FINAL LEG UP?

Certain conditions were met on Friday that convinced me that gold is now entering the final leg up in this particular phase of the ongoing C-wave advance. The final spurt higher last year tacked on a very healthy 19% in a little over 1 month.

A similar performance this year would drive gold to $1578. Although this year we have the added benefit that the entire sector is trading at new all time highs. It is the only sector in the world that is in this position. This is an incredibly powerful combination that could drive the precious metal sector even further than it did last year.

At the moment there is a very low risk (-3%) entry for investors and traders to get on board this final run.

I explained the setup in depth in the weekend report.

For one day only I'm going to offer the 15 month yearly subscription rate again. That works out to a monthly price of $13.33.

15 months should be long enough to get investors not only through this final spurt higher but also back in for the final phase of the C-wave this spring. Get you out of the precious metals market in time to avoid the severe D-wave correction. And then back in to ride the next powerful A-wave advance.

We have an incredible opportunity ahead of us over the next several months and year.

If you want to take advantage of the discounted yearly subscription click here and follow the Paypal link.

Final Nail in the Democrats’ Coffin

On the eve of the midterm elections, a third-quarter GDP report showing a meager 2 percent growth rate is the final nail in the Obama Democrats’ political coffin.

The economic nails slowly have been hammered into that coffin all summer and fall. A spate of subpar economic statistics has shown the failure of the fiscal-stimulus spending program. And myriad tax and regulatory threats produced by new government policies have created a massive uncertainty overhang and a dismal jobs outlook. American businesses have gone on an investment-capital and hiring strike.

For a White House that bet the ranch on a massive government pump-priming plan, it has all turned out to be a complete failure. The scheduled economic recovery has simply not occurred.

And that’s why a Republican Tea Party tsunami lies just over the horizon. That tidal wave could be even greater than current polling suggests.

It should have been recovery summer, according to the president and his followers. But it is now officially a recovery slump. The entire command-and-control economic philosophy of the Obama Democrats has proven to be a big bust. And they’ll pay a very big price for this.

In fact, the last two GDP reports have averaged less than 2 percent growth, something that qualifies as a growth recession, not a recovery.

Even worse, the GDP deflator — the broadest inflation measure — came in at 2.2 percent in the third quarter, following a 2 percent reading in the second quarter. That means inflation is rising faster than real output. Stagflation.

The Bernanke Fed should take notice of this on the eve of its quantitative-easing pump-priming exercise, expected to be announced the day after the election. We are actually experiencing a mini version of stagflationary growth recession.

The spending, taxing, and regulating policies of the Democratic Congress and administration have blocked growth, putting the Fed in a position to provide even more money to chase fewer goods. But in classic Milton Friedman terms, even though the economy is mired in stagnation, that’s still an inflationary prescription.

On top of all that, the depreciating-dollar policies of the Fed have led to a boom in commodity prices, including food and energy — things ordinary Americans pay for in the course of their typical week.

When the economy came in at 5 percent in the last quarter of 2009, and at 3.7 percent in early 2001, it looked like a recovery scenario. This, of course, followed the Fed’s massive $2 trillion stimulus plan and the more than $1 trillion fiscal stimulus. But the sugar highs quickly evaporated as growth slowed to 1.7 percent in the spring and 2 percent in the summer.

Meanwhile, a stubbornly high unemployment rate of 9.6 percent was supposed to have dropped to 8 percent last year and 7 percent by the end of this year, according to the president’s Council of Economic Advisers. But it didn’t. The so-called stimulus failed to stimulate.

Actually, unemployment is much worse for regular workaday folks. Counting marginal part-time workers and discouraged workers, unemployment is 17.3 percent. And this year, while the president promised 1.5 million new jobs, nonfarm payrolls have grown by only 613,000, and actually have fallen over the past four months.

The trouble with the whole Obama mindset is the notion that government can run the economy. That idea has failed. It is business that runs the economy, including entrepreneurs and risk-takers. Yet the animal spirits have been stifled, while the producers have been laughed at, mocked, and insulted.

The Obama class-warfare campaign against business and investment has created a wall of worry and a refusal to invest in the future. The incentive model of growth, where it must pay more after tax and regulatory costs to work, produce, and invest, has been discarded by Obama’s extreme left-liberal Keynesianism. Predictably, higher costs — including the cost of Obamacare, probably the single-greatest barrier to growth and jobs — have forced the most productive factors in the economy to hole up and virtually shut down.

But the whole Tea Party movement of free-market populism represents an attempt to re-oxygenate the economy by unclogging the blood vessels of entrepreneurship with a major rollback of spending, taxing, and regulating. This Tea Party philosophy is derided daily by the Democrats, but it represents a bull’s-eye in terms of creating future economic growth.

Fortunately, the Republican party has returned to this Reaganesque message. This is the single most-important theme in the GOP comeback.

Early Look

The market is slightly higher in early trading, after 3Q GDP came in in-line at 2.0%. That's an increase from last quarter's 1.7% rate. I think 2% GDP growth isn't that bad coming off of a stimulus induced year like last year. Call it a mid-cycle slowdown. But I don't think it's so bad that it warrants another round of quantitative easing.

I understand that the high unemployment rate is an issue, and I worry that the Fed is becoming too political in its response to these things. But I seriously doubt that another round of QE is going to have much of an effect on employment. I think it's just going to take time, as wounds from the great recession heal and businesses move on and look forward.

Asian markets were lower overnight; the 10-year yield is lower to 2.62%; the dollar is flat, as is oil at $81.80 and gold is up a bit to $1348; the VIX is up a little to 21.0.

Check back for my Trading Comments after the close today--

ALL THE SIGNS ARE IN PLACE

There are three things I watch for as a sign that a correction is imminent. They are in order of importance, cycles, sentiment and money flows.

The current cycle is already stretched to 45 days. Usually this cycle bottoms between 35 and 40 days so you can see we are now overdue for a top. That covers the cycles part of the equation.

Sentiment has now reached bullish levels (contrary sign) that should be enough to force at least a daily cycle correction. We haven't yet reached the extreme level that is normally required to turn the larger intermediate cycle. In bull markets it usually takes a push to new highs to get to that kind of extreme sentiment level.

Finally I like to see some sign that smart money is exiting the market in preparation for a correction. For me that sign comes when we see a large selling on strength day in the SPYDER's ETF. 

Today we got that final sign.

Not surprisingly we now have a volatility coil forming on the S&P chart.

As most of you probably remember the initial move out of a coil is often a false move even though it is usually very aggressive.  Typically the initial move will run 3 to 5 days and then reverse leading to a much more powerful and more durable move in the opposite direction.

Since we are 45 days into the current cycle and we now have all three signs for a correction lined up I think the odds are strong this coil will break to the downside. There are implications for the dollar and gold if this unfolds.

I went over them along with a game plan in tonight's report so I won't repeat it here but I think we will likely see a correction soon and since we still haven't eclipsed Monday's intraday high it may have already begun.

Jobless Claims Continue To Fall

The market was higher after the open, possible in reaction to a better jobless claims number, but it has since given up those gains and is slightly lower on the day. It could be that the market is a little tired after the multi-month rally, but that could be a good thing.

Next week is the big FOMC meeting, and if the market rallies into that meeting, it would surely be met with selling. But if people are trying to sell ahead of the meeting, then a pullback now might be healthier, and put the market in a better position to digest the FOMC news without too big of a setback.

Jobless claims this morning fell by more than expected, down 21,000 from last week. Moreover, continuing claims fell by 122,000 to their lowest level in nearly two years.

