WASHINGTON TO WALL STREET ... GEITHNER SET TO LEAVE TREASURY AFTER BUDGET DEAL? THE DEBT CEILING DEBACLE: DOLLAR'S FUTURE; TAX REFORM; DODD FRANK - Jared Bernstein, Center on Budget and Policy Priorities Sr. Fellow; CNBC Contributor; Vice-Pres. Biden Fmr. Chief Economist & Economic Policy Adviser - Rep. Ed Royce, (R) California; Financial Services Cmte. - David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
MARKET CORRECTION OVER? - Kelly Evans, Wall Street Journal Economics Reporter - Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer
QE2 SUNSETS...WILL QE3 SAIL? - Dean Baker, Co-director of the Center for Economic and Policy Research - John Taylor, Stanford University Economics Professor; Hoover Institute Sr. Fellow; "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" Author
OBAMA'S CORPORATE JET BROUHAHA - Pete Bunce, General Aviation Manufacturers Assoc. Pres.& CEO - Mark Levine, Democratic Policy Analyst; Syndicated Radio Host
It appears that the approval of Greece's austerity measures has finally halted the correction in the stock market. But has it really?
I would suggest that this correction has never been about Greece. The market has known for over a year that Greece would be back looking for more money. Let's face it no one is under any delusions that Greece is going to be able to solve their problems. Greece is going to default, there's no avoiding that. What the EU is trying to avoid is a domino effect of cascading sovereign debt crises. Last summer the crisis was solely centered around Greece. Does anyone really believe that this is going to stop with Greece this year? I doubt it. I suspect in the next week or two were going to see bond yields spike in Spain or Italy or Portugal, or maybe in all of the PIIGS.
What started as a financial crisis in `08 has now infected sovereign debt as countries around the world have acted to bail out the banking system. I really doubt that this is going to start, and stop, with Greece again this year. As we found out during the real estate bust, there is never only one cockroach.
Striking similarities to last years correction are now starting to pop up. In May of last year the market put in what looked like a final intermediate low. It was followed by a higher low and higher high. The only problem was that the daily cycle was too short for the May bottom to be a final cycle trough as the bottom had occurred on day 13 and a normal daily cycle runs 35 to 45 days.
I also noted on the chart that we saw a large selling on strength day (smart money distribution day) one week from the top. The market then proceeded to move down into a final intermediate low in the normal timing band. I can tell you that many technicians got caught during the May bounce.
Now take a look at the current chart.
This time the market appears to have bottomed on the 15th day of its daily cycle. Again we have a pattern of higher lows and higher highs, convincing technicians that the bottom is in. Also note that we have another large distribution day just like we saw last year.
We have been expecting some kind of counter trend rally all along because sentiment had become too bearish by the middle of June. In order for the market to continue lower we were going to have to see some kind of relief rally to work off the oversold technical and sentiment conditions. The question is, is the rally for real or is it a counter trend move to be followed by another leg down. In bear markets the counter trend moves are very convincing.
I tend to think that this is probably not over yet. If the daily cycle runs a normal duration then we should look for a final bottom somewhere around July 22. However Congress is going to vote on the debt ceiling August 2. It's possible that this daily cycle could stretch just a bit long and bottom on that vote.
Traders should probably be careful about placing too much trust in charts right now. Last year trading the charts suckered investors into the counter trend rally only to drag them down into a final intermediate bottom.
One final note. The market is now nearing the 50% retracement level. This is the same level that turned back the market last year.
"Ms. Jackson, I work in sales and I just found out that I will be getting a $19,000 bonus for the last sales quarter! I feel so blessed! I don't really have that much debt to pay off BUT I have wanted to build a backyard deck. About a year ago I got estimates for when I was ready and able to have it built. The lowest bid was around $10,000. I also wanted a surround sound system since I do a great deal of entertaining at my home. I know during this economy I should save my money but I feel that I deserve to do something special for myself since I busted my butt last quarter. What do you suggest? Should I use my bonus to get what I want or should I bite the bullet and save it? - Ready to Spend, Union City, GA"
Dear "Ready to Spend,"
CONGRATULATIONS on your healthy bonus! You are truly blessed and are obviously great at what you do. It is also great that your debt is not so overwhelming that you have to use your bonus to pay it down or in full.
