Tuesday, August 31, 2010

Market comments for Aug. 31st. (Update)

I'll let the numbers say it all this morning on the release of PMI and comments from Forex. Here's the data:

Chicago PMI comes in at 56.7 Weaker than expectations
Written August 31, 2010 at 9:45 AM EST by Greg Michalowski

Chicago PMI 56.7
Business barometer 56.7 vs 62.3
Prices paid 57.2 vs 58.1 last month
Production 57.6 vs 65.0 last month
New orders 55.0 vs 64.6 last month
Order backlogs 56.2 vs 57.6 last month
Inventories 46.5 vs 50.8 last month
Employment 55.5 vs 56.6 last month
Supplier deliveries 61.2 vs 59.4 last month

So all the numbers are weaker than expected. What's amazing still is that the market rallied on the data as it was down about 44 on the Dow before the release of the numbers and after they are now in positive territory. I don't expect this to last and do expect a deterioration in markets. Much will hinge on the Consumer Confidence number which will also be worse than expected in my view. Come back shortly and see it as an Update.

UPDATE: 7"00am PST

Consumer Confidence up to 53.5 from an expected drop. It was expected to come in at 49.5 and in the prior period it came in at 50.4, so this is better than expected. It is amazing how they are spinning this on CNBC as a big positive.

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Sunday, August 29, 2010

Week of August 30th Economic data to be released (Update)

Here is a look at this week's economic data and what the expectations are. As usual, Thursday's Initial Jobless Claims are very important but also, so is the Unemployment rate for August which comes out on Friday. Tuesday has the Minutes of the FOMC meeting being released, which are always subject to the interpreter. So there will be much to look at. A good way to sort this is to look at which indicators have to do with Q2, which has long been over, and which data are current and forward looking. The oldest data is looking as far back as Q2, then look at the data which looks somewhat backwards within Q3, and lastly, the most current data, which will be of the past 1-2 weeks. Initial Jobless Claims falls into the latter information, as does Chicago PMI, and Consumer Confidence. Most of the other data is at least a month old or as much as 2 months old. Come back during the week to get the actual data, as it is released. Then look at the recent charts I have posted and make up your own mind as to the state of affairs in the economy.

Be sure to read my last post too as it is one of my better ones recently. Thanks!

Update: 8:15am PST Aug. 30th

The data is in for today's results. Everything came in at expectation except there was an increase in Personal Spending to +0.4%. Personal Income came in at +0.2%, as expected.

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Saturday, August 28, 2010

A review of the economy, the stock market and where we are with respect to historical norms

A review of a 2 year chart of the S&P 500 below, shows that on Thursday we broke just below the support level going back to the 2008 lows. We bounced back above it yesterday but indeed it does set up an interesting September and October period. We have been in a relatively tight range now since about June and one way or another we are either going to break below the Red support line or we are going to break above the Blue resistance line. After Fed Chairman Bernanke's speech yesterday, the optimists bet we were going to break above resistance. They succeeded and drove the market back up over the red support line with a gain of 17 points on the S&P 500 or 1.6% and a gain of a whopping 164 points or 1.6% on the Dow, to get comfortably back above Dow 10,000, closing at 10,150. (You can click on any chart here to make it bigger and then go back a page to continue reading)

But the reasoning for this strong rally, which came with an increase in Volume, was that the revised GDP for Q2 wasn't as bad as many had thought, coming in at 1.6%. Fears were that it would come in at 1.3% or less. That was the cause for the celebration. Another situation where bad news (a quarter of only 1.6% growth when we need 3-4% growth) had many fooled into thinking the economy is getting better. It just isn't so, if you look at many of the facts reported this past week. Admittedly, much of the data released this week and last was not good for a recovery. That tells us more about the quarter we are in, than the 2nd quarter, which is long gone. But I suspect, in the coming week or two, many are going to rethink these numbers and realize the most recent data suggests we are getting worse than we were in Q2 and that Q3 may be zero growth to negative growth.

Let's review the data from the past 2 weeks to see where we are with only 30 days or so left before the end of Q3.

The biggest concern was the Initial jobless Claims of 2 weeks ago. They came in unexpectedly at 500K. Expectations were they would have come in at 470K. That's a 30K jobless claims difference. This week they came in at 473K versus an expectation of 476K. Now the headlines were that the number came in better than expected and while that is true, it was only a 3K difference between what was expected and what the actuals were. And they revised that previous week's data from 500K to 504K. No one paid any attention to that revision, as there was not one comment made about that. So overall, is almost 1 million jobs lost in 2 weeks good for the economy for the 3rd Quarter, or not?

Now let's look at the item most affected by people out of a job-- Existing Home Sales-- because they can't afford to pay their mortgages, and are trying to sell these homes before they go into foreclosure. Existing Home Sales came in this week at 3.83 Million Homes. Does this sound like a lot of homes? Let me put it into perspective. It was a decline of 27.2% from the previous month of 5.27 Million Homes. The number shows a huge drop on a chart, as you can see below.

Ok, we've looked at Initial Jobless Claims, and we have looked at Existing Home Sales. Now let's look at whether the Consumer is buying anything, by looking at Durable Goods Orders for July, the first month of Q3. Durable Goods Orders were expected to come in at +3.0% and what came in was a miserly +0.3%. That is a huge difference. Consumers aren't buying and they represent 70% of the economy. Below is what the data looks like charted. Kind of flat, isn't it?

The only thing left to look at is the mood of Consumers. Is it getting better or worse and how does it compare to the past? As you can see from the chart below, we are not at the lows but we did drop a bit and are not where we need to be. Consumers need to be buying products and helping to create a vibrant economy. I could argue that this is a good thing as many were motivated by a spending spree, unparalleled in our history. Changing to a more modest behavior will help people save more and have a cushion, instead of going from paycheck to paycheck to survive. Indeed the Savings rate has been moving up as is shown on the chart below. The Current Personal Savings Rate is 6.2% among Americans. And reporting on my Mini Poll, I asked my readers if they would borrow money from banks if credit were easier to access. 80% said no, with 118 of you voting.