Among the sector ETFs, defensive funds like healthcare (+0.42%) and consumer staples (+0.28%) are bucking the weakness, while industrials (-0.31%) are lagging.

Asian markets were mixed overnight; the dollar is lower this morning, which is helping oil rise to $82.15 and gold prices bounce to $1332; the 10-year yield is lower to 2.67%; and the VIX is up +2% to 21.01.

QE Lite...

Perhaps I was right to give Treasury man Tim Geithner the benefit of the doubt over his statements last week hinting at King Dollar protection. Perhaps.

Today’s big news on the Fed’s QE2 money-creating policy — due out the day after the election — suggests a minimal Fed pump priming. Call it QE Lite.

This comes from Jon Hilsenrath’s Fed-leak story in the Wall Street Journal. The next round of monetary stimulus won’t be anything near $1 trillion to $2 trillion, but more like “a few hundred billion dollars over several months.”

As a result of this story, the dollar rose half a percent across-the-board, and gold is now about $80 below its recent peak.

Now, don’t get me wrong. I don’t want QE anything. There’s plenty of unused liquidity sloshing around the system. And a stable King Dollar is the best medicine for economic growth and price stability.

What will trigger a stronger economy with job creation is the $100 billion budget cut now being discussed by Republicans in the House along with a freeze on the Bush tax rates. That’s pro-growth fiscal policy. Join it with pro-growth currency stability.

But back to the Fed and Treasury. A minimalist Fed stimulus is certainly better than a massive new-dollar creation that would totally sink the greenback and lead to a much higher inflation tax far more quickly than almost all commentators think.

And here’s an interesting point. Maybe Bernanke & Co. has been watching inflation-sensitive market prices, including gold, commodities, the negative real yield on inflation-protected bonds, and even the run-up in oil. Perhaps the Fed is at least cognizant of the risks of a plunging dollar.

Even longer-term bond rates have been backing up. So it’s not inconceivable that the Treasury and Fed are watching market-price indicators, including the dollar. And perhaps that accounts for the Fed leak of a minimalist action rather than a dollar-destroying maximum action.

And as Hilsenrath points out, there are a lot of doubters inside the Fed. The presidents of the reserve banks in Minneapolis, Dallas, Philadelphia, and Kansas City are leading the skeptical charge. Good for them.

In any event, since Geithner came out with his statement that no country can devalue its way to prosperity, and that the dollar is low enough against the euro and yen, the greenback has at least temporarily stabilized and gold prices have dropped.

The stock market is trying to figure all this out, and it got slammed earlier this morning. But the Dow came back to close only 43 points down.

Let me say this: Stocks soared during the strong-dollar Ronald Reagan ’80s (at least during his first term) and in Bill Clinton’s second term. These were King Dollar periods that helped set the stage for non-inflationary wealth creation and low unemployment.

More to the point, the expected Republican tsunami come Tuesday is likely to shift fiscal policy in the direction of lower spending, taxing, and regulating. We can debate how much, but that will be the GOP/Tea Party intent. That’s bullish for the dollar, the economy, and the stock market.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ELECTION COUNTDOWN:
HOW BIG A SHELLACKING WILL DEMOCRATS TAKE OVER LACK OF JOBS & POOR ECONOMY & UNPOPULAR OBAMA-CARE PLAN?



- Gov. Ed Rendell, Pennsylvania Governor (D-PA); Former DNC Chairman
- Sen. Tom Coburn, MD; (R) Oklahoma

BIG NEWS: FED GEARS UP FOR QE2-LITE
WHAT DOES ALL MEAN FOR STOCKS, COMMODITIES & THE DOLLAR?

- Jon Hilsenrath, Chief Economics Correspondent at The Wall Street Journal
- Mike Holland, Holland & Company Chairman; The China Fund Board of Directors
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

PROP 19: LEGALIZING MARIJUANA ON THE BALLOT

- CNBCs Jane Wells reports.

NEW HOME SALES & TODAY'S HEARING ON CONGRESSIONAL OVERSIGHT FORECLOSURE MESS SYSTEMICALLY IMPORTANT?

- CNBC’s Diana Olick reports.

WHAT HAPPENED TO "HOPE?"
IS THE ELECTION A REFERENDUM ON OBAMA'S 20 MONTHS OF WAGING WAR ON BUSINESS

- Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor
- James Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

WORLD SERIES PREVIEW: IN THIS MONEYBALL WORLD, 2 TEAMS WITH MIDSIZED PAYROLLS ARE THE LAST ONES STANDING
- CNBC’s Darren Rovell reports from San Francisco.

Please join us. The Kudlow Report. 7pm ET. CNBC.

INTRADAY ALERT

There is an intraday alert on the premium website  for subscribers in case you didn't get the morning email.

Hint of "QE2 light" Sparks Profit Taking

The market has been rallying steadily since early September, due in part to the expectations that the Fed was going to announce another round of quantitative easing (QE2), or asset purchases, to keep interest rates low and stimulate the economy.

Last night, an article in the WSJ threw a little cold water on the amount of QE that the Fed might actually announce next week. This weighed on overseas markets early this morning, and also led to selling in the U.S. markets after the open.

It is also leading to a small rally in the dollar, which as I have mentioned lately has an inverse correlation to the overall market. So you have the dollar up, stocks down.

The strong dollar is also weighing on commodities. Oil and gold are both down more than 1% to $81.15 and $1324, respectively. Financials and tech are down the least so far this morning, while most other sectors are down 1% or more.

There were some more good earnings reports last night, and some tech stocks are responding well. F5 Networks (FFIV) reported solid results, and its stock is up +13% today; Illumina (ILMN) had a good report, and the stock is up +7.5%; Broadcom (BRCM) also beat and raised guidance, stock +9.5%. FFIV is actually at a new high, so it looks like the cloud stocks are back in the game.

There was some good economic reports today, but they are being ignored by stock investors. Durable goods came in much stronger than expected (+3.3%), and new homes sales also grew by a larger than expected amount (+6.6%).

The 10-year yield is up again, reaching 2.68%; and the VIX is rising +8.5% today to 22.0, bumping right up against its overhead 50-day average.

Trading comment: This is a perfectly normal pullback, and considering that all of the pullbacks lately have only been 1-2 day affairs, I want to at least do a little buying today or tomorrow. If we wind up getting a deeper pullback, then I would look to make additional buys.

The market could certainly take a pause, especially with the big FOMC meeting next week where the market will be eagerly anticipating what the Fed says about QE2. But beyond that, I still think the market will work its way higher into year-end.

long FFIV, ILMN

Rising Prices Are the Fear

An extraordinary event for bond markets occurred yesterday when the Treasury sold $10 billion of 5-year inflation-protected securities, or TIPS, at an auction with a yield of negative 0.55 percent. That’s right. Negative. Can’t remember when that’s happened before.

In other words, investors were willing to pay the Treasury 105 cents in order to buy $1 of inflation protection.

Now how does that square with the Fed’s newfound fear of deflation? Does the central bank ever listen to markets?

Ever since Ben Bernanke announced his QE2 pump-priming monetary-stimulus idea late last August, inflation-sensitive markets have been going wild. The dollar is down. Gold is up. Commodities are up — big time.

Treasury head Tim Geithner made some noises about protecting King Dollar, and I gave him the benefit of the doubt. But he endorsed QE2 at the G-20 meeting in South Korea, and that really dooms the dollar. You can’t print $1 trillion of new money without sinking the currency. The dollar is already overproduced. Just ask China and other Asian countries, or Brazil, each of which is fighting against the inflow of excess dollars.