I will NOT tell you NOT to spend you money! If you are a spender and I tell you that you can't spend, you will feel deprived and may rebel and possibly spend more than you want or spend it all. For example, I don't do Diets. When I hear DIET, I hear DIE...deprivation. When I feel deprived (and can't have a Big Mac), I rebel. So instead of having a Big Mac once a month, I may have one once a week just so I won't feel deprived. Same thing with money with Spenders!
I WILL tell you to apply your Spending Plan allocations to your bonus. At the very least, take 5% of the bonus for your play money and get what you want and put the 95% of the bonus in a high yielding interest bearing savings or CD.
OR, if you are really inclined to build that desired backyard deck, put the bonus in a high yielding interest bearing account and use the money as collateral for a Secured Loan. This will provide you the following benefits:
No or Low Risk loan from a financial institution (easy or guaranteed approval & should you default on the loan, the financial institution can just take the money in the savings to pay it off ... you were going to pay cash anyway. Just kidding. DON'T DEFAULT!!!)
You may get a below market interest rate (for example, 3.00% above the savings/cd rate ... 3.00% + 0.50% = 3.50% interest rate. Shop around. Credit Unions have competitive Share/Savings Secured Loan Rates)
You'll have a positive trade reporting on your credit report to assist in improving your credit score
When the loan is paid in full, you still have your money with interest
Although your funds may be held up during the duration of the loan, at the end of the day, you will still have YOUR MONEY!!!
Which ever option you choose, be wise about your decision and DO NOT spend all of your cash! Cash is leverage, especially when your credit may be "colorful" and your "credit score" may not be as SEXY as you would like it to be.
My book, Financial Fornication, discusses "Spending Plan Allocation" to help ensure all areas of your expenses have the appropriate allocation of your net income.
Again, congratulations and enjoy your new deck or new sound system and growing savings account!!!
As I wrote yesterday, Democrats are obsessed with repealing the Bush tax cuts, especially the upper-end. They could use a 12-step program and a Higher Power.
President Obama, after signing an extension of the Bush tax cuts last December, relapsed once again at his news conference today. It was the usual bashing of millionaires and billionaires, oil companies, corporate jets (made by Cessna and Hawker-Beechcraft), and investment funds.
Plus, the president says there’s only about $1 trillion of spending cuts over ten years. Pardon me for being cynical for thinking much of that is phony baloney.
So the whole debt-ceiling business is going nowhere. Republicans correctly reject tax hikes and the president isn’t yet digging in on spending. There’s no majority in the House for a $600 billion tax hike, and I hope there never is.
What we have now is certainly not a growth package to perk up the sputtering, less-than 2 percent economy, with its 9.1 percent unemployment rate. No mention at all of a real business-tax-reform overhaul.
On the plus side, the president did seem to side with Boeing in the NLRB dispute about adding jobs in South Carolina and the state of Washington. Obama said companies should be able to relocate anywhere in the United States.
But basically his message today was class-warfare, soak-the-rich. Somehow, Democrats are for your kids but Republicans are for your fat cats. It’s so tiresome. It will never sell.
Here's a question: Why is repealing the Bush tax cuts such a constant obsession for the Democratic Party? Especially the top rates for the most successful earners and small business entrepreneurs?
It seems this is the Democratic answer for every single issue, every problem, every debate.
This, of course, saddens me enormously.
And so, always ready to help, I am recommending a 12-Step program to help them overcome their anger, resentment, and obsession over the Bush tax cuts. Democrats really need a Higher Power on this.
First, when tax rates were lowered across-the-board in mid-2003, the incentive effect kicked in to jump-start the economy immediately. Over the next four and a half years, before the financial meltdown slammed the economy-- and that was a credit event, not a fiscal one—8.2 million jobs were created.
Jobs essentially rose for about fifty consecutive months.
Non-farm payrolls rose from just under 130 million to just over 138 million. Don’t believe me? You can look it up. This sort of job creation is exactly what President Obama would love to see happen now.