So if you look at all this data, you can come to the conclusion that while we are not at the very lows where we were in 2008, we certainly aren't anywhere near recovery. The only thing showing recovery has been the stock market. In that case, the stock market has moved way beyond reality even if you assume the market is 6 months ahead of current economic data. The reason for this in my view is that companies have achieved their earnings targets. They have done so not by increased revenue form Sales, but rather by belt tightening and layoffs. This is shown by both the Initial Jobless Claims and the official Unemployment Rate not improving, and a case could be made it is getting worse. Besides the real unemployment rate including underemployed is between 20 and 22 Million Americans, as the chart below shows. That is not a good thing. Look at the Blue line on the chart below and notice it isn't dropping at all.

Add to this the political dilemma we are in, with partisanship being led by the Republican Party and Tea Bag movement, enjoined by Democrats, and you have a condition ripe for potential violence. We have never been so polarized as a country in our lifetime. I wrote about this in an earlier post titled, Where are the Adults?! It is related to this, if you haven't yet.

So we enter the most volatile month of the year in a few days and this one will be no different. The only question is how much of a shift will there be? I'm betting it is significant.

Moral of the story: There is BS out there.

Please vote in my new Mini Poll on the right margin. Thanks.

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Friday, August 27, 2010

Market comments for Aug. 27th (UPDATE)

While I was waiting for the GDP numbers to be released this morning and knowing September was just around the corner, I was wondering how this Sept. markets were going to be compared to other years. Then I got the Chart of the Day from chartoftheday.com and see they have answered my question with today's chart. It isn't looking pretty is it.

The GDP number came in at +1.6% Revised from 2.4% previous estimates and they had expected the number to come in at +1.3%. Before the release of the number the Dow Futures were up +27 and after the release of the data it is at +68. There is a definite upward bias going into the open this morning. European markets are mixed with not much movement up or down at this point. Think about this for a moment. When is a 1.6% revised GDP worth it for the markets to go up? Answer: When they thought it would be much worse! That's where we really are in this economy!

Only 3 trading days left in August. As you can see from the chart above that August usually is barely over +0.2% gains for the month. The Dow closed July at 10,466, so we are significantly down form that going into today's trading. We started off the year at a Dow of 10,428, so we are definitely down for the entire year so far and I don't see any recovery in the market before the end of the year and as I have stated many times I see us going a lot lower into the next year. So hang on to your hats today as it is difficult to guess whether the market will be pumped up or trashed. VIX should be something to watch today. Yesterday it closed at 27.37 and for the past it has stayed above its 50 day Moving Average for the first time in about a month and a half.

Fed Chairman, Bernanke, will be speaking today in the Jackson Hole, WY gathering of business leaders and is expected to take questions from them. His comments will move the markets.

With the Dow set to move back up today, expect Gold to also go up so that the net Dow to Gold ratio stays low. It has been recently in an 8.1 to 8.3 range and I don't see this ratio going higher any time soon. In fact I see it going lower. The net is that when the Dow does rise, its real value as measured by Gold is less.

UPDATE: 7:00am PST
While the Fed Chairman was releasing his speech to the press, the Univ. of Michigan Consumer Sentiment number was released and it came in lower than expected at 68.9 vs an expectation of 69.6 for August. Last month the data came in at 69.6, so this is even lower and marks a number of months it has slipped.

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Thursday, August 26, 2010

The Economy and Discretionary Spending

Since the Q2 GDP numbers are to be announced tomorrow, I thought it would be appropriate to write something on the economy. Many are wondering when the economy will be coming back to pre recession levels. I gave this some thought and when you look at the math, it looks dismal. Let’s take an analytical look at it.

First, let’s begin with the Consumer. The Consumer has been responsible for 70% of the spending in the country. The other 30% comes from the Business community buying from each other. Since nominal GDP (Gross Domestic Product) of the United States was $14.2 Trillion dollars in 2009. Assuming the Consumer contribution, of 70%, that comes to $9.94 Trillion dollars. Ok, now let’s assume that even though the numbers I presented are for 2009, let’s assume there was no recession that year. (The reason I say that was because the nominal GDP for 2007 was $13.8 Trillion dollars, not far off from 2009.)

The Unemployment rate in 2007 was only 4.6%, while today it is 9.5-9.7%, and was as high as nearly 20%, if one counts those not collecting benefits and have given up looking for work. There are about 237 Million people in the Civilian non-institutional population and the Civilian Labor Force has about 153 Million people. The officially unemployed total about 15 million people.

In 2006, total discretionary income totaled $1.7 Trillion dollars in 2006. Nearly 78% of all discretionary income is held by households earning more than $100,000. “While the percentage of households with discretionary income has risen over the past several years, purchasing power remains concentrated in the wallets of the affluent,” said Lynn Franco, director of The Conference Board Consumer Research Center.

So if you take approximately $10 Trillion spent by Consumers, and then figure in the unemployment rate of approximately 10%, you have about $1Trillion less dollars for Consumers to spend. Add in the fact that 78% of all discretionary spending is from households earning more than $100,000, and it is even a higher number than $1 Trillion. That doesn’t include the businesses that don’t have money to spend buying other’s equipment, which represents the 30% of spending done by business. There could be another $1 Trillion less spending by business. That’s a huge hit on the economy.

If you put the $2+ Trillion out of the economy and then add in the Governments $0.8 Trillion Stimulus package, you can see we still are a long way off to making up the difference. As long as we continue to have 9-10% Unemployment rate and higher real Unemployment, we will not come out of this mess anytime soon. This implies to me not to believe the stock market will continue to rise. As a matter of fact, when these inferences become more recognized as truth, the markets will sell off. We will know by September/October this year whether that plays out. Oh, and by the way, conveniently, this is just before the November mid term election, where the Republican Party hopes to make much gains and take over the Congress. It will be the time when Democrats are most vulnerable.

Also, I found this link to the Great Depression from a Historical perspective. Check it out and learn what a Depression is really like. Not many living today have any experiences living in Depression times. David Rosenberg, formerly Chief Economist at Merrill Lynch, said this week that we are not in a recession, we are now in a Depression!

I also have a book I enjoy reading about the Great Depression. It is titled, “Only Yesterday and Since Today”. It was written by Frederick Lewis Allen originally in 1931 for Volume 1 and then 1940 for Volume 2, as there are two Volumes in the one book. They did an update of the book in 1986.

