Shenandoah

by John Galt

January 31, 2010

The roof, the roof, the roof is on fire,
The roof, the roof, the roof is on fire,
The roof, the roof, the roof is on fire,
We don’t need no water let the mother***ker burn,
Burn mother***ker burn.

-The Bloodhound Gang, Fire-Water-Burn

Sorry if you’re offended. Well, maybe not so much.

If you get the hint that I am a bit lighthearted about tonight’s month end market review, well you’re correct. There has been a wave building against this market since the March lows of 666 and the stupidity we have seen over the last two years is about to be highlighted and accentuated by the consequences of a 350% debt to GDP ratio with a government at every level that is clueless; and when I say every level I mean that, be it Executive, Legislative and Judicial. The absurd behavior of our leaders and their minions is about to bring onshore a nasty second wave of the storm that I warned about last summer, you remember right? The one titled “Welcome to the Eye of the Storm” that I wrote about last summer? Here is the latest satellite photo showing the position of the average American citizen in the Great Hurricane of the 2000’s and where we are located now:

Assuming the world’s magnetic poles have not flipped and that hurricanes like the Category 5 Wilma (or Bernanke, your choice) pictured above still move towards the Northeast in general, we are screwed. The storm wobbled, we’re in the eye wall and our leaders are telling us to ignore the rain and wind and go shopping and hire more people. I’ve never, in my entire life so help me God, heard such moronic economic ignorance as I did during President Benson’s speech the other night.

And just like the butler named Benson in that fantastic 1970’s television show Soap, our President essentially said  “I ain’t gettin’ it” and won’t even begin to try. He wants to pay back the voters who dared to raise hell about socialized medicine and the loss of freedoms he wanted to seize. Imagine that won’t you. How dare we contest his wisdom, his brilliance, his plans and dare to question that little dwarf who dispenses Lucky Charms when he’s not doing his Turbo Taxes or acting as the Treasury Secretary by sucking up to Ben Bernanke or Goldman Sachs.

But I digress, I think, because I can.

The markets basically have been voting for weeks and months now and I have been chronicling this nonsense but only (time to freak out commielibs) Glenn Beck paid any attention to me in the MSM. The 1-3-6 rule so far, although not infallible yet, has been telling the tale of the tape. Money is still pouring into the short end of the Treasury market but not so much into equities. Need proof?

1/29/10 Close:

1 Month Yield……………0.005%

3 Month Yield……………0.071%

6 Month Yield……………0.150%

While the banksters view this as a positive, the reality is that the retirees in the United States who are used to the traditional save and relax programs ingrained in over 100 years of the American lifestyle are getting screwed not just by the invisible inflation and lies created by the BLS, they are losing money with every CD they pile their monies into. Just like the foreigners and hedge funds who are praying that the short term Treasury market continues to remain liquid so they can sell out, get their dollars and flee our shores as soon as possible. Money is NOT flowing into equities or long term government bonds. Otherwise these yields would skyrocket above 0.25% each immediately. So where are the dollars going? More on that in another rant….and soon….

I. The Goldman Rule

What we have here is a failure to communicate.

Sorry, my bad, wrong movie, wrong theme for tonight. Or is it? The boys at Goldman Sachs are adding to the votes of the short term bond market by telling old Obamer that they think he and his policies, uh, well, look at the chart and think well, SUCK. Even for the novice market technician, you can see that a death cross is probably imminent on GS and JPM (below) and that will probably be followed by the same on the S&P 500 which appears to be rolling over.  Let’s zoom in on Goldman’s recent action for dramatic effect:

Man, oh, man, oh, man; I haven’t seen a beating like that since the last candidate’s election result that Obamer went to try to help! Oops. That was just last week. Never mind, let’s see if we have a trend here…..

Let’s see. Two major financials; actually THE two major financial non-GSE stocks. Both moved DOWN with huge volume this past month. And Cramer is on television saying it is time to buy the banks again tonight. That bitch would attempt to catch a falling machete in his teeth falling from the top of the Empire State building if he thought he could squeeze a 10 cent per share profit. Oh, okay, that’s a complete exaggeration and I admit it. He’d put your mother and her retirement account out there and tell them to catch it to double their money. Feel better? The truth from these two charts which control oh so much of our economy is that there is a great deal of pain ahead the next 60 days and if you follow GS alone on a daily basis from 3 p.m. forward you have a pretty good idea as to what is happening next in the markets. The fact that both of these major players sliced through their 50 and 200 day moving averages with serious conviction pretty much gives you an idea as to where the markets are heading as a general rule.  In my opinion, I do not see support for Goldman until the stock reaches the 125 area and if it fails there, 100 is pretty much the major support level from a psychological standpoint. By then it would be moot as the rest of the market wold have cratered severely and we would witness all sorts of panic on Wall Street and in D.C.