And, while jobs rose, the government took in more revenues. As a share of GDP, revenues rose from 16.2 percent to 18.5 percent. Simply put, supply-side tax cuts were the single best economic policy President Bush implemented.
Elsewhere, President Bush overspent and overregulated. And yes, the dollar collapsed on his watch. And from Fannie Mae to the Federal Reserve, the housing bubble was born.
But the tax cuts? They worked. And that's my point.
TURMOIL IN ATHENS: WHAT NEXT? -Steve Cortes, founder of Veracruz -Jared Bernstein, former economic advisor to VP Joe Biden -David Malpass, president of Encima Global -Rep. Marsha Blackburn, (R-TN)
WASHINGTON TO WALL STREET -Sen. Jim DeMint (R-SC) -Former Sen. Byron Dorgan (D-ND)
FREE MARKET MATTERS ... WHY ARE DEMOCRATS OBSESSED WITH REPEALING THE BUSH TAX CUTS? -Steve Malzberg, conservative talk radio host -Mark Walsh, American entrepreneur, political activist -Tim Carney, The Washington Examiner
Rising Senate star Marco Rubio of Florida put out a strong growth message in our interview last night. Shrink size of government, broad-based flat tax reform, roll back regulations. Balanced budget amendment, with tough spending caps. Best solution for an ailing middle class: Create jobs. He believes the 21st century can be an American century if we follow this path. There are few people more articulate than the gifted Sen. Rubio.
LARRY KUDLOW, host:
We welcome back Senator Marco Rubio of Florida to THE KUDLOW REPORT. It's been a while, Senator, thank you.
Senator MARCO RUBIO: Yeah, thank you. Thanks for having me.
KUDLOW: All right. Well, it's great to have you as a senator. I appreciate it very much.
All right, the debt talks are very hot. President Obama's involving himself now. He's meeting with the senators. I want to ask you, over the weekend, the president said we can't simply cut our way to prosperity. What does he mean by that and what's he signaling in terms of these debt talks?
Sen. RUBIO: Well, I'm not sure what he means by that. I can tell you that we can't cut our--only our way out of prosperity. We need to grow our way into prosperity, and that means economic growth. And government can be a facilitator of that in creating an environment where job creators are incentivized to create jobs. Job creators are not governments, they're not presidents, they're not US senators. Job creators are everyday people from all walks of life that start a business or expand an existing business, and what we need are government policies that make it easier for them to do that and that encourage them to do that. So if that's what the president means, I think that's very good.
If on the other hand what he means is we're going to borrow a bunch more money and spend a lot more money to try to do what he tried to do with the stimulus, I think that's very bad news for our future.
KUDLOW: I mean, he has his high-speed trains. He's got his infrastructure. He's got his clean energy technology and so forth. And I want to also put in, Vice President Biden over the weekend at a Democratic event said we can't have the middle class place--have all the burden of this deficit reduction and debt. And then he singled out hedge funds who have a 15 percent capital gains tax rate for their income. I guess my question is, what is Mr. Biden saying along with the president? Are we looking at a significant tax increase as part of this debt ceiling?
Sen. RUBIO: Well, I think clearly many in the Democratic base have said that they want that on the table. Unfortunately for them, and I think fortunately for the country, I don't think there's going to be support for that in Washington, including among many Democrats, I hope, who realize that we can't...
KUDLOW: No tax increases. The Democrats won't take a tax...
Sen. RUBIO: Well, there can't be a tax--well, I think some Democrats want there to be a tax increase, but I think ultimately the votes are not there, certainly in the Senate, I hope, because--I could be wrong, but I know among Republicans the votes aren't there. Because, number one, there's no way you can tax your way to prosperity. Number two, our tax code is already a source of great uncertainty and worry and concern about the future. And number three, even if he wanted to, which I do not, there's no tax they could raise that would accomplish the deficit reduction they're talking about. I mean, if you raise to 100 percent the taxes on every rich American under their definition of rich, which is people making over $250,000 or more a year, it still wouldn't make a dent on the debt.