The other book I read is titled “The Worst Hard Times” by Timothy Eagan, a NY Times national enterprise reporter. The book was on the NY Times Notable Book list. The author is a Pulitzer Prize winner and has written 4 books. This book is about those who survived the Great American Dust Bowl. It shows the determination of Americans in the worst hard times imaginable. We were once a tough, proud people who were civil to one another even in desperate times. Look at us today.

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Market comments for Aug. 26th

Well the Initial Jobless Claims number came in at 473K this week. Expectations were for 475K, so they came in as expected. As El-Erian, Co CEO of Pimco said this morning on CNBC, "The number is as was expected but it isn't a good number." The prior week was revised up from 500K to 504K. Continuing Claims came in at 4.456 Million vs an expectation of 4.500 Million. The prior week was revised up from 4.478 Million to 4.518 Million. But look at this Bloomberg.com headline on the results: "Jobless Claims in U.S. Decline More Than Economists Estimated to 473,000." Gee that's only 2K shy of what they expected and well within rounding error given they revised the previous week up 4K. So as far as I am concerned it came in as expected. But this title is meant to make people feel things are getting better. Unbelievable!

Tomorrow at 5:30am PST, the Q2 initial GDP estimate will be reported. Expectations are for 1.3%. Prior Quarter was 2.4%, so we will see what they think as to how much the 2nd quarter started to slow down. This is an easy number to manipulate because all it is a a bunch of guesses and extrapolations. We won't know for a few months what it really came in as. Also tomorrow in Univ. of Michigan Consumer Sentiment, which will be released at 6:55am PST or 9:55am EST.

Dow Futures are up 38 points in pre-market so the reaction looks muted to the Jobless Claims and actually may give some relief to the market today. European markets are up almost 1% today. And the Nikkei was up about 60 points in overnight trading but it did not climb back up over 9,000. It closed at 8,906. Gold is down only $1.00 this morning. I would expect it to drop a little more with the market ready to rise some.

There are only 4 trading days left in August.

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Tuesday, August 24, 2010

Market comments for Aug. 25th (UPDATE)

The Nikkei 225 has dropped for the first time since April 2009, to below 9,000 this evening and will set the tone for trading tomorrow. From the chart above you can clearly see that we broke below previous support level of 9,000. To get a sense on how much the Dow is over valued, back in April of 2009 the Dow was at 8,000 at that time.

There is no doubt in my mind that the world markets will catch up with our market and even the Fed won't be able to help. The Dow, S&P 500 and the Nasdaq will all drop this Fall, which by the way starts officially in about a week or so.

Economic data to be released at 8:30am EST are Durable Goods Orders for July and New Home Sales for July. Expectations are that Durable Goods orders will come in at +3.2% while last month they came in at -1.2%. New Home Sales are expected to be 300K. June's data came in at 330K New Home Sales.


DURABLE GOODS ORDERS came in at +3.0%, which is less than expected, but the Ex-Transportation data came in at -3.8%. That is terrible, as expectations were that they would come in at +0.5%. Last month's number came in at -0.9%, so that is another month down. New Home Sales comes in at 10:00am EST. Expectations are the number will be 300K. Stay tuned! Futures are down on the Dow to -57 so far.

UPDATE: 3:45pm EST
New Home Sales came in at 276K, a little less than expected. Also the previous month was revised downward from 330K down to 315K.

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Where are the Adults?!

As the stock market continues to drop and the mid term elections get closer, the dialogue on the Cable TV and radio stations is heating up to the point where we are going to shut the boob tube and radio off completely and not listen to anything. (That's a good idea anyway!) No matter what station I turn to these days, I hear the anger starting to boil up to the point where people are screaming at each other. There is nothing but blame going on. There is no accountability anywhere for the mess we are in.

The Republicans are blaming the Democrats for the state of the economy, the lack of jobs, the dismal outlook for the housing sector and for not extending the Bush tax cuts for all. The Democrats shriek back on the same points and say the Republicans created all the problems in the first place. This childish behavior must stop on both sides. We need some Adults in both Parties, but I really don't see more than an occasional one, here and there.

I believe we are ready for someone to save us from ourselves, because if we continue on this path we are on, we will have completely destroyed this country, not only for ourselves, but our children and grandchildren. It's hard to get anyone to pay attention and stop it, because they are all to busy being children themselves.

We need a few Adult Americans to stand up and help shake up the conversation and the mindset to help show a new way out of this cesspool of blame and into the sunshine. There are a few adults around. One for instance is Sen. Richard Lugar of Indiana. But he is the only one I can find amongst all 100 Senators. Even the two Independent members of the Senate blame a Party for the problems. In case you can't remember who they are, one is Sen. Joe Lieberman and the other is Sen. Bernie Sanders. In NY, Mayor Bloomberg appears to be one of the Adults. Most politicians and media outlets have gotten caught up in the blame game as well. They think it makes good TV. It doesn't! I am just tired of hearing all the blame, because it does nothing to solve the big problems, which are seminal . There used to be some Adults, when I was growing up. People who could work across the isle in the Senate and the Congress. But not today. We need Adults badly! ARE YOU AN ADULT OR ARE YOU ONE OF THE CHILDREN? Whose fault is that?

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Monday, August 23, 2010

Market comments for Aug. 24th (Update)

The day was positive but closed negative before all was said and done. Tuesday economic data will drive the market as Existing Home Sales gets released at 10:00am EST or 7:00am PST. Last month June's data came in at 5.37 Million homes sold. We had the tax credit then but no more. Expectations for July are to come in at only 460 Million Home Sales. We all expect a lower number so if the number surprises at all to the up side the market will rally. If it is lower than expected say around 450 Million Homes or less, we may see another sell-off. Also, the Richmond Fed will be announcing their data as well at 10:00am EST. The Philly Fed was negative last report, so many eyes will be trained on these numbers to see if the Richmond Fed is also negative.

In any event, Wednesday we will see Durable Goods Orders for July and New Home Sales. Durable Goods Orders are expected to come in at +2.5% for July. June's numbers came in at -1.2%. If Durable Goods orders come in again with a minus number, the market will sell-off in a big way. We all know it has been slow in the economy but now we are getting just how slow it has been.