Again, judging by inflation-sensitive markets, rising prices are the fear, not falling prices.

Wall Street strategist Peter Boockvar writes about the CRB index rising to its highest level in two years, including booming cotton and copper. He also notes companies like Starbucks, McDonald’s, General Mills, Goodyear, and Kimberly-Clark, which have all reported higher cost inflation. And then comes this priceless sentence: “Ahead of next week’s FOMC meeting, where the Fed wants higher inflation, all will be okay as long as you don’t drive, eat, drink, wear cotton-based clothes, use copper wire for any type of construction, blow your nose, diaper a kid, or wipe your arse.”

Boockvar is right. The Fed is wrong. Investors will even take negative real yields to protect against inflation. What does that tell you?

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


WILL THE DIVIDE ON THE DEFICIT GROW AFTER THE ELECTION?




- Steve Forbes, Forbes Chairman and CEO; Forbes Editor-in-Chief; Fmr. Presidential Candidate; "How Capitalism Will Save Us" Co-Author
- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host

INVESTORS BET ON INFLATION NATION
WHY ARE INVESTORS ACCEPTING NEGATIVE YIELDS ON INFLATION PROTECTED BONDS? IS THERE A JIMMY CARTER INFLATION TSUNAMI COMING?

- Dan Greenhaus, Miller Tabak Chief Economist/Strategist
- Michael Pento, Euro Pacific Capital Senior Economist

COUNTDOWN TO THE ELECTION
- CNBC’s John Harwood, Hampton Pearson and Eamon Javers report.

ELECTION COUNTDOWN: WHY THEY HATE US
- P.J. O'Rourke, Political Satirist; author, Don't Vote It Just Encourages the Bastards

MARKET MOVING EVENTS LOOMING LARGE: THE INTERSECTION OF MONEY & POLITICS....WHAT'S AN INVESTOR TO DO?

- Michael Farr, Farr, Miller & Washington/CNBC Contributor
- Jim Iuorio, Options Action Contributor; Director, TJM Institutional Services

Please join us. The Kudlow Report. 7pm ET. CNBC.

Stocks Open Weak On Dollar Strength

The inverse correlation between the dollar and stocks is pretty amazing. You can cite the economic data that came out this morning if you want, but the first thing I noticed was the the dollar as up, and so stocks were down. As I said, this relationship can last for awhile, but I doubt we can enjoy a sustainable bull market on the back of a weak dollar.

As for that economic data, October Consumer Confidence came in at 50.2, up from 48.5 last month. In housing, the CaseShiller index for August came in at 148.6, which was slightly weaker than the prior month's reading of 148.9. But year/year, the 20-city price composite rose +1.7%.

There was also another round of solid earnings reports last night, but most of the stocks are lower today. US Steel (X), Amgen (AMGN), and Texas Instruments (TXN) are all lower, while Coach (COH) reported great earnings and its stock is flying +10%.

Asian markets were mostly lower overnight, as was Europe this morning. This despite the UK posted stronger than expected GDP growth, and having their sovereign credit rating affirmed by Standard & Poor's.

The dollar rally is weighing on commodities a bit, with oil and gold trading down fractionally to $82.50 and $1337, respectively.

The chart below shows the 10-year yield, which is bouncing above its 50-day average for the first time in several months. It's hard to believe a new uptrend is at hand, given that the Fed is likely to announced new QE measures next month, but it's interesting nonetheless.

Trading comment: Boy, this market sure doesn't go down easily. Must be very frustrating for the bears. As I am finishing this post, the Nazz is already back in the green while the SPX is just about to go positive. Stay the course.

long COH

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

KEY TAX BREAKS AT RISK: IS A FLAT TAX THE ANSWER?

- Robert Reich, Fmr. Labor Secretary; Author, "Aftershock"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Dan Mitchell, Cato senior fellow


DE FACTO DOLLAR DEVALUATION: ARE WE HEADED FOR FULL-FLEDGED DOLLAR CRASH?

- Brian Kelly, Kanundrum Capital President / Fast Money Contributor
- Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor

THE HOUSING MARKET
- CNBC’s Diana Olick reports.

COULD FORECLOSURE MESS CREATE A DOWNWARD SPIRAL FOR HOUSING

- Mark Calabria, CATO Director of Financial Regulation Studies
- Matt Englett, Managing Partner of KEL Attorneys

COUNTDOWN TO ELECTION: BALANCE OF POWER SHIFTING RIGHT?

- Pat Toomey, (R) Pennsylvania U.S. Senate Candidate; Fmr. Rep. Pat Toomey (R-PA); Fmr. Club for Growth President

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday Morning Musings

The market is once again emboldened by the weak dollar, which seems like a relationship that can't last in the long-term. But in the short-term, the dollar is moving lower and the market is making new multi-month highs.

Over the weekend the G-20 met, and that has helped the euro and yen both rally at the expense of the greenback. This is also boosting commodities, with oil and gold both up more than 1% to $82.70 and $1343, respectively.

Other than that there is not much in the way of market moving news this morning, but that seems to be enough to have the S&P 500 rallying above last week's highs and getting closer to the 1200 level.

Among the sector ETFs, materials (+2.38%) are rallying the most, while utilities (+0.41%) are up the least.

Asian markets were mixed overnight, with China rallying but Japan slumping due to the high yen. The 10-year yield is falling today, back near 2.50%. And the VIX is up a scant 1% to 19.00.

Trading comment: Nothing really new to add to my strategy. The market continues to stairstep higher, and it has made sense to hold on to winners more than trying to trade around them and take profits, looking for a spot to get back in.

The "cloud" stocks that I wrote about a couple of weeks ago (CRM, FFIV, VMW) continue to trade well. CRM and FFIV have recaptured their 50-day averages, while VMW has yet to do so. FFIV reports earnings tomorrow, so there is still one more hurdle to get over. But barring any major hiccup, this group could be back in the driver's seat soon.

Overall, the market is still a little overbought, and I think it will have a tough time capturing the 1200 level this week. Of course, anyone who hasn't given this market the benefit of the doubt lately has been really wrong. Good luck out there.

long CRM, FFIV, VMW

DOW:GOLD RATIO STILL TOO HIGH

I've stated before that I expect this secular bull to continue until the Dow:gold ratio drops to at least 1:1. Considering how much further the ratio stretched on the upside (42:1) than any other time in history it's entirely possible that we could briefly see gold become more expensive than the Dow.

As it pertains to the current C-wave I want to point out that we still haven't even seen the ratio hit new lows yet. Every C-wave so far has managed to drive the ratio to new lows before topping.

The current C-wave still hasn't accomplished that goal. I'm confident it will eventually. Possibly even driving the ratio down to 6. If we assume modest new highs on the Dow of 12,000 we could be looking at $2000 gold before this rally tops (probably next spring).

It looks like we are going to form the swing low I mentioned in my last post this morning so the odds are now high that gold has put in the daily cycle low and the short term correction has run its course.

If one doesn't have a position it's probably a good idea to get one and if one was waiting for a pullback to add to positions it looks like that's all we are going to get.

Depending on how the dollar reacts and how long it takes to reach the 74 pivot will determine how far and how aggressive the next leg up will be.

I will elaborate in tonight's update for subscribers.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

IS GEITHNER SIGNALING KING DOLLAR’S RESURGENCE?