So, look, we've got to--we need a combination of two things. We need fiscal restraint. We need a government that begins to stop spending money it doesn't have. And we need pro-growth strategies. We have to grow this economy. There's not enough focus on the growth element of this.
KUDLOW: What about the issue of deductions, tax deductions? Now there's a lot of talk, even by some Republicans in the Senate, that they could take some downward adjustment or elimination of certain deductions as part of a compromise package. Does that work for you?
Sen. RUBIO: Well, I think we're in need of tax reform to make the tax code simpler and easier to comply with and more certain. I don't think it's a source of revenue, and that's why I believe in the revenue neutrality in any of those measures that are taken. Again, I think if you want more revenue for government, the way you do that is by growing your economy, not by raising tax rates on certain people or getting rid of deductions. So if they want to make the tax code flatter and fairer, that's fine. But if they--and I think that's a good idea. But if they want to use it as a way to raise revenue--in essence, if it's not going to be revenue neutral, I think that hurts economic growth, which has to be our number one priority.
KUDLOW: How do you react to what Mr. Biden is saying regarding the middle class? I mean, I guess the point is, the middle class rely on Social Security to a large part. They certainly rely on Medicare. At least Medicare is on the chopping block in these debt talks. Cutting Medicare back, what do you give the middle class in return? They've sort of taken it on the chin. You know this. Oil prices, gasoline prices.
Sen. RUBIO: Sure.
KUDLOW: Wages are not keeping up with inflation. What is your message? What is the Republican message to the middle class?
Sen. RUBIO: Well, a couple of things. Number one, on oil prices, we have no one to blame but the government for a lot of that. And quite frankly, this administration has made it harder, not easier for Americans to produce their own energy. And it's contributed greatly to the price of oil and to the price of--at the gas pump.
As far as Medicare and Social Security are concerned, let's focus on Medicare for a moment because I think that's an important one. It's going to bankrupt and it has to be saved. I want to save Medicare. The status quo doesn't save Medicare. The status quo bankrupts it. So there are a lot of people out there criticizing Paul Ryan's plan. I would say to them, `Well, what's your plan?' Where is the president's plan to save Medicare? Where's the congressional Democrats' plan to save Medicare. Where's the Senate Democrats' plan to save Medicare? They don't have a plan to save Medicare. Their plan is to use it as a electoral weapon in the next election. So what I--my message would be very simple. If we keep doing the things that we're doing now with Medicare, it will go bankrupt very soon. It won't exist when I retire or when my child retire and it'll lead to bankrupting this country. So I think--I am for reforms that save Medicare and keep it solvent.
KUDLOW: And do you think that there's a middle class problem there inside that message for the Republican Party? Because I think it is true, in part, in part, that the kinds of reductions envisioned by Paul Ryan, let's say, will clip down some of the middle class benefits. Now maybe all people's benefits, but the middle class will share in that.
Sen. RUBIO: But the most important thing for middle class and working class folks in this country is jobs. They want to be able to go out and earn a livable wage so they can raise their family with and leave their children better off than themselves. And my argument is that what's done that in America has not been our government. Certainly government can create an environment where that's possible, but what's done that in America is the job creators. And what we need is an environment of certainty when it comes to regulations, of certainty when it comes to our tax code. We don't need leaders that are out there using rhetoric that discourages job creators from investing in America so the jobs return to the United States and are here again, so that middle class families can feed their families, raise their children and provide them opportunities they themselves didn't have.
KUDLOW: What will it take to get you to vote for a debt ceiling compromise?
Sen. RUBIO: Well, I--you know what? I outlined it in the Wall Street op-ed I wrote over two and a half months ago. I don't--this debt limit debate shouldn't be just about the debt limit. It should be a comprehensive opportunity to deal with the issues that confront our nations economically. So I want some sort of regulatory reform. I want some sort of tax reform. I'd like to see us tackle or at least begin to tackle how to save Medicare and Social Security, or at least Medicare in the starting. I'd like us to see a balanced budget amendment. I'd like to see a spending cap. So these are the kinds of things I'd like to see in a package. I have said from the beginning that this debt limit debate is a golden opportunity to begin to confront the serious issues that stand between us and the next American century, which is what we have an opportunity to build here.