Thursday is Initial Jobless Claims. Expectations are for 475K for the week. Remember last week many were shocked with the reported 500K. Lastly Friday we will see the fudged GDP number for Q2. Expectations are for 1.3%. Think about that for a moment. That's almost no growth at all. Last quarter the number came in at 2.4% and I expect that number to be revised down to 1.7% or less.

The S&P 500 closed Monday with an inverted Hammer pattern. Usually this would mean that the trend will be reversed, but it is possible to have a number of days with such patterns before a reversal comes about. And when it does, that reversal could be short lived.

Today I purchased additional shares of TZA at $36.50, and was pleased to see it close higher at $38.70/share, even if just for today. I believe these shares will rise during Sept. and October and surprise many who think the recovery is still ongoing, admittedly while slowing somewhat.

Futures are all down and all European markets are also down about 1.0%-1.3% this morning. Oil is down to about $72.50/barrel and isn't that far from the low of $70/barrel for all of 2010.

One last thing, the Put to Call ratio dropped at the close yesterday to 0.71 which we haven't seen since July 19th. I have posted above, the chart of the Put to Call ratio I had posted a few days ago and you can see the spike down we had back then.

UPDATE: 7:00am PST

Existing Home Sales were down 27.2% for July. Expectations were for 460 Million Home Sales and the actual came in at 383 Million Home Sales. That is a very big disappointment.

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Sunday, August 22, 2010

Market comments for Aug. 23rd

I thought before I make any comments about tomorrow that I would show a few comparison charts of the Nikkei and Dow over a 1 year period, as well as the Nikkei vs the S&P500. Both charts are using Log scale. You can see from the Nikkei vs. Dow chart that the Dow has not dropped compared to the Nikkei. It has trended up the past month while the Nikkei has retreated to the bottom of this time period, as indicated by the red line. The S&P 500 has also risen but if you look at the last few chart points it has dropped lower than the Dow for the same period. Again the gap between the lines are at the widest over the one year period. I believe this is indicative that are markets are more out of touch with the reality of the economy and are artificially inflated. However I believe these charts will show narrowing between the lines as the Dow and S&P get closer to the Nikkei and all will drop shortly.

Not any real news on the economy being announced tomorrow so we may get a short tempered rally after Options expired last Friday. Tuesday and Thursday are more important days to watch for economic news. Thursday's are always releasing Initial Jobless Claims and on Tuesday we get data on Existing Home Sales. I will post all the economic data in my next Blog post and what to expect this week. Don't forget to come back.

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Thursday, August 19, 2010

Market commentary for Aug. 20th

First, let's take a look at the market action yesterday. Both the Dow & S&P 500 hasn't closed at this low a level since July 21st. The volume on the selloff today was the highest for the week. We closed below the 50 day Moving Average (MA) on both Indexes today and remain below the 200 day MA as well. The Dow closed today at 10,271. The next test will be at 10,100 on the Dow, as there is some support there. For the S&P 500 support is at 1065, which is not far from the 1075 close today. We remain between the bands drawn a few days ago on the Dow and S&P and are still in a tight range. There is no important data to be released Friday. It is August Options Expiration day.

I have included a chart today of the Put to Call ratio for 2010. I have included this chart before and it might be worthwhile to go back and read my comments on July 26th about 2009 and 2010 data by clicking here.
You will notice that the ratio was in a tight range recently after dropping from a wider range before that. In the last 8 days, the Put to Call Ratio has been above 1.00 in 6 out of the past 8 days. It may be shifting again to the previous period when the range went much higher and the lows were mostly higher.

The VIX closed up over its 50 day MA for the first time since the beginning of July. It is too early to make any predictions so more time needs to play out but both of these indicators are worth watching on a daily basis for a while.

Now many think that the stock market has been up except for the past few days and the highs a week ago. I would like to dispel that notion right now. as it is all smoke and mirrors. If you look at the Dow chart above, it looks like only a few days have we been dropping. But then look at the Dow Gold ratio chart for exactly the same period and you will have a different perspective. In real terms the stock market has been losing real value for a while now.

I want to send a thanks out to Vic for his kind words and comment yesterday. Thanks Vic.

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Market comments for Aug. 19th. (Update)

The Initial Jobless Claims number was announced this morning with the following headlines. "Initial Jobless Claims rose "unexpectedly" to 500,000, the highest since November of 2009, showing companies are stepping up the pace of firings as the economy slows." That says it all. The only thing I would add to the announcement is that many people, including me, expected the number to increase, not decrease. Signs are all around us that the economy is slowing if people just open their eyes.

The prior week's reading was also revised upward from 484,000 to 488,000 Initial Jobless Claims.

The Dow Futures was up about 50 points before the news as was European markets but after the news all fell into the negative. Now the Dow Futures is up slightly.

I expect the market to sell off today, even though it looks like a moderate gain at the open. This news is terrible for the Average family across America, as it says their jobs are even more at risk and this will have a significant affect on Consumer Spending for this quarter and the remainder of the year. This also sets up the Fall Mid Term elections against incumbents and especially Democrats who will most likely lose many seats in Congress to Republicans. So this could start the expected downturn in the market setting up a bad Sept. and October. Options for August expire tomorrow.

I noticed that not much discussion on CNBC this morning about the topic as they appear to want to hide it or get people focused on other news. Dow Futures now down -1.

Update: 7:05am PST

The Philly Fed Index came in a whopping -7.7 for August compared with +5.1 for July. The market has reacted appropriately dropping down about 150 points on the Dow. Other news was that the Leading Indicators came in at +0.1%, which was expected. I believe this number will be revised down next month.

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Tuesday, August 17, 2010

Market comment for Aug. 18th

It is going to be a quiet day. No real economic data is released until Thursday, when we get Initial Jobless Claims and Continuing Claims data. The Jobless Claims numbers are very important because we have a number of weeks in a row where there has been an increase. This is not good and in the wrong direction. If the number can come in at equal to or less than 465,000 that will help stop this trend and give us a breather for another week. If the number comes in equal to or over 490,000 that would be nerve-wracking for the market and we could take a bigger step down. Tis would increase the volatility because of Options expiration on Friday.