"The USA and no country around the world can devalue its way to prosperity, to competitiveness, it is not a viable feasible strategy and we will not engage in it." - Treasury Secretary Timothy Geithner

- Jim Rogers, Rogers Holdings Chairman
- Andy Busch, BMO Capital Markets; CNBC Contributor

IS IT TIME TO END TAXPAYER FUNDING OF NPR & PBS?

- Josh Silver, Free Press President & CEO
- Michelle Caruso-Carbrera, CNBC Business News

YOUR TAXES, YOUR VOTE
CAMPAIGN'S BIG SPENDER: PUBLIC UNIONS…HOW CAN PUBLIC UNIONS USE TAXPAYER MONEY TO SPEND ON ELECTIONS?

- Joy Reid, ReidReport.com Editor; Miami Herald Columnist
- Jimmy Pethokoukis, Reuters Money & Politics Columnist; CNBC Contributor

Please join us. The Kudlow Report. 7pm ET. CNBC.

Quick Look: Market Holds On More Solid Earnings Reports

The market is slightly higher in early trading, as more good earnings reports roll in. Restaurant stocks reported strong results, with stocks like Chipolte (CMG) and Cheesecake (CAKE) vaulting higher this morning. Tech stocks like BIDU and RVBD are also very strong, with the latter declaring a 2-for-1 split. I hope AAPL and some others decide to split their stocks also.

Asian markets were mixed overnight. The dollar is roughly flat, with oil prices up a bit near $81 and gold prices off a bit to $1324.

The 10-year yield is still climbing, now at 2.56%, right up against its overhead 50-day. And the VIX is nearly unchanged at 19.15.

Trading comment: The market continues to hold up well. Yesterday, the early selloff faded late in the day, and it looked like it might turn into a big selloff. But the market found its footing late in the day and avoided a down day. The S&P 500 continues to hug the 1180 level. Many stocks are extended here, making new buys somewhat difficult, but keep a list of those reporting strong earnings as they will be the best candidates on any pullback.

long AAPL

BOTTOM IN SIGHT

Trying to pick a bottom in the gold correction at this point is probably a low probability strategy. The simple fact is that until gold forms a swing low there is no possibility of a bottom. So someone trying to jump in front of the correction might as well wait at least until a swing forms.

Ultimately though we need the value investors to step in to the gold market. Of course its tough to guess ahead of time at exactly what level we are going to get enough value money come into the sector to halt the correction.

I do have a couple of ideas of where that's likely to happen, being somewhat of a value investor myself.

The first level that should start to bring in big money is the psychological $1300 level. That level may or may not bring in enough money to halt the decline. We will only know after the fact of course. But if one wanted to try and pick a bottom that would be the first level to make an initial purchase.

A much safer bet in my opinion would be if gold can correct  enough to test the $1265 breakout level. I expect enough value money will enter the gold market at that level that it's unlikely gold will decline significantly below that point.

We have a bit of a dilemma right now. Similar to what happened back in January. Gold has begun to correct but the stock market is still resisting. As soon as the stock market rolls over into it's daily or intermediate cycle decline it's going to put added pressure on the gold correction. So trying to prematurely jump into the gold market here is risky (in so much as one will probably experience a drawdown. Of course being a bull market any timing error will eventually be corrected).

In a perfect world the dollar rally will strengthen and test 80 and in the process force the stock market to correct and gold to drop down to test the $1265 breakout. That's the point where I would advise investors to step back into the market heavily. I expect you will have a lot of company at that point and your chances of a significant drawdown will be drastically reduced.

Beware the Two-Sided Dollar Trade

Traders beware. Treasury man Tim Geithner appears to be setting up a two-sided dollar trade. The dollar could go up, not just down.

Following my latest column -- “Tim Geithner, Dollar Protector?” -- where I discuss how the Treasury man said we can’t devalue our way into prosperity, there’s new information from today’s Wall Street Journal: Geithner says “the major currencies are roughly in alignment now.” And the WSJ thinks that might mean Geithner sees no need for the dollar to sink more than it already has against the euro and the yen.

In today’s trading, the dollar index is up about a third of a percentage point. Gold is off $18 and has now corrected about $60 lower from its early week peak.

Geithner’s comments on the euro and the yen are very important. Yes, he wants the Chinese yuan to go up against the dollar, which is a depreciation for the greenback. But he separates that away from the yen and the euro. And it seems to me that he really lays down a marker in the sand. It could be a dangerous marker for traders and investors who until recently have been totally short the dollar and long gold and commodities.

Of course, the question is: What will Geithner do to back up his strong dollar-defense language? Will he intervene in the foreign-exchange market to support King Dollar? I’m especially interested in the dollar-euro relationship, which is probably the most important in global trading.

And that’s why I warn about a two-sided market. Up to now, shorting the dollar has been like shooting fish in a barrel. This may change.

And there are more implications: Perhaps Geithner and Fed head Ben Bernanke are working out a deal with the Japanese and Europeans. Such a deal might include a minimal Fed QE2 pump-priming.

In other words, stock investors beware -- at least those who believe a $1 trillion QE2 of new liquidity is good for stocks. Expectations of a massive Fed easing may be way overblown. It could turn out to be a miniscule pump-priming and new-dollar-creating action. And that could cause a setback in stocks, despite strong earnings reports and the Tea Party congressional cavalry coming to Washington on November 2.

Once again, I don’t know how to completely read Geithner’s comments. But he has been very visible and very bold, really putting himself out there with these dollar-protection statements. He must know that if he fails and the dollar tanks, his credibility will suffer irreparable damage. And that’s why I believe he knows exactly what he is doing, and that he has some new cards up his sleeve to protect King Dollar.

So as I said, traders beware.

Tuesday Selloff Now Looks Like One-Day Wonder

The market is in rally mode once again, with the S&P 500 making new multi-month highs this morning. Yesterday I commented that if the market stayed strong it would make Tuesday's selloff look like a one-day pullback. Today that appears more likely to be the case.

Earnings reports continue to come in strong, with few disappointments. And investors continue to put money to work buying stocks. As Raymond James' Jeff Saut put it, for underinvested portfolio managers (whose job performance is on the line) the incessant rally in the market over the last 6 weeks has been a nightmare.

Some of the companies reporting strong earnings and seeing positive stock action include: EBAY, UPS, CAT, FITB, and STI.

Asian markets were mixed overnight, despite China reporting that its GDP increased +9.6%, slightly above expectations. This was a bit of a slowdown from last quarter's 10.3% rate.

The dollar is slightly weak this morning. Oil prices are down a bit to $82.15, while gold prices are roughly flat near $1343.

The 10-year yield is higher to 2.50%, and the VIX is down another -4.3% below the 19 level (18.94).

Trading comment: The market is again a little overbought, but that hasn't meant all that much lately. If you have held onto your positions, you are very happy. Any profit taking has yielded little chance to get back in. I had a conversation with a client yesterday where we discussed buying a few stocks that have run up, but might not pull back. We decided to buy a half position so that we could at least participate in further upside, while leaving room to add to the positions in the event that the stocks did pull back. That's one way of handling this market.

Will Tim Geithner Resurrect King Dollar?

The falling dollar is on most everybody’s mind, especially in financial markets here at home and globally. A currency war? World protectionism? Race to the bottom?

The dollar is the lynchpin of the world’s financial system, and it’s still the world’s reserve currency. But as the Federal Reserve gets ready for its so-called QE2 pump-priming expedition to re-inflate the U.S. economy, the greenback has fallen about 10 percent, while gold and broader commodity indexes have soared. Despite a weak-kneed jobless recovery, inflation is in the air.