KUDLOW: Speaking of which, the next American century--really my last question, In in your excellent maiden speech on the floor of the Senate, I guess about 10 days ago, you say people aren't the problem in America. It's the government that's broken. Could you just briefly tell us what you had in mind there.
Sen. RUBIO: There's nothing wrong--yeah, there's nothing wrong with the American people. Americans haven't forgotten how to create jobs. Americans haven't run out of good ideas. But we do have a broken government that through tax policies and regulatory policy and all the uncertainty they're creating, are standing in the way. If only our government could do a few of these things right, the American people will give us here--the new American--the 21st century will also be the American century.
KUDLOW: You worry about decline a lot, but are you in your heart an optimist that we can solve these problems?
Sen. RUBIO: I am. I am. Because we have the greatest thing--we have the greatest people on Earth. All we need is a government that does its job. And if we have that, the 21st century will be greater than the 20th for us. And that's--I know that's hard to imagine, but that's the opportunity before us
KUDLOW: Senator Marco Rubio from the great state of Florida, thank you very much for joining us on THE KUDLOW REPORT.
Here's the latest mini-documentary from my old friend Dan Mitchell over at the Cato Institute.
According to Dan:
The Medicaid program imposes high costs while generating poor results. This Center for Freedom and Prosperity Foundation video explains how block grants, such as the one proposed by Congressman Paul Ryan, will save money and improve healthcare by giving states the freedom to innovate and compete.
THE MARKETS & ECONOMY - Michael Farr, Farr, Miller & Washington/CNBC Contributor - Rick Ilczyszyn, Lind-Waldock Sr. Market Strategist - Jim Iuorio, TJM Institutional Services Director
ONE-ON-ONE WITH MARCO RUBIO … INSIDE THE DEBT CELING DEBATES; HOW TO GET A COMPROMISE? -Sen. Marco Rubio, (R) Florida
ONE-ON-ONE WITH PETER THIEL … A HIGHER EDUCATION BUBBLE? PAYING STUDENTS TO DROP OUT? ALSO … HAS TECH PROGRESS STALLED? WHAT HAPPENED TO INNOVATION? - Peter Thiel, Technology Entrepreneur & Venture Capitalist; Paypal Founder
A NATURAL GAS HATCHET JOB BY THE NEW YORK TIMES? - Art Berman, Geologist - John Hanger, Fmr. Pennsylvania EPA Secretary; Citizens for Pennsylvania's Future President & CEO
The market is nicely higher in early trading, reversing most of Friday's selloff.
There isn't much in the way of market moving news. The big news was the new capital requirements for large banks that came out of Europe. The increase in capital requirements appears to be less than was feared by the market, and as such financial stocks are rallying and leading the action so far today.
Asian markets were mixed overnight, and Europe is higher this morning. There is some optimism ahead of the important vote in Greece about adopting its 5-year austerity plan that was established last week. The vote will come early Wednesday morning in Greece.
The euro is bouncing today, while the dollar is a bit weak. Commodities are also lower, with oil prices down near $90.65 and gold prices trying to hold the $1500 level.
The 10-year yield is up a bit to 2.88%; and the VIX is roughly flat at 21.1. I would like to see the VIX down on a day when the market is up, so we will have to see if this rally can hold today.
Trading comment: The S&P 500 is once again bouncing after nearing its 200-day average, which currently resides near the 1264 level. I hope that the market can continue to lift, as another test of the 200-day might not be successful the third time around. Of course, a lot will hinge on the vote this week coming out of Greece. Sentiment is still bearish enough, that a positive vote could lead to a further rally in the market. But if we get a disappointment, and the vote fails, it looks like the market would break down below this 200-day level and test the March lows of 1250.
Today I am going to teach you a little about cycles.
First a little background information. I'm going to be discussing almost exclusively the intermediate degree cycle. Now to start let me correct some misconceptions. Cycles are virtually worthless for timing tops. Cycles are measured from trough to trough. All we can really do with cycle theory is develop timing bands for bottoms, tops can occur at any time.