The Dow and the S&P 500 are in a tight range of about 7-9% as is drawn on the 2 charts above. That is very difficult to trade unless you have some computer program telling you when to buy and when to sell. So best to wait for a breakout one way or another. I am sitting pat expecting the market to drop in Sept. I'll keep that strategy until the data shows something else.

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Economic data released today, Aug. 17th (Update)

The beginning of economic data for the week was released this morning. First up was Housing Starts for July. They came in at 546K. Expectations were for 555K. The prior month was revised down to 537K from 549K. Building Permits for July came in at 565K. Expectations were for 573K. The previous month was revised down to 583K from 586K. While these numbers are lower than expected, it wasn't off by a lot so the market will look at these as good news.

The PPI number came in at +0.2%. The market expected +0.2%, so that was in line with expectations. The Core PPI came in at +0.3% for July. The market expected +0.1%, so this was higher than expected.

Industrial Production came in at +1.0%. The market expected +0.8%, again better than expected.

This has set up the market to rise as the Dow Futures now are +65 going into the open. Now we wait for the Initial Jobless Claims for Thursday and Continuing Claims. The Initial Jobless Claims will be the most important going into Friday's Option Expiration for August.

WallMart had better than expected earnings form oversees growth. That set the market up for a rise earlier. It is clear China is still dragging some of the world economies to a better than expected Q3 GDP number no matter what the final result would be. But if they slow down the world is screwed as is China as expectations have been building with the Chinese population of an ever growing improved condition in their lives. It's hard to get off that drug, once someone has had the initial taste as the Chinese will certainly find out some day. It is their only concern about destabilization within its borders.

UPDATE: 7:45am PST

Capacity Utilization data came in at 74.8%. This was exactly what was expected. It is an uptick from the prior month reading of 74.1%, so it is in the right direction. But Factories need to get to a minimum of 85% to be generating lots of jobs and we have a long way to go to get there. Here is a historical perspective on the data.

Average 1972-2009 79.2%
From 1988-1989 high 85.2%
From 1990-1991 low 78.7%
From 1994-1995 high 85.1%
From 2008-2009 low 68.2%
July 2009 69.1%

Now this is the progression for 2010
Feb. 72.4%
Mar. 72.8%
Apr. 73.1%
May 74.1%
Jun. 74.1%
Jul. 74.8%

So the data is definitely improving and going in the right direction for a recovery but at this rate it would take several years to get back up to 85%, assuming we don't have a setback.

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Saturday, August 14, 2010

The Dow-Gold ratio and what it suggests about the future of the stock market.

Today I have a surprise for my readers. I have put together a chart, as you can see above, of the Dow/Gold ratio going back to 1980 to the close of Friday's market. Each point plotted represents an entire year, except the last point, which was Friday's close. I have the data on a monthly basis on an Excel spreadsheet as well. Here's why this chart is important and what it could portend for the future of the stock market. When I did my earlier stock chart analysis going back 30 years on the Dow and also 30 years on the S&P 500, I predicted we were in a cycle never seen in our generation and that we were headed down on the Dow much more significantly than we could ever imagine. I suggested a Dow of 2,500 as a low. The Dow closed Friday at 10,303, so it's a long way to go down from where we are now and we have never dropped anything like this amount in our lifetime.

Looking closely at the chart above, you will notice that the Dow was at 876 back on Jan. 31, 1980 and Gold was at $653/ounce at that time. With the Dow currently at 10,303 and Gold closing Friday at $1216/ounce, you can also see that if you doubled the 1980 Gold Price you get $1306, which is only off about $80/ounce from Friday's close. If you double the Dow of $876, we should be at $1752. That's not that far off from Dow 2.500, is it? Notice that the slope of the line in the chart from 1980 to about 1995 was gradual but in 1996, it started to ramp up and ultimately reached its peak around Jan. 2001. This was the Bubble that burst first with the Dot.Com business, and then the Sept. 11, 2001 Terrorist attacks in New York. Since then we have steadily declined. The Housing bubble peaked in 2005 and 2006 and the Sub-Prime defaults started in 2007 and accelerated in 2008 and the rise of unemployment started to rise from 5% in April 2008 to a peak so far of 10.1% in Oct. 2009.

The third from the last point is where President Obama began his term as President and the Unemployment rate at his inauguration was 8.7%. While this Dow/Gold ratio chart looks like it has leveled off, I am pretty confident it hasn't. I believe we are in for a shorter tail down to a ratio of about 4.0. This means both the Dow will drop as will Gold prices, but the Dow drop will be greater than the Gold. When I looked at the charts of the price of Gold, I saw Gold dropping down to about $600-$700/ounce. That too is a long way from $1216/ounce. Many believe Gold will go way up and the Dow will stay close to where it is now and have predicted Gold at $3000-$5000/ounce. I get their promotional emails to Buy Gold too. I just don't see that happening. It seems much more realistic that the Dow will be the major drop, hence the bearish outlook I have had now for a year.

Now lets look at the Dow chart above, from the same time period. You can see that while the Dow Gold ratio has dropped significantly since 2007, the Dow remains up since 2008 lows because, in my view, the market has been manipulated by the Fed through there Quantitative Easing policy and printing money out of thin air. Then they give it to Goldman Sachs and say buy stock for us. It would make sense if the Dow were at 8,000 now, not 10,300.

I would love to hear some comments from you and which you see moving, the Dow, Gold or both and in what direction. Take a risk, leave a message and let's start a dialogue. Click just under this post on the word Comments and follow the instructions. Don't be alarmed if your comment doesn't appear when you are done, as I do read them before posting them to the site and ensure there is not foul language. Other than that, I publish everything.

Thanks for coming by.

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Economic data for the week ahead

This is an important week on many fronts to be paying attention to the data to be released on the economy. Most likely Tuesday's information will be the most important, as a plethora of data will be released in the morning and before the stock market opens. Also to contend with is Options Expiration for August on Friday. Here's the line up and expectations for the data this week.