Apparently, the weak dollar doesn’t concern Fed-head Ben Bernanke all that much. But in a new wrinkle to this story, one wonders if Treasury Secretary Tim Geithner is suddenly paying attention to the greenback.

Most Treasury men chant a mantra that a strong dollar is in the nation’s interest. And until this week, Geithner had not even done that. In fact, he has said little to nothing about the dollar during his tenure.

But then on Monday, in a Silicon Valley speech to businessmen, he said the following: “It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to be competitive. . . . It is not a viable, feasible strategy, and we will not engage in it.”

Answering a question at this meeting, Geithner said the U.S. needed to “work hard to preserve confidence in the strong dollar.” And when asked if the dollar would lose its status as the world’s reserve currency, he said, “Not in our lifetime.”

So, is Tim Geithner out of the closet as a hard-money dollar protector? Or is he engaging in some sort of cognitive dissonance, blowing smoke at us? Is he speaking with forked tongue, or is he going to mean business about protecting the dollar?

I don’t know the answers here. But I do know that if the Fed sets sail with its pump-priming campaign to put one trillion new dollars in circulation, the greenback is going to fall mightily more.

Last year, during QE1, the trade-weighted dollar fell 17 percent from peak to trough. Guess what? Coming out of the worst recession in at least 30 years (if not longer), the consumer price index jumped higher — regardless of the high 10 percent unemployment rate. On a quarterly basis, the CPI fell 9.2 percent in the fourth quarter of 2008, and dropped another 2.2 percent in the first quarter of 2009. Then, as the dollar fell, the CPI increased 1.9 percent in last year’s second quarter, 3.7 percent in the third quarter, and 2.6 percent in the fourth quarter, all at annual rates.

And all this despite a moribund economy.

So the falling dollar is, in fact, a very strong transmission mechanism for higher inflation. And inflation is the cruelest tax of all on the economy. With the dollar rising earlier this year, inflation has cooled in the last six months. But many now fear the falling dollar will reignite the price indexes.

Nobelist Robert Mundell recently said there’s about one-year lag between a sinking dollar and a higher inflation rate. But that lag may be even shorter.

Now, Mr. Bernanke has never really understood the inflationary power of the falling dollar. Witness the oil shock of 2007-08, which decimated the economy. But the question is whether Mr. Geithner suddenly does grasp this relationship.

What exactly is Tim Geithner telling us? If he opposes devaluing our way to prosperity — a sensible position — does that mean he disagrees with Bernanke’s QE2 campaign. Is there a Fed/Treasury split in the works? (The White House has never publically opined on QE2.)

Is Tim Geithner actually preparing to intervene to defend the dollar in foreign-exchange markets, even while the Fed pumps another $1 trillion into the system? Or is Geithner just jawboning the exchange markets in a futile attempt to slow the dollar’s plunge amidst QE2?

This weekend the G-20 convenes to discuss currencies. In my view, they should develop a policy of worldwide currency stability. And I would prefer a golden anchor for that stability. To paraphrase Mundell, low tax rates and currency stability is the key to prosperity.

But more immediately, what will Geithner do? The greenback already has fallen about 10 percent, and it will surely drop at least another 10 percent if the Fed follows through and radically increases the quantity of money. Another dollar plunge will do great harm to the economy. Foreign investment in the U.S. will dry up. Domestic investment will flow out of the country. Liquidity will be drained. The inflation tax will kick in.

So will Tim Geithner resurrect King Dollar? That’s a very big question.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


REVERSAL OF FORTUNE - STOCKS BOUNCE BACK WITH A VENGENCE
Is it back to business for the dollar debasement reflation trade?
Are investors sniffing out serious regime change come November?


- Bob Froehlich, The Hartford, Sr. Managing Director
- Sean Tully, Fortune Magazine Editor-At-Large

AN HISTORIC GOP MIDTERM SWEEP?

- Pollster Scott Rasmussen, Rasmussen Reports Founder & President will join us with his latest look.

WHAT WOULD A TEA PARTY CONGRESSIONAL AGENDA LOOK LIKE?

- Dick Armey, Former House Majority Leader; Chairman of FreedomWorks.org

Please join us. The Kudlow Report. 7pm ET. CNBC.

Earnings Seasons Rolls In With Strength

The market is rallying nicely in early trading, reversing much of yesterday's selloff. It remains to be seen if this action holds, and if yesterday's decline will just be a one day pause. But so far the action looks good, and many companies are reporting solid earnings.

In tech, YHOO reported solid earnings and its stock is higher. In financials, Wells Fargo (WFC) and USB reported good earnings and those stocks are higher also. Morgan Stanley (MS) was unable to match the solid results from Goldman yesterday, and its stock is lower. And industrials are mixed with United Tech (UTX) and Boeing (BA) reporting good results, much their stock action is mixed.

Among the ETFs, materials stocks are leading the action, while financials are lagging. Financials were in negative territory earlier, but positive comments from Wells Fargo during their conference call seems to have improved sentiment for the group. Wells said that loan demand is improving.

Asian markets were lower overnight, following the selloff in the US yesterday; the dollar is also lower today, which is helping boost commodities. Oil prices are higher to $80.57, and gold prices are basically flat near $1335.

The 10-year yield is holding at 2.48%, and the VIX is down slightly to 20.18.

Trading comment: The S&P 500 held yesterday near 1160, which is right around its 20-day moving average. For now, that will be the line in the sand. If we can hold above those levels, then I think the market should continue to work higher after a brief pause. If we break below those levels, then I would look to the 1150 level as the next area of support.

I am also watching the market leading stocks that have sold off following earnings reports. I want to watch for them to consolidate and find support. If they can get back above their 50-day averages, then I would add to them. But if they can't get back above those levels, it might be time to sell remaining positions.

long WFC

THE CORRECTION HAS BEGUN

Yesterday the market broke the trend line off the August bottom.

The dollar also followed through on it's snapback rally.

The odds are now high that we have the cycle top in place for stocks and the cycle low in the dollar. We should now see the market drift lower possibly till the third quarter GDP report next week.

However let me stress again this isn't over. This is just a profit taking event and once it's run it's course the dollar will resume what I fully expect to be a complete train wreck (especially if Bernanke is stupid enough to run QE2) as it continues to crash down into the yearly and three year cycle low.

Initially this will push stocks higher, until surging inflation next year destroys the fragile economy. At that point the stock market will begin the next leg down in the secular bear market and the economy will roll over into the next depression.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:



WHAT'S SPOOKING THE MARKETS?




- Andy Busch, BMO Capital Markets; CNBC Contributor
- Zach Karabell, River Twice Research President; CNBC Fast Money Contributor
- Ron Kruszewski, Stifel, Nicolaus & Co. Chairman & CEO

IS TIM GEITHNER'S DOLLAR DEFENSE CREDIBLE?

- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist: Bear Stearns & Credit Suisse
- David Gilmore, Foreign Exchange Analytics Partner

FRENCH RIOT OVER RETIREMENT AGE -- SHOULD SOCIAL SECURITY AGE BE RAISED IN THE U.S. TO BRING DOWN THE DEBT?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

THE OBAMA TAX CUT NOBODY EVER HEARD OF!