Next I want to go over the concept of left and right translated cycles as it is pertinent to what is happening in the stock market.
Now in order to understand how a cycle is translated you first have to determine the average duration of the cycle. In our case we are going to focus on the intermediate degree cycle in the stock market. That cycle averages 20 to 25 weeks trough to trough.The median being 22 weeks. If we divide 22 weeks by 2 we come up with 11 weeks. That is an important number. It is the dividing line between a left translated cycle and a right translated cycle.
Any cycle that tops on week 12 or later constitutes a right translated cycle. Right translated cycles are the hallmark of bull markets. Let me explain.
In a healthy bull market an intermediate degree correction is a profit-taking event, and that's all it is. The media will find some scary reason for why the market is correcting but the real truth is that the market has just rallied long enough and far enough and is due a corrective move to consolidate the gains. There is one exception, which I will go over in a minute. Healthy bull markets are composed of multiple right translated intermediate cycles.
Left translated cycles, on the other hand, are the hallmark of markets that are in trouble. A left translated cycle is a sign that the fundamentals of the market are broken, or in the process of breaking. A left translated cycle is not a profit-taking event. A left translated cycle is a sign that institutional money is selling into the rally.
Next I'm going to show you the 2002 to 2007 bull market. The intermediate cycle troughs are marked with blue arrows.
In the chart below you can clearly see that every intermediate cycle, with one exception, rallied more than 12 weeks. This is a sign of a healthy bull market. The rallies are moving to new highs. When the intermediate rallies mature they top late in the cycle followed by a profit-taking event that holds well above the prior intermediate trough.
The one exception, and I have marked it with the blue box, is that sometimes an intermediate cycle will top in a left translated manner and make a lower low after the second leg up in a new bull market. This is just a sign of a market that needs to consolidate a huge move out of a bear market bottom.
Next, let's move into the latter stages of the 2002-2007 bull market.
Again we see the familiar pattern of higher highs and higher lows, and intermediate cycles that are topping deep into their intermediate cycles.
However, in the summer of 07 something happened that was a glaring warning sign that the cyclical bull market was in trouble. And that sign; the summer intermediate cycle dropped all the way down to test the prior cycle low in February. In a healthy bull market that should not happen. As you recall this was right about the time that subprime mortgages began imploding. Smart money could read the writing on the wall, and they began exiting the market.
The deathblow came when the next intermediate cycle topped in an extreme left translated manner on week eight. That was the warning sign that institutional buyers had left the market. At that point the bull had officially died.
Now let's take a look at the current bull market.
Up until last summer this was a healthy bull market. The intermediate cycles were all right translated, and we were making higher highs and higher lows.
Last summer that started to change. To begin with the intermediate cycle topped on week 12, right on the dividing line of right and left translation. The market had managed to rally 16%, so even though time wise it was a bit early for an intermediate decline, in magnitude a 16% rally is enough to trigger a profit-taking event. However, this did not turn into just a normal profit-taking event. The decline moved below the February intermediate cycle low. Alarm bells started to ring and Bernanke he heard it. Thus began QE2 and the markets were pulled back from the brink... temporarily.
I don't think anyone is under any delusions about what has powered this bull market and propped up a deeply flawed economy. Trillions and trillions of freshly printed dollars that's what. But that is now coming to an end. Does anyone really believe that the economy or the stock market can continue to levitate without a constant flood of liquidity? If you do I have some beachfront property I want to sell you here in Las Vegas.
The market doesn't believe either! We now have an extreme left translated intermediate cycle in progress that topped on week eight. Notice how the rally out of the March bottom was only able to make marginal new highs with absolutely no follow-through. That is a sign that institutional traders sold into the breakout. And now we have a market that is on the verge of penetrating a prior intermediate cycle low.
If the March low gets breached we will have the first confirmation that a new bear market has begun. The second confirmation will come if both the industrials and transports close below the March lows. That would constitute a Dow theory sell signal. The last confirmation will come when the 50 day moving average moves below the 200 day moving average and the 200 day moving average turns down.
