Motors Liquidation Co or "Old GM," before its 2009 bankruptcy and federal bailout.  The current company, called "New GM," said it did not assume responsibility under the reorganization to fix the Impala problem.  Now, this is exactly why I refuse to every purchase a GM vehicle. 

Another Day, Another 400+ Point Decline on Dow and 50+ Point Decline on S&P 500

Bernanke's Question

Now, that Hewlett Packard is getting out of the PC business, "ZeroHedge" reports that Bernanke wants to know if they are still going to be making printers.

Payback Time, Justice Department Investigates S&P

Well, that didn't take too long.  The Justice Department is investigating whether S&P, the nation’s largest credit ratings agency, improperly rated dozens of mortgage securities in the years leading up to the financial crisis.  Now, to give the Justice Department its due, this investigation began before S&P cut the AAA credit rating this month.  But, it has definitely gain momentum since the downgrade by S&P.  Now, will the Justice Department go after the Bankers and Wall Street who knowingly bundled these troubled mortgages and sold them to the investment public?  My answer to my rhetorical question is absolutely NO!

Fitch Downgrades New Jersey Munis From AA To AA-

I believe we have a "good cop, back cop" scenario going on here.  Remember all the heat that S&P took for the U.S. debt downgrade (bad cop), while Fitch (good cop) decided to stay the course with its AAA rating.  Well, now Fitch downgrades the General Obligation (GO) Munis of New Jersey, while S&P has not changed its ratings of New Jersey.  If I was a conspirator, I would say that the rating agencies got together and decided who was going to be the good cop and bad cop in dealing with the U.S. debt.  Of course, S&P came up on the short end.  (LOL) As a matter of fact, I agree with both downgrades.  In fact, states are in a worse financial bind that the U.S. government.  The reason is simply that states can not print money, but the U.S. can through the Federal Reserve System.  By the way, look for a whole lot more muni downgrades, just not limited to Fitch, over the next two years.

The BUS!

Now, don't get me wrong.  I am not against the President having a $1.1 million bus, or for that matter, two buses, which he ordered for a total cost of $2,2 million.  The buses were ordered by the Secret Service in July 2010 and delivered two months ago.  The feds bought the two coaches from Hemphill Brothers Coach, based in Tennessee.  But, here is the "kicker!"  The contract lists the country of origin as Canada and place of manufacture as "outside U.S. - Trade Agreements," a possible reference to the North American Free Trade Agreement.  That is my objection.  With our unemployment rate in excess of 9% for U3,  (By the way, I consider a better measure of worker misery is U6, which is 16%.)  I would have thought that this Administration would have insisted that the bus and all work done on it be completed here in America by Americans. 

China's Ghost Cities and Malls

China's GDP is based on recorded production activity rather than being a measure of the GDP expenditure approach, as U.S. data are, (sum of consumption, business investment, government spending and net exports).  In other words, it permits funds allocated for production to count as de facto outlays by end users, as well as to record shipments to retailers as sales.  That is how you give the impression of exceptional growth, which is the beauty, of course, of running a command economy, where if you say loan, the banks lend like mad, and if you say produce, production rises.  Like China’s ghost cities and malls.  Where is Wall Street in pointing out how China measures its GDP?  Go figure!

Fiat $'s Birthday

Forty years ago today on August 15, 1971, the President Richard Nixon, declared the inconvertibility of the dollar into gold.  As a result, the dollar became a fully fiat currency, backed not by gold but by the promise of the U.S. government.  This meant the end of a historical and monetary rule.  The Federal Reserve System can now print any amount of money. 

How has it worked?  Well, subsequent to Nixon’s decision 40 years ago, the U.S. dollar has fallen from 1/35^th of an ounce of gold to 1/1750^th of an ounce of gold today!  This is not the fault of the market or speculators; rather it is the fault of profligate governments and central bankers. 

The Wealth Effect Experiment by the FED

The Fed's QE2 experiment, which began last September, ended on June 30 with little to show for it.  Asset prices rose as the Fed's bond purchases pushed investors into riskier assets (stocks and commodities).  But the prices of those assets have since fallen back down to what investors think they're worth.
The Fed had hoped that boosting asset prices would create "wealth effects," or an increase in spending that accompanies an increase in perceived wealth.  But the Fed can't dictate which asset prices would rise, and liquidity flowed into commodities as well as stocks. 