Monday, Aug. 16th NY Fed, Empire Mfg. Index for August. Market Expects 7.0, Prior Month was 5.1
Tuesday, Aug. 17th Housing Starts for July. Market expects 555K. Prior Month was 549.
Tuesday, Aug. 17th Building Permits for July. Market expects 573. Prior Month was 586.
Tuesday, Aug. 17th PPI for July. Market expects +0.2%. Prior Month was -0.5%
Tuesday, Aug. 17th Core PPI for July. Market expects +0.1%. Prior Month was +0.1%.
Tuesday, Aug, 17th Industrial Production for July. Market expects 0.8%. Prior Month was 0.1%
Tuesday, Aug. 17th Capacity Utilization for July. Market expects 74.8%. Prior Month was 74.1%
Thursday, Aug. 18th Initial Jobless Claims. Market expects 470K. Prior week was 484K.
Thursday, Aug. 19th Continuing Claims. Market expects 4.500 Million. Prior week was 4.452 Million.
Thursday, Aug. 19th Leading Indicators for July. Market expects +0.2%. Prior reading was -0.2%

Friday is Options expiration for August and I do expect increased volatility and an significant increase in Volume on Friday.

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Friday, August 13, 2010

Market comments for Aug. 13th: That's Friday the 13th bad luck! UPDATE

Here we stand on Friday the 13th all wondering whether the direction of the stock market will have a reversal today based upon the recent few days Candlestick patterns, because that is what the patterns say. We should have a minor reversal today. Economic data will not be the determinant today. It won't be the social mood of traders. It will be whether the Fed wants the market to go down another day ending the week.

Even though we expect CPI data today to come in near zero or a negative reading adding to the deflationary case that has been made by many including me, it will not be the decisive data to determine market trend. That direction will need one more week to be determined. Next Friday is Options Expiration for August and 2 weeks before the start of school. Speaking of the return to school, Retail Sales numbers will shed more light on the Consumer as its data is to be released momentarily. Dow Futures before the data release was at -27 for the Dow. So here is the data:

CPI for July came in at +0.3% The market had expected +0.2%. The prior month's reading was -0.1%
Core CPI for July came in at +0.1%The market had expected +0.1%. The prior month's reading was +0.1%

Retail Sales came in at +0.4%. The market had expected +0.5%. The prior month's reading was -0.5%.
Retail Sales ex Autos came in at +0.2%. The market expected +0.4%. The prior month's reading was -0.1%.

The Dow Futures have now moved more negative with the Dow Futures now at -50, so the initial quick reaction was more negative. TIME WILL TELL WHETHER THIS PLAYS OUT FOR THE ENTIRE DAY TODAY.

Michigan Sentiment comes in in about 1 hour and 25 minutes at 9:55am EST or 6:55am PST and I will update this post top add the data so be sure to check back if you are as interested as I am to post it. The market expects 70.0. The prior month's data was 67.80.

Be sure also to visit over the weekend as I will post some charts and show where we are headed and where resistance is on both the Dow and S&P 500. You see on a micro level it is much harder to determine short term market direction. But at a Macro level it is much clearer. Thanks for visiting the site. I also am going to post soon several non stock market commentaries. One will be on the Proposition 8 Court decision which took place this week reversing the ban on Gay Marriage on Constitutional Grounds. The other article I am working on is about opinions by the Chamber of Commerce on Prop 19 in California, which would legalize Marijuana use in California for adults. I have some definite thoughts on both topics.

As I finish writing this post, the Dow Futures have recovered to only -6. So it might not be that bad a Friday the 13th for the Longs but instead could be for the Shorts. Have a nice weekend.

UPDATE: 6:55am PST

Michigan Consumer Sentiment came in at 69.6%, which was not quite 70.0 but close and better than July.

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Thursday, August 12, 2010

Market comments for Aug. 12th. Initial Claims disappoint!

Initial Jobless Claims for the week came in at 484,000. This was again in the wrong direction for a recovery. Last week Initial Jobless Claims came in at 479,000 while only 460,000 were expected that week. This week they were expecting only 465,000 Initial Jobless Claims. And 3 weeks ago the Initial Jobless Claims came in at 457,000 so you can see the trend of Increasing Claims.

The Futures market dropped on most Indexes as the Dow is now at -70. This is not encouraging for those Long the market. It doesn't look like a snapback from yesterday's lows is imminent.

Tomorrow the CPI and Core CPI data will be released for July as will Retail Sales numbers and the Michigan Sentiment data. Be sure to come back here and not only see the data but to get my commentary.

Now a look at the chart of the Dow. You will notice that yesterday's drop of 267 points had the Dow go below the 200 day Moving Average. The same is true for the S&P 500 chart. Also notice that the Volume has picked up each day this week and yesterdays went above the average long trend volume. So the day was a significant Distribution day. Expect this downtrend to continue today with the news on the Initial Jobless Claims. The Hammer pattern discussed in the earlier post of Aug. 5th came through as a predictor of yesterdays' drop. It is worth the time to follow those Candlestick patterns.

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Wednesday, August 11, 2010

Market comments for Aug. 11th: Reality is about to catch up!

The Futures market shows the Dow down 126 in pre-market and the European markets down 1.5% or more. The reality of the recent economic data appears to be catching up to the reality of the hefty prices in the stock market and company valuations. The warning bell has been rung many times over th past 3 months and the rings are getting louder. Oil has broken below $80/barrel for the first time in a while. Then Yen is now down to under 85 to the dollar. Top line Revenue growth has not been the fuel of this past quarters earnings achievement. It has been cost cutting. But that too may be near its end as well as Unit Labor Costs are starting to rise, reported yesterday at +0.2%, and Productivity is starting to wane, reported yesterday at -0.9%. The Trade Balance for June has come in at -$49.9 Billion while it was expected to come in at -$43.0 Billion. The prior month it came in at $42.3 Billion. So this is definitely not going in a good direction. Gold is up over $10/ounce this morning. Exports were down -1.3% and Imports were up 3.0%.

We also expect Initial Jobless Claims to rise again this week. The number expected tomorrow is 465,000 compared to the previous week's expectation of 460,000 but actually came in at 479,000. And on Friday CPI and Core CPI numbers are reported, as well as Retail Sales and the Michigan Sentiment index. So much more news to come this week.

S&P Futures down -16 in premarket and the Nasdaq Futures are down -30. It looks like we may be finally merging reality with the value of the stock market. We are going lower.