Next I want to look at the dollar. In a deflationary environment the value of currency rises. As many of you know I have been predicting a major three-year cycle low for the dollar to occur in the spring or early summer of this year. It came during the first week of May.
These major cycle bottoms tend to produce very powerful rallies, often lasting up to a year. Now if we were just coming out of recession and productivity was increasing, or we had a new industry that was creating massive job growth then yes I would expect the market to be able to resist a rising dollar. Actually in that scenario a rising dollar is signaling a healthy economy.
In our current environment however a rising dollar signals deflation!
You can see that during the rally out of the `08 three year cycle low the stock market came under severe pressure. I think it's safe to say that the same thing is going to happen this time as the dollar rallies. Unfortunately, we don't have a new industry to drive job growth, power a sustainable economy, and allow the markets to resist a rising dollar. All we have is commodity inflation created by the Fed in a vain attempt to print prosperity.
I've been warning for months that once the dollar bottomed and started to rally it would signal the end of the bull market and the start of the third leg down in the secular bear market.
At this point I think the only hope the Bulls have is for Bernanke to turn the dollar back down into an extreme left translated three-year cycle. Unfortunately, he has decided to turn off the money spigot (don't worry he will be turning it back on soon, although by then it will be too late). Let us all hope that Bernanke has at least some modicum of common sense left. To turn the dollar back down into a left translated three-year cycle this early will almost certainly destroy the currency by 2014. Not to mention the dollar will lose reserve currency status. actually that is my next big macro prediction. By 2014, the dollar's next three year cycle low, Bernanke will have wrecked the currency, and the dollar will no longer be the world's reserve currency.
So far this bear market is progressing as expected. It started with the tech bubble bursting. Transformed into a financial crisis. Has now infected sovereign debt. And will ultimately end in a massive currency crisis.
With QE2 coming to an end next week I think we are about to enter a very volatile and critical period in all asset markets. For the next three days I am going to offer everyone a five dollar trial subscription.
You will have complete access to the premium website during the trial period, which will include the weekend report with my view of where I think we are headed over the next month along with complete archives back to the beginning of the year and the terminology document, COT spreadsheets, and cycle count charts.
If during the trial period you decide the newsletter is not for you just cancel following the directions on the homepage. Your trial subscription will still remain active for three days.
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To sign up for the trial click here. Then click on the subscribe link on the right-hand side of the homepage. You will be linked to the subscriptions options page. Check the five dollar special and then follow the checkout instructions.
DEBT CEILING SMACKDOWN - Dean Baker, Co-director of the Center for Economic and Policy Research (CEPR) - Gov. Ed Rendell, (D) Fmr. Pennsylvania Governor; NBC News Political Analyst; Former DNC Chairman - Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor - Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author
MARKETS - Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer - Larry Glazer, Managing Partner; Mayflower Advisors, LLC
DELTA RELIGIOUS DISCRIMINATION CONTROVERSY - Jeffrey Lovitky, Law Office of Jeffrey A. Lovitky Attorney at Law - Gordon Bethune, Fmr. Continental Airlines Chairman & CEO; CNBC Contributor
GEITHNER EXCLUSIVE: REPATRIATING EARNINGS AND BUSINESS TAX REFORM - CNBC’s Steve Liesman reports.
Kudlow American Growth Council UNEMPLOYMENT COMPENSATION & OVER-SPENDING A BARRIER TO GROWTH? - Mark Simone, WABC Radio Talk Show Host - Keith Boykin, Former Clinton White House Aide; Editor of The Daily Voice online news site; CNBC contributor - Joanne Lipman, Founding Editor-in-Chief of Portfolio magazine; Fmr. Deputy Managing Editor of The Wall Street Journal
The market is lower in early trading despite some stronger than expected economic data. Yesterday, a news story surfaced that said Greece had taken the first steps toward shoring its finances by agreeing to a 5-year austerity plan with the EU and IMF. That news led to a big rally in our markets, pushing the Nasdaq well into positive territory.
The news also helped Asian markets rally overnight, and European markets gain this morning. So its a bit odd that our markets are down this much.