Thus, any wealth effect was offset by negative "income effects" as Americans suffered a decline in real income from paying more for food and energy because of the commodity-price bubble.  Economic growth has decelerated over the past year despite QE2, so what good does Mr. Bernanke thinks it did?  The reason I ask the question is that the focus of his monetary policy was on the “wealth effect.”  Therefore, one would expect that this focus would be to benefit the average American.  If this was your assumption, you would be wrong, based on equity ownership.  81% of equities are owned by the top 10%, and 91% is owned by the top 20% of households.  (See the following chart.)  A severe decline in the "wealth effect," caused by a bear market, would probably adversely impact the spending habits of those top 10%, which accounts for some 40% of the nation's consumer spending.  Thus, one can conclude that QE1 and QE2 only benefited 11.7 million out of the nation's 117 million households.  

Two out of Three Parts of the Puzzle in Place

So, Is This the New Norm?

Press Secretary Carney: Unemployment Benefits Could Create Up To 1 Million Jobs

You know there is stupid and then there is stupidity.  Press Secretary Carney fits both categories.  If you recall, the Administration put forth the logic that the trillions of dollars infused into the economy "saved something like 2 to 3 million or so jobs," not create jobs.  The 2 to 3 million or so figure was pulled out of thin air. There is not one economics text that has ever incorporated this "saved job concept."  Then again, if your policies are not creating jobs, a good spin would be to say that such polices saved jobs.  In other words, who can refute it?

Well, now we have statements being made that unemployment benefits will create up to 1 million jobs.  You gotta being kidding me.  No, I am afraid not, because Carney is now talking about the creation of jobs with unemployment benefits.  The sad fact is that there are individuals out there that will believe such logic. 

Picture of Beauty for Investors

What the Market Giveth, It also Taketh!

So much for that one-day rally yesterday.   Monday’s 10,809 closing level did not even hold.  As I indicated earlier today, that level is significant.  A more significant level is the inter-day low of Monday at 10,650.   If the 10,650 level was to be taken out (See the following chart.), that would generate another “bearish signal.”  Please be mindful of that level over the next few days.

I still would not be surprised to see an 8-9% rally from these levels, which would bring the Dow to the 200-day EMA.   However, saying that, 10,650 on the Dow must not be taken out.

What's Up with the Market?

It appears that a retest of Monday's close is in progress.  (See following chart.)  I would say for the "bulltarts" out there that Monday's close better hold!

The "FED"

In today's "Opinion Section" of the Wall Street Journal, entitled, "Doubling Down on Zero," is a succinct narrative on the Fed's continuation of its "Zero Interest Rate Policy."  An excerpt from the article is as follows:
  
"The Fed's QE2 experiment, which began last September, ended on June 30 with little to show for it. Asset prices rose as the Fed's bond purchases pushed investors into riskier assets (stocks and commodities).  But the prices of those assets have since fallen back down to what investors think they're worth.

The Fed had hoped that boosting asset prices would create "wealth effects," or an increase in spending that accompanies an increase in perceived wealth.  But the Fed can't dictate which asset prices will rise, and liquidity flowed into commodities as well as stocks.

Thus any wealth effect was offset by negative "income effects" as Americans suffered a decline in real income from paying more for food and energy because of the commodity-price bubble.  Economic growth has decelerated over the past year despite QE2, so we wonder what good Mr. Bernanke thinks it did. We're hard-pressed to see what good QE3 would do as well.  But, we will probably find out when QE3 happens that the outcome is the same."

Unions Lose in Wisconsin

 A stand by Wisconsin Republicans against a massive effort to oust them from power could reverberate across the country as the battle over union rights and the conservative revolution heads toward the 2012 presidential race.

Exchanges Invoke Rule 48 at Open

"Because Monday seems so long ago.  And to think, the market surged over 3% yesterday on something... what exactly was it? Oh, yes, idiot momentum."  Click-on "Rule 48" for its meaning.