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Tuesday, August 10, 2010

Market comments for Aug. 10th (Update)

Economic data released this morning showed Q2 Productivity was the lowest since Q4 of 2008. It came in at -0.9%. Expectations were for +0.1%. Unit Labor Costs rose slightly +0.2%. Expectations were for them to rise 1.3%. Later this morning, data for Wholesale prices will be released. Expectations are Wholesale prices will be at 0.0% gain. I expect it to go negative, showing deflation but 0% is still amazing when you think about it.

Then the big item today is the FOMC will be releasing its rate decision and comments at 2:00pm EST or 11:00am PST., which is being anticipated with some anxiety. People want to know how the Fed will react to deflation and whether there will be more easing of Interest rates. Will the Printing Presses roar printing new money faster than it can be used. The worry had been Inflation but there appears that is not what the Fed is now concerned about. It's Deflation, just like in the 1930's.

Futures are down 105 points on the Dow.


Above is the chart from Haver Analytics of Unit Labor Costs. Trend is pretty bad indeed. Looks like another piece of data showing deflationary times ahead to me

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Saturday, August 07, 2010

Market comments on the past week and looking forward.

This post today is from last Saturday, July 31st because the charts relevance is accurate as of the close of the market yesterday. The 5 year charts of the Dow and S&P500 are comparable and nothing really has changed much in that outlook. So here was that post with a few additional updates:

I have posted 2 charts this morning showing where we are relative to the longer term market trend because many of you are wondering whether we are going back up to new highs in the market. The news outlets are full of people who are predicting just that and say that the worst is over and we are ready for as breakout to the upside. My data analysis suggest that is not going to happen any time soon. I believe we are now most likely to drop over the next few months and into October, as we end Q3.

Let's look at both charts above for a moment. There are similarities in the pattern of both charts and I have added a blue downtrend line for each, which we will not go above, and also a red resistance line, also a barrier to moving higher. I know looking at a 2 month chart gives you a sense we might be going up over Dow 11,000, but I am confident that is not going to occur. We closed at Dow 10,466 yesterday (Dow 10,653 Aug. 6th) . The last 4 days have been down in the Dow, not up and while yesterday's market action for the Dow was impressive (Monday Aug. 2nd was impressive), as the Dow was up much of the day in the face of headwinds caused by a lower than expected Q2 GDP number, it still had negative distribution if you look at the Volume chart. (It was true that we had negative distribution for this week as well, if you look at the +Volume data closing Aug. 6th)

I have been disappointed that so many have been fooled by the media and aren't really giving as much weight to the economic data for the past week. There were many negative readings for the week if you check the previous post. This is not an economy in real recovery. It is weighted down by the Consumer not really seeing things better from their day to day experiences. Until that changes I am sorry but the economy won't really recover as we hope it will. We are unfortunately in this mess for years to come. My guess is at least 5 years from a Housing and Jobs point of view. More foreclosures are lining up this Fall, as Adjustable Rate Mortgages must refinance to Fixed Mortgages, over the coming 6 months to a year and which were set 5 years ago. Many of these people borrowed on their equity and assumed prices would continue to go up as they had for many decades. Unfortunately this group is most likely most vulnerable to foreclosure as they are retired people who borrowed the equity on their homes and now their homes are under water. It is so sad.

UPDATE: Sunday Aug. 1st 6:00pm PST

I changed and updated the original S&P chart from what was posted. Notice that on the S&P chart I have drawn 2 blue lines. Notice that when I connect the #2 Blue line under the last "W" pattern and extend it back over the 5 years, you can see it touches all the low points, this before the market had problems in 2008. To me the use of software program trading has resulted in patterns like this. It isn't just coincidence this happened. It is programmed to. This 2nd line does not show a similar analysis for the Dow. It is likely we will stay bound in the S&P between these 2 blue lines although the #1 blue line is not as much resistance as is the solid red horizontal line which crosses the axis at 1,190.

Update: Aug. 7, 7:15am PST

So this week the S&P, which is the more reliable Index to follow for trends, closed at 1121. There was a sell signal issued on it because a hammer pattern developed this week on Tuesday and it has not gone up since then. I am still waiting for it to reverse this last uptrend. We will not go above 1190 any time soon. Unemployment is getting worse as the data suggested yesterday. Next week CPI is reported on Thursday and to me should show a negative number, meaning deflation is here. The market expects the number will come in either +0.2% or +0.1%. Last month the data was -0.1%.

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Friday, August 06, 2010

Market comments for Aug. 6th

The unemployment numbers released this morning were very disappointing for anyone who cares about the economy and for the people who lost their jobs. Here's a rundown of the data. The most surprising data was Non-Farm Payrolls. The number expected was that they would be down originally about -87,000 and then they revised the expectation downward yet again to -100,000 but the number came in down even further at -131,000. Now that was bad enough, but they also revised last months from being down -125,000 to being down now -221,000, which is a more bleak picture than we had before the data. These are all hard working Americans who lost their jobs, who have families to care for. The Unemployment rate stayed at 9.5%, which didn't make sense as all expected it to go up to 9.6%, but it didn't so you wonder if there is any manipulation going on here.

The Unemployment report is the most important report in a Month and the accompanying Non-Farm Payroll report. The other indicator worth commenting on today is Consumer Credit. It is expected to be down -$5.0 Billion dollars, but the number doesn't come out until 3:00pm EST today.

The Dow Futures are down about -90 and Fair Value was in the positive, so expect the market to be down about -100 around the open this morning.

We have had a hammer pattern 2 days ago on the S&P 500 which said we were going to reverse direction and go down so today plays out that reversal. Also, if you go to the AmericanBulls.com web site you will notice all major indicators are identified as Sell-If ratings based upon their Candlestick patterns. The sell decision is based at the open and if there is a gap from the close yesterday. Indeed all will have that today so the Sell decision is confirmed.

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Thursday, August 05, 2010

Market outlook for Aug. 5th: Still bound by upper resistance levels!

Initial Jobless Claims rose unexpectedly to 479,000 this week compared to an expectation of 450,000. Continuing Claims came in at 4.537 Million, while expectations were of 4.500 Million. Before the numbers were released the Dow Futures were up 10 points and after the number the Futures were down -28 points with Fair Value up 3 points. The Initial Jobless Claims are at the highest level since April. This should have an impact on the markets and has already on European markets going lower than they were. But you never know in this market whether people will just shrug off the news as they have in the past. Why the market is still as high as it is is still confounding because the data is pointing very strongly that we are in a Deflation period which is accelerating.