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

NOVEMBER'S ELECTIONS: INCUMBENTS IN THE HOT SEAT

- Major Garrett, National Journal Congressional Correspondent - DC/NBC
- John Fund, WSJ Opinionjournal.com Columnist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Buy The Rumor, Sell The News: AAPL, IBM

The markets are lower this morning, which is not all that surprising given the strong multi-day run we have experienced. There is an old saying in the market, "buy the rumor, sell the news", and that looks to be in effect today.

You see, many thought that AAPL would report very strong earnings. That is why the stock ran up nearly 15% in the last 10 sessions prior to reporting earnings. Apple's earnings last night were fantastic, but that doesn't mean people are going to take profits after that strong runup.

You may hear things like they didn't sell as many iPads as the Street expected, or that gross margins were a little low. Don't buy it. The company trounced earnings estimates, and that is the most important factor. Earnings growth drives stock prices, and as earnings estimates continue to be revised higher for the company, the stock will regain its footing.

Ditto IBM, which reported solid earnings but there was no way the stock was going to be up on the news given how much it has rallied in the last several weeks. Goldman's stock is up nicely after beating its recently reduced estimates.

Asian markets were up overnight, but after China closed it was reported they would raise their 1-yr lending rate 25 basis points. That has the dollar rallying today, and is weighing on commodities. Gold prices are down nearly -2.3% to $1340, while oil prices are down to $80.88 today. Gold has also had a big run, so some consolidation there is warranted.

The 10-year yield is up to 2.52% today, and the VIX is rising 5% today to 20.10 so far.

Trading comment: I think many of these reactions to earnings are normal, given that the stocks are up a ton and expectations for earnings were already very high. The fact that AAPL, IBM, VMW, etc. beat earnings estimates nicely should mean that the stocks will be strong again after some profit taking and consolidation. The trends that drove the earnings growth are still in place. So I'm being patient, letting the stocks come down, and then deciding which positions I'd like to add to.

long AAPL, VMW

WARNING SIGNS

We're now starting to see warning signs pop up that a correction is imminent.

Despite the market making new highs breadth is diverging badly. Aka the market is being driven higher by fewer and fewer stocks. When this starts to happen late in the daily cycle a correction isn't far away.

We now have a large divergence in the McClellan oscillator.

If we happen to see a down day today the slower 10 day moving average will turn down and join the faster 5 day average on the new high/ new low chart. Granted that doesn't always lead to a correction but when it happens late in the daily cycle it's a pretty reliable sell signal.

We are now late enough in the daily cycle that these warning signs should probably be taken seriously. It's probably too late to continue pressing the long side. To do so one risks getting caught in the down draft when the correction begins.

Will QE2 Sail into a Better Economy?

As we all know, Ben Bernanke believes the unemployment rate is too high and the inflation rate is too low. He’s certainly right about the former. However, regarding inflation, booming gold and commodity prices and the sinking dollar suggest that U.S. inflation will be rising in about a year, not falling.

Does the Fed head look at market-driven prices? Surely he does. But it’s equally certain that this will not deter him from pump-priming QE2. Underneath it all, Bernanke believes in the false Phillips Curve tradeoff between inflation and unemployment.

But an interesting question is: How weak is the economy? There’s a lot of pessimism about this, but Friday’s report on retail sales was very strong. Retail sales are up three straight months for a 7.4 percent annualized rate. Year-to-year retail sales have increased 7.3 percent. That’s a strong showing.

Today’s report on industrial production showed a surprise drop of two-tenths of 1 percent. However, the 12-month change for production is 5.4 percent, a healthy pace. Inside the report, the production of business equipment continued to rise, and registered a 10.1 percent yearly increase. That is very strong. Business equipment is a key indicator of capital-goods spending and investment, which is crucial to the economy.

And in the last available factory-orders report for August, orders for non-defense capital goods (excluding aircraft) came in 20.2 percent above year-ago levels, with shipments registering a 13 percent gain. Even backlogs are up 4.1 percent year-on-year. This strongly suggests that despite the tax and regulatory threats, highly profitable businesses are in fact expanding — even while they are not yet hiring all that much.

Another indicator of potential economic strength can be gleaned from the money supply measures. M1, which is transaction money, has grown 10.2 percent at an annual rate for the three months through September. This tracks the pickup in retail sales. Broader money, called M2, has increased 6.7 percent annually over the past five months. During the first five months of 2010, M2 declined 2.2 percent at an annual rate.

So the pickup in money demand could be signaling a better economy after the spring and summer slowdown. Perhaps consumers are moving to beat the tax man who could come crashing down January 1, 2011, unless the Bush tax cuts are extended. Perhaps strong business profits are stimulating growth more than we think. And despite tepid job creation, personal incomes are rising.

Think of it, Mr. Bernanke.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

ARE WE HEADING FOR A TEA PARTY, LIBERTARIAN CONGRESS AND WHAT DOES THAT MEAN FOR POLICY & GOVERNMENT?




- Howard Dean, Fmr. Vermont Governor; CNBC Contributor; Fmr. Presidential Candidate
- CNBC’s Michelle Caruso-Cabrera

WILL WE SEE A BIG EQUITY RALLY IF A BIG POWER CHANGE OCCURS?
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

APPLE REPORTS AFTER THE BELL
- CNBC’s Jon Fortt reports.

HAS APPLE PEAKED?
- Paul Meeks, Capstone Investments Investment Strategist

WHATEVER HAPPENED TO THE "STRONG DOLLAR?"

- CNBC’s Hampton Pearson
- Brian Kelly, Kanundrum Capital President

MORTGAGE MESS: ARE WE HEADING TOWARD AN EVEN MORE NATIONALIZED HOUSING MARKET?

CNBC’s Jane Wells reports.

- Barry Ritholtz, Fusion IQ CEO, Director of Equity Research
- Chris Whalen, Institutional Risk Analytics

Please join us. The Kudlow Report. 7pm ET. CNBC.

Back In The Saddle

Trying to dust off the morning cobwebs after a mini vacation towards the end of last week to celebrate my b-day (it was a big one). We had a great time, but waking up with the ocean outside your balcony now seems like a distant memory already.

Back to the swing of things. The bank index was very weak late last week, with all of the confusion surrounding the mortgage mess. Citi reported solid earnings this morning, and the bank index is actually bouncing back to lead the early action.

After financials, utilities are up the second most (+0.77%), due to some M&A there. Consumer discretionary stocks are lagging (-0.35%).

The dollar is higher this morning, which is weighing on commodities. Oil prices are down a bit to $81.65, and gold prices are hovering just below $1360.

There was continued M&A action over the weekend (NU for NST, and STJ for AGAM). Asian markets were lower overnight, but Europe is higher this morning.

The 10-year yield is lower to 2.52%, after a big spike higher on Friday, right up to its overhead 50-day average. The volatility index (VIX) is 4% higher to 19.80, which is still a pretty low absolute level.

Trading comment: We are now in the thick of earnings season, which will color the days action from day to day depending on how the big stocks earnings come in. Last week, GOOG knocked the cover off the ball and surged higher, taking the sector higher along with it. Today we will hear the highly anticipated report from Apple (AAPL). And while everyone knows they should report a good number, the question will be how much of the good news is already discounted in the runup of its stock prices last week. Of course, regardless of today's reaction, I still believe AAPL is going higher in the near future.

We will also hear this week from IBM, Goldman Sachs, BofA, Wells Fargo, Amazon, and Chipolte, to name a few. So get ready. No rest for the weary.

long AAPL, BAC, GOOG

LONG POSITIONS ARE IN JEOPARDY

The stock market is now on the 34th day of its daily cycle. That cycle lasts on average about 35 to 40 days. So as you can see we are pushing the limits for a cycle top. We may have made that top on Wednesday. We'll just have to see how next week plays out.