Man of the Day, or Every Dog has its Day

Apple is about to Pass Exxon as the Most Valuable U.S. Company

Apple's market capitalization, as of the market's close today, is about $347 billion.  Exxon Mobil's market capitalization is $348 billion.  Does this mean people need iPads and iPhones more than oil?  Now, don't get me wrong.  I love all of Apple's products.  I have them.  But please, Exxon sells a product that people need.  Apple sells a product that people want.

Get That Magnifying Glass Out

Yesterday, the 13/34 EMAs signaled a trend change to "Bearish."  Our 15/40 EMAs is very close to a trend change to "Bearish."  But, since it is a "weekly" indicator, the 15-week EMA must be lower than the 40-week EMA on a Friday close. 

Who's AAA?

Sixteen countries remain with that distinct designation.  They are as follows:

1. Australia
2. Austria
3. Canada
4. Denmark
5. Finland
6. France
7. Germany
8. Isle of Man
9. Luxembourg
10. Netherlands
11. New Zealand
12. Norway
13. Singapore
14. Sweden
15. Switzerland
16. United Kingdom

The Tea Party Did It!

Greece Bars All Short Selling For 2 Months

Like this is really going to work!  Just go ahead and blame it on the "Bears."  When the real culprits are the central banks and their stooges (governments).  But, isn't it interesting that no one complains when equity prices are manipulated by actions of central banks on the upside.  Go figure!

Nothing Goes Down Forever!

Markets are off 3% plus going into the second hour of trading.  For intermediate to long-term investors, I have three trading rules:

1. Follow the relationship between the 15-week EMA and 40-week EMA.  [That is, if the 15-week EMA > 40-week EMA, market trend is up (Bullish).  If the 15-week EMA < 40-week EMA, market trend is down (Bearish).]
2. Follow Rule #1.
3. Don't forget Rule #1 and #2. 

Even though I am very negative (bearish) on our economy going forward, likewise the market, an investor must not let one's emotions take control.  That is why my focus is on the 15/40 EMA strategy. 

American Economy Going Forward

Start preparing yourself mentally; because if you thought 2008-09 was a debacle, 2012-14 will be your worse "nightmare!"

DOWNGRADED!!

The United States of America lost its top-notch AAA credit rating from S&P.  We are now rated lower than bonds issued by countries such as UK, Germany, France and Canada.  A very sad situation for us; however, it is totally of our making.  Hopefully, this Administration and Congress will finally get its act together and do some "real cutting" to government spending.

Economic Data to Ponder

Our economic conditions are not improving.  Ponder some of the following data released today: 

1. Just 58% of working-age Americans has jobs, lowest since July 1983!  
2. Food stamp use rises to record 45.8 million individuals, or about one in every six Americans.
3. Average length of unemployment reached a new all time high of 40.4 weeks in July, up from the previous record of 39.9 in June.  
4. Fannie Mae needs another $5.1 billion in aid from the Treasury.  So far, it has received $103.8 billion.

Market Update

Market-Wide Circuit Breakers

In the event of a 30% decline in the DJIA, regardless of time during trading hours, the market closes for the day.

Pressured by White House, Treasury Secretary Is Expected to Stay at Post

The New York Times reports that Geithner will be staying on as Treasury Secretary.  This is not good news, because it simply means more of the failed economic policies (Read as more spending!) of the past three years.  Then, what economic polices?  Read "The Forgotten Depression of 1920."  

Kick-the-Can Down the Road, Part II

The proposed spending cuts are not true reductions in the federal budget.  These cuts simply slow down the pace of future spending increases.  What does that mean?  Specifically, the federal government had planned to incur $10 trillion in additional debt over the next decade.  Now, the spending increase will just be $7 trillion.  Therefore, instead of the current $14.3 trillion federal debt growing to $24 trillion, the debt will only be approximately $21 trillion. 

Kick-the-Can

Well, the "debt ceiling" has been passed by the House of Representatives.  Now, just the formality of the Senate doing its job tomorrow.  Therefore, we have once again "kicked-the-can down the street."  No debt default this week.  That will come later!

Ok, what does this mean for the next fiscal year by way of increase/cutting federal spending?  In very simple language,  federal spending will go up by at least $256 billion (minimum of an 8% increase) while discretionary spending, which has just been approved, will decrease by $23 billion.  Therefore, total federal spending will increase next year by a "net" of least $233 billion.