II. I SPY Trouble

The thing that I spy in this chart is that the SPY (S&P 500 SPDRs) which mirrors the S&P 500 is that the market is telling us that we could be in a world of hurt should it follow up in the months ahead as it dead before. All sorts of market technical red flags have gone up as illustrated by the behavior of GS and JPM above and the cash S&P reflects the move above in the same manner; declining prices on a weekly basis and as prices decline, volume increases, a sure hint that a rout is possible in the near future.

As I demonstrated in the two charts above, the pattern on the weekly charts has returned and that means CNBC gnashing of teeth, crying, whining and further declines in their viewership (Soon to be below the infomercial channel) will occur in all likelihood. Add in the nasty pattern zoomed in over the last six months:

In other words, we’re going to fill that little gap and the bonce between 870-905 could determine a lot of things. I still rely on my original thesis when I predicted a major decline mid-year and the potential for a retest of 666 and if things work properly in the markets without massive interference, a retest of the range from February 1995 to March 1995 in the 467-495 range is entirely possible should the markets violate the 600 price level on a weekly closing basis with volume. Thus the administration might want to quit pissing on the hand that feeds him, aka, the financial industry before they put the BJC tag on him permanently.

Just so you do not think this is a S&P or large cap phenomenon here’s a chart of the Russell 2000 as illustrated by the IWM:

Ouch. The bananas in our Banana Republic continue to rule. And that’s just danged scary when you think about how this administration is treating private enterprise at this moment…

III. Obamanomics = Hoovernomics=Bushnomics=AAAAAAAAAAAHHHHHHHHH WE’RE ALL GOING TO DIE!!!!!!

Yup, that’s from the Bureau of Economic Analysis but I decided to “spice” it up a wee bit with old George crying as the dollar with his picture is dying. The fac that we have managed to run deficits year after year is one thing; the fact that we are running them now to sustain the unsustainable illustrates to a “T” the idiocy of Keynesian economics. For those that think things are improving, well, let’s look at the weekly unemployment claims, without the political, er, seasonal adjustments.

The graph with the crude uptrend line that I have added, pretty much tells the story. No matter how you paint it, the long term trend still appears to be intact and that is for more claims, week after week. No matter the economic voodoo the BLS and current administration attempt to create as a spell over the masses, the hard reality is that more people are filing first time claims and worse, more people are losing their extended benefits, soon to reach 250,000 per week. The loss of emergency benefits in many states will result eventually in an upsurge in social discontent and we do not wish to imagine where that might lead.

To give you some perspective on just how severe the disbelief in the numbers presented by the government are being received and the lack of any appreciable money being shifted from safety to the equity markets, you simply have to watch the 1-3-6 rule and once again this week, the one month bill went negative on the 27th, which indicates that people are running for the safest, most liquid markets to protect capital, yet with the “gee wowsers” GDP number this week and other “improving” statistical indicators, you have to ask yourself why?

Rick Santelli would often scream that this is a horrific short term indicator during the peak of the crisis in the fall of 2008 and spring of 2009, yet few would pay attention. Rick, have no fear, some of us listen to every word you say on the matter.

Thus you take the GDP data, the moves in the equity markets, the flight to the dollar and the relative stability of  the gold markets considering the other moves it does not take much to deduce that nobody wants to make a commitment except for maybe to the short side and worse, despite the best efforts of the Department of Economic Propaganda and their GE owned minions, the world, aka markets, have suspended belief in much of the data being presented to validate the recovery being touted as only a statistical burp for now, with the risk of a double dip more evident than ever. Watch the Goldman Rule and 1-3-6 indicators for some clue as to where not just the markets but our economy is actually heading. I think we may well see a massive down turn in the economy again as the foreclosures accelerate again along with the housing market deteriorating further in the spring of this year.  If the S&P fails to hold 901 then a break to retest the March 2009 lows is quite possibly in the future and that would change the political landscape as much as the fall 2008 crisis guaranteed a massive Democratic victory during that election. The problem with such a move this time is that the consequences with an extreme leftist administration will more than likely expand the level of nationalizations and regulatory expansion instead of allowing the free markets to finish the correction that was being started in the 2002-2003 time period. God help us should that occur for the upheaval on Wall Street would filter down to Main Street in very short order with much more dramatic consequences for unemployment duration and job creation for many years to come, not to mention the final flight of foreign capital from our shores.