I also think the dollar may have put in a cycle bottom on Friday. If it did then it is due for a snap back rally to relieve the extreme oversold conditions. This should pressure virtually all asset classes (the possible exception might be gold).

At the moment I'm expecting the market to begin working it's way down into a daily cycle trough possibly bottoming on the third quarter GDP report Oct. 29th.

Any one still holding long positions might want to consider taking profits here, especially if the trend line gets broken next week.

Once we get past the correction into the now due daily cycle low traders can probably re-enter long positions for a run at the April highs.

More in the weekend update for subscribers.

Courts & Parents & a Comrade Conference

Summons and Plea

If you've been following this blog, you might be curious what happened with the summons I got from getting caught train-hopping in Arvada, Colorado in early August with Roy.  I was to appear in the Jefferson County Court in Golden on October 15.

I called the Court shortly after to see if I could work out avoiding court, to save me hassle and to also avoid court costs and save taxpayers' money.  They told me to wait until mid-September and call them again, asking about a "plea by mail."  So I did.  They gave me instructions, then I faxed the "plea by mail" (my friends Damian and Dorina let me use their fax machine).  I plead guilty and requested either community service or jail time in lieu of any kind of fine, because I live without money.  Then I waited.

Last Tuesday I called them back.  The first woman I talked to told me the plea by mail was rejected and I must appear in court the next day at 1:15pm or I would have a warrant for my arrest.  So I asked her if there was anything I could do, since I was moneyless and car-less, out of state, and didn't think I could make it.  She referred me to another woman.  This woman wasn't very friendly and wasn't open to any other options, but kept saying, "be here or you will have a warrant for your arrest."  She wouldn't tell me why my plea by mail was rejected, either.  When I asked her why nobody contacted me about this, she said, "We don't make long-distance calls."  I had stated in the letter that the best way to contact me was by email, but also leaving open the option of calling my friend or contacting me by snail mail.  By this time I was expressing my frustration.  She then asked, in a not-so-friendly tone, "well, why did you wait so long to fax the plea by mail?"  My mouth dropped open.  "I waited until mid-September, as your office, at this number, instructed me to do!"  She then told me if I couldn't make it to court I could show up at the DA's office by 8:15am to avoid the arrest warrant.  So I hung up the phone, immediately got my backpack, and hit the road to hitch-hike.  It was about 3pm Tuesday here in Moab, and my appointment was at 1:15pm in Golden, Colorado, about 350 miles away.

Hitch-hiking seemed harder than usual.  I got as far as Fruita, Colorado by nightfall in 2 rides.  Fruita happens to be where my parents live, so I decided to pop in and stay with them.  I had been trying to keep them out of this.  Of course they insisted on driving me to court the next day.

Parents

So my dad drove me across Colorado.  It was good, because he and I had great conversation the whole way.  My dad talked a lot about how much he adores my mom.  Yeah, believe it or not, my parents have been married over 60 years and adore each other.  But he's naturally concerned about how they are nearing their end.  My mom is getting fairly decrepit and my dad has to care for her more and more. 

My dad and I also talked theology.  My dad is a theologian (he used to be a pastor), so we talked a lot about the principles of living by faith and, as Jesus taught, to "lend hoping for nothing in return," and why Jesus said "lend" rather than "give."  How in the world can you lend if you're hoping for nothing in return?  This idea has been on my mind for a long time.  It unravels all these ideas about nature's "interest banking" that have been brewing in my head and heart over the past year.  It's about nature's "lending at interest" as opposed to human ego hijacking this process of lending at interest, bringing corruption into the world.  I'm still working it all out, to write down.  But my dad totally gets it, and it makes me happy we can find agreement at deepest levels.  We used to have arguments about religion in the past (a lot of it having to do with my bitterness over most religion and its hypocrisy), but we've both mellowed and found common ground.

My parents are unusually supportive of my lifestyle and would do most anything for me.  How many parents would could be like that? They are conservative Christians, and they blow stereotypes of what a conservative Christian should be.  Now they have been giving me full support in this latest adventure of going to court for train-hopping.

So my dad and I walked into the courtroom together.

Court

My name was alphabetically near the end of the line, so my dad and I had to listen to case after case before the judge, Susan Fisch, before she got to me.  Seeing the other cases I was preparing myself more and more to possibly be put into a Jefferson County jail.  But I also grew to be very impressed with her.  She seemed to be an endless supply of patience and compassion, and I started relaxing about my own case.  By the time she finally got to me, I told her my circumstances, that I lived voluntarily moneyless and "homeless" as a spiritual path.  For this reason I requested either community service or jail time in lieu of a fine.  I also explained how difficult it was to make it to this court appointment due to my circumstances, and that it would have saved a lot of hassle for us all, and it would have saved court costs and taxpayer money if the plea by mail had been accepted.  She said pleas by mail can't be accepted if there is the possibility of jail.  Giving me an endearing look, unusual for a person in her position, she told me that, due to my indigent circumstances, she would wave all fines and give me 10 hours community service and 90 days probation (which would be erased on completing the community service).  I was astonished that was all the sentence I got, and my dad and I left smiling.

Cyber Conference?

Now I'm back in Moab.  A guy named elf Pavlik, who recently started living without money in Germany, decided to contact me and other folks in the world who are consciously living moneyless, and have a kind of "cyber conference" this Sunday.  Hopefully I can get it to work on my end with a borrowed computer.  There are 3 moneyless folks in Germany (Heidemarie, elf, Jurgen), 1 in England (Mark), 2 in South Africa (Adin, Sonja), maybe another new-comer in Brazil, plus the Dutch (Benji) and German (Raphael) dudes who are hitching moneyless around the world (now in South America, I think with their 2 girlfriends who've just joined them), and 2 of us in the US (Roy and me).  I hope we can pull this off.  It's getting scintillatingly exciting.

It looks like Roy is getting ready to start his moneyless trek south of the border!

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

BANK STOCKS SLAMMED AS MORTGAGE CRISIS GROWS

IS A DOOMSDAY SCENARIO LOOMING?




- Josh Rosner, Graham Fisher & Co. Managing Director
- CNBC’s Michelle Caruso-Cabrera
- Walter Todd, Greenwood Capital Money Manager
- Greg Abbott, Texas Attorney General

GOOGLE SHINES AFTER THE BELL

CNBC’s Jon Fortt reports.

OBAMACARE ON LIFE SUPPORT?
FLORIDA JUDGE RULES 20 U.S. STATES CAN PROCEED WITH LAWSUIT SEEKING TO BLOCK OBAMA'S OVERHAUL OF U.S. HEALTHCARE

- Matt Miller, Washington Post Online Columnist; Public Radio's "Left, Right and Center" Host
- Betsy Ross McCaughey, Former NY Lieutenant Governor (1995-1999); Hudson Institute Health Policy Expert

DOLLAR DISINTEGRATION....COMMODITIES CONTINUE HOT STREAK
HOW TO INVEST THE WEAK DOLLAR STORY?

- David Goldman, Senior Editor First Things Magazine; Fmr. Wall St. Economist
- Dan Greenhaus, Miller Tabak + Co; Chief Economic Strategist

CEO SURVEY RESULTS ARE OUT & BUSINESS CONFIDENCE IS DOWN
IS CONFIDENCE DOWN BECAUSE OF OBAMA POLICIES?