In economic news, Q1 GDP was revised a bit higher to +1.8%, above expectations. Also, durable goods for May came in better than expected at 1.9%, which is good news.
And oil prices remain lower after yesterday's big drop, currently hovering below the $91 level. Gold prices are also lower near $1509.
It seems that the current soft patch in the economy is causing worries about how much it will affect corporate profits. Recently, earnings estimates have held up very well, but I think concern is growing that we might see some estimate reductions.
Last nights earnings reports from Micron (MU) and Oracle (ORCL) were disappointing to the market, and the stocks are lower today.
The 10-year yield is lower to 2.88%; and the VIX is higher by 8% to 20.82.
Trading comment: The S&P 500 staged another successful test of its 200-day average and bounced higher from it. The 200-day currently sits near 1263, so it bears watching. But it looks like the market is chopping around these levels without really breaking down further. That could give stocks a small base from which to stage a bigger bounce. At least that's the bullish scenario as long as things don't fall apart with respect to Greece. Stay tuned.
Did the International Energy Agency (IEA) just deliver the oil equivalent of QE3?
The decision to release two million barrels per day of emergency oil reserves -- with the U.S. covering half from its strategic petroleum reserve -- is surely aimed at the sputtering economies of the U.S. and Europe following an onslaught of bad economic statistics and forecasts. This includes a gloomy Fed forecast that Ben Bernanke unveiled less than 24 hours before the energy news hit the tape.
I wonder if all this was coordinated.
The Bernanke Fed significantly downgraded its economic projections, blaming this forecast on rising energy (and food) prices as well as Japanese-disaster-related supply shocks. Of course, the Fed head takes no blame for his cheap-dollar QE2 pump-priming, which was an important source of the prior jump in energy and commodity prices. That commodity-price shock inflicted a tax on the whole economy, and it looks to be responsible for the 2 percent first-half growth rate and the near 4.5 percent inflation rate.
Bernanke acknowledged the inflation problem, but he didn’t take ownership of that either. Reading between the lines, however, the Fed’s inflation worries undoubtedly kept it from applying more faux stimulus to the sagging economy with a third round of quantitative easing.
Somehow the new Fed forecast suggests that the second-half economy will grow at 3.5 percent while it miraculously presses inflation down to 1.4 percent. But the plausibility of this forecast is low. It’s almost Alice in Wonderland-like.
So, low and behold, the IEA and the U.S. Department of Energy come to the rescue.
Acting on the surprising news of a 60 million barrel-per-day crude-oil release from strategic reserves scheduled for July, traders slammed down prices by $5 to $6 for both West Texas crude and European Brent crude. That’s about a 20 percent drop from the April highs, which followed the breakout of civil war in Libya in March. In fact, both the IEA and the U.S. DOE cited Libyan oil disruption as a reason for injecting reserves.
Of course, most folks thought Saudi Arabia would be adding a million barrels a day to cover the Libyan shortfall. The evidence strongly suggests they have. So the curious timing of the oil-reserve release -- coming in late June rather than last March or April -- strongly suggests that governments are manipulating the oil price with a temporary supply add to boost the economy.
In theory, these reserves are supposed to be held for true national emergencies. But the real U.S. national emergency seems to be a political one -- that is, President Obama’s increasingly perilous reelection bid amidst high unemployment and the second-worst post-recession economic recovery since 1950.
Tall joblessness, big gasoline prices, low growth, a poor housing sector, growing mortgage foreclosures, and sinking polls are probably the real reason for the strategic-petroleum-reserve shock. European Central Bank head Jean Claude Trichet warns of a “Code Red” emergency due to Greek and other peripheral default risk. China has registered its lowest manufacturing read in 11 months. U.S. jobless claims increased again. And the U.S. debt-ceiling talks have broken down. It’s almost a perfect storm for economic and stock market jitters.
So, will the government-sponsored oil-price-drop work? Will it fix the economy, by lowering inflation and speeding up growth? Well, it might, provided that the Bernanke Fed doesn’t bungle the dollar.
If Bernanke keeps his balance sheet stable, applying what former Fed governor Wayne Angell calls quantitative neutrality, it’s quite possible that the greenback will rise