The chart of the S&P 500 above shows that on Tuesday we formed a Hammer Pattern. This pattern marks a reverse in the previous trend. While yesterday's closing was not down, today's should be to fulfill the Hammer pattern reversal. Watch the S&P 500 today as it should lead the market over the Dow, which often gives confusing signals, because there aren't many stocks in the Dow Index and fewer stocks can be manipulated more easily.

The chart above from Haver Analytics was last updated on July 29th, so it doesn't include this week's data but as you can see 479,000 is clearly a trend in the wrong direction and alarming to many, especially the long term unemployed, often referred to as the 99ers. Those are individuals out of work longer than 99 weeks and get no benefits currently and are living on a string, as an article on the front page of the NY Times said on Tuesday, describing a 49 year old woman who moved out of NY with only a few hundred dollars and drove to Brattleboro, VT and plans to live in her car and try and find some work.

Revisions to the previous week's data were made from 457,000 to 460,000 Initial Claims. Tomorrow the Unemployment rate for July will be released and it was already expected to rise to 9.6% from 9.5%, but with these Initial Claims rising steadily, it could go back up to 9.7% or higher.

Stay tuned and return during today's market action for any Updates which will be posted below.

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Wednesday, August 04, 2010

Market comments for Aug. 4th

Lots of commentary this morning on CNBC by a guest economist, David Gerstenhager, President of Argonaut Capital Management, who says the real threat to the economy is deflation, not inflation and that it is already here in the Housing Sector and the Auto Sector. He was joined by another Chief Economist and former Consultant to the Treasury. They both said the best investment is 10 year Treasuries and that 30 year Treasuries are even better. He sees deflation affecting Corporate earnings negatively, as well. That was an interesting long term view and especially on the super positive cable channel, CNBC, which tends to hype up the market. I agree and have been saying that Deflation is the problem and has been for a while.

Today's chart is on the Dow Gold Ratio from Chart of the Day with my own modifications based upon Monday's close. As you can see the Dow/Gold ratio is 9.0 currently and it continues to go down as the trend shows.

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Tuesday, August 03, 2010

Market comments for Aug. 3rd

Even with yesterday's high on the Dow and S&P 500, we didn't break above the top resistance lines I drew on my previous post on the Dow and S&P 5 year charts on Saturday. Today's data is sobering yesterday's drunken surge in the market. Personal Income came in flat at 0% gain. Personal Spending had no change as well. Factory Orders were down -1.2%, more than consensus estimates of -1.0%. Pending Home Sales were also down -2.6% and -18.6% below June 2009 levels. Expectations were that the number was coming in at -5% for June, so that number was better than expected.

The markets are down about 0.5% after 1 hour of trading now. The big number for the week will be the Unemployment rate for July. Expectations are that Unemployment will rise to 9.6% from 9.5%. Initial Claims also come out on Thursday and expectations are for that number to come in at 460K Claims.

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Monday, August 02, 2010

Why haven't the Teabaggers complained about the High Court taking away Miranda rights? Because the Teabaggers are really a fraud!

This is the reality of the Tea Bag movement which formed since Barack Obama was elected President. Their claim is that they have risen up to fight and stop President Obama and his Administration's attempt to take away their Constitutional Rights. They are worried he is going to take away their right to bear arms, even though he has never said that or implied that. They say he and his Administration are against free enterprise and want to make this a Socialist Country, because he bailed out the large Banks and the Auto Industry. These Teabaggers act purist but are anything but.

This morning there was an article on Yahoo.com about the High Court and their decisions over the last 10 years to limit Miranda rights. The title of the article is, "High court trims Miranda warning rights bit by bit." In the article the following is excerpt:

The Supreme Court made major revisions to the now familiar Miranda warnings this year. The rulings will change the ways police, lawyers and criminal suspects interact amid what experts call an attempt to pull back some of the rights that Americans have become used to over recent decades.

The high court has made clear it's not going to eliminate the requirement that police officers give suspects a Miranda warning, so it is tinkering around the edges, said Jeffrey L. Fisher, co-chair of the amicus committee of the National Association of Criminal Defense Lawyers.
"It's death by a thousand cuts," Fisher said. "For the past 20-25 years, as the court has turned more conservative on law and order issues, it has been whittling away at Miranda and doing everything it can to ease the admissibility of confessions that police wriggle out of suspects."

The court placed limits on the so-called Miranda rights three times during the just-ended session.

You see if the Teabaggers were really serious about preserving their rights, they would have been marching against the assault on our Constitutional Rights regarding unauthorized domestic Wire Taps without FISA Court approval, as was started in the Bush/Cheney Administration and continued carried by the Obama Administration. Instead, many in the Tea Bag movement are still questioning whether President Obama was elected legitimately, since they claim he was not born in the U.S. They complained they didn't want Government involvement in their Healthcare, even though many love their Medicare. They complained about Death Panels, even though no such thing was ever considered. You see, much of what they seem to stand for is fraudulent to the original Tea Bag movement on taxation without representation. We have the lowest taxes we have ever had as a country and that is why we are broke. They want the Bush Tax cuts to stay in effect, even though it will represent over 30% of the deficit we have as a country, and when you add in the Iraq and Afghanistan Wars spending, it adds up to virtually the entire Budget Deficit for the next 10 years.

Looking at the chart above from an article by the Center on Budget and Policy Priorities, you can clearly see that the Bush Tax cuts are responsible for a significant portion of the deficit in the coming decade. And do you think Tea Baggers want these tax cuts to continue? You bet they do. Just ask former Republican Representative from Texas, Dick Armey, one of the founders of the Tea Bag movement. Oh, and by the way, it was the same Dick Armey that was in favor of open Immigration across our borders and also favored a Free Enterprise System of little, if any, or no regulation. You see they are frauds. If nothing else, their positions are inconsistent, as are also the Republican leaders of the Senate. Their entire game plan is to deny President Obama (and the country) any success out of the messes they have helped create in the first place.

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