- James Pethokoukis, Reuters Money & Politics Columnist
- Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel

INSIDE THE FED
Interview with Boston Federal Reserve Bank President Eric Rosengren

-CNBC senior economic reporter Steve Liesman.

BERNANKE SPEECH LOOK AHEAD: IS THERE MORE EASING COMING?

- Vince Reinhart, American Enterprise Institute resident scholar; former director of monetary affairs at the FOMC

Please join us. The Kudlow Report. 7pm ET. CNBC.

DOLLAR CYCLE STRETCHING

The dollar just sliced right through the 76.50 pivot this morning. Today also happens to be the 28th day of the current daily cycle. The normal timing band for a cycle to bottom is between 20-28 days, However the Fed's threat to print, print, print appears to be going to stretch the dollar cycle slightly long this time.

We will look for the next swing low to mark the bottom of the cycle and the beginning of what should be a counter trend bounce. That bounce should be of the dead cat variety as the intermediate cycle still has 8 to 12 weeks yet before an intermediate bottom is due.

The next support zone now that 76.50 has been violated would be the rising trend line off the last 3 year cycle low in 08.

Once the counter trend bounce begins it should pressure the stock market down into the now due daily cycle low. In theory gold should also drop down into it's now overdue daily cycle correction.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

BIG-TIME MORTGAGE MESS:
IS AN OFFICIAL MORATORIUM A BAD IDEA?…WILL IT TAKE 3 WEEKS OR 3 MONTHS?…IS THIS POLITICAL?




- CNBC real estate reporter Diana Olick
- Bill McCollum, Florida attorney general
- Matt Englett, KEL Attorneys Managing Partner (largest real estate/foreclosure defense law firm in Florida)

GROWTH AGENDA FOR AMERICA
- Bob McDonnell, Governor of Virgina

COMMODITIES ON FIRE...

- CNBC’s Sharon Epperson
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager - Ft. Worth
- Randy Bateman, Huntington Funds President & Chief Investment Officer
- Andy Busch, BMO Capital Markets Global Currency & Public Policy Strategist


IS THE ADMINISTRATION SHELL SHOCKED? ARE THEIR BEST DAYS BEHIND THEM?

- Robert Reich, Fmr. Labor Secretary; "Aftershock: The Next Economy and America's Future" author; CNBC Contributor
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

Please join us. The Kudlow Report. 7pm ET. CNBC.

White House's Newest Villain Is Big Business

Believe it or not, with jobs falling for four consecutive months and unemployment stubbornly high near 10 percent, President Obama is out on the campaign trail bashing businesses and promoting class warfare. Huh? Oh my gosh is he off message.

He’s slamming the Chamber of Commerce for allegedly using foreign money in campaign ads, even though there’s not one shred of evidence of this. Huh (again)? Is the Chamber really a big election-year issue? Is it causing high unemployment?

Of course, Obama never mentions the unions, including the SEIU and AFL-CIO, and all their foreign money from their big international affiliates. Instead, he extends his own cast of villains, attacking special interests, Wall Street banks, corporations, the oil industry, the insurance industry, credit-card companies, AIG, and ExxonMobil. ExxonMobil? What did they do? Oh, they’re an oil company.

Phew. Kind of anti-business, wouldn’t you say?

Obama then blasts millionaires and billionaires, waging war on capital and investors, too. Next he talks about getting young people, African Americans, and union members to the polls. Even more division. Even more class warfare.

All this, of course, from the “post-partisan” president who was going to bring us all together for change.

But what’s truly incredible about Obama’s pre-election performance is how it totally misses the mark on the issues that really matter, like high unemployment, low growth, big-government spending, Obamacare, and tax hikes. That’s the stuff people are really talking about.

It’s as though Obama is from another planet, completely disconnected from the political reality as we march toward November 2.

A series of investor-related polls shows how totally detached the president is from the nearly 100 million folks who directly or indirectly own stocks.

A survey conducted by Citigroup Global Markets of 100 mutual-fund, hedge-fund, and pension-fund managers finds that institutional investors fear a government policy mistake far more than inflation, terrorism, a housing double-dip, poor earnings, or any other potential risk to the economy. (Hat tip to CNBC producer John Melloy.) One-third of the survey’s participants list government policy missteps as their biggest worry, ahead of the more than 15 percent who cite protectionism.

But these investors believe the chances of a big policy error will decrease if Republicans take back the House of Representatives in November.

In another poll conducted by Reuters, 75 percent of respondents believe the employment situation is the most important issue for Wall Street, followed by 41 percent who point to consumer confidence. Fleshing out the survey, nearly two-thirds of respondents say extending the Bush era tax cuts should be a high priority; just over a third say the budget deficit is the main concern; more than two-fifths say interest rates will start to rise and the dollar will weaken more if the deficit is not addressed; more than a quarter want Obamacare repealed; and only one-fifth say additional action by the Fed is crucial.

Then there’s a new poll from Investor’s Business Daily. It shows 56 percent of respondents saying they want tax cuts extended even for households with more than $250,000 in income. Only 39 percent in the poll want the rich to pay more, while support for making tax cuts for the rich permanent hit 63 percent for both Republicans and independents. By solid majorities, that includes taxes on capital gains, dividends, and estates, all to be frozen at current rates.

These polls reveal how utterly alien Obama is to the investor class. And it’s worth noting that investors are among the most likely voters to turn out for elections.

But the absolute key point here is that while Obama is bashing businesses, rich people, and all the rest, and while he continues to wage class warfare, he is talking about issues that are not on anyone’s mind. It’s the economy, stupid, and the low-spending, low-taxing, and minimal- regulating policies that would set the stage for a stronger economy, lower unemployment, and more confidence.

It’s as though the president is stuck in a 1930s time warp. His policies have failed to rejuvenate economic growth. But he will not address this. That’s his political failing. And that’s why he is going to suffer a huge shellacking on November 2.

Will Early Pullback In Stocks Last?

The market pulled back this morning, with the S&P 500 briefly touching the 1155 level. But as we have been saying of late, buyers quickly stepped in and put some money to work, such that the Nasdaq is already positive and the SPX is down a little over a point as of this post.

Among the sector ETFs, consumer discretionary (XLY) and financials (XLF) are bucking the weakness, while energy and industrials are lagging.

In corporate news, Pfizer (PFE) said it would buy King Pharma (KG) for a 40% premium. Not bad. And chip bellwether Intel (INTC) reports after the close today.

We also will get the minutes from the last FOMC meeting, which always has the potential to move the market one way or another.

Asian markets were mostly lower overnight, except for China which bounced +1.2%. The dollar is up a bit, which is keeping a lid on commodities so far. Oil prices are down a bit near $82.30, and gold prices are also flattish around $1352.

The 10-year yield is down a touch, just above its 52-week highs, and hovering at 2.37%; and the VIX is up +2.2% to a still very low 19.38.

Trading comment: Frustrating action for anyone who isn't fully invested and looking for a pullback to buy. This is also a tough juncture as earnings season heats up starting tonight. As companies report, there will be more volatility in the reactions to earnings. I am going back to look for stocks who reported strong quarters last quarter, in the hopes that business momentum carried into the current quarter and portends more upside ahead.

The "cloud" stocks are bouncing hard today (FFIV, CRM, VMW, AKAM, RVBD, etc), and their action bears watching. These companies are still growing fast, so hopefully we are getting into a situation where expectations for the stocks have been lowered just ahead of earnings, and as such the odds for a positive reaction to earnings has improved.

long FFIV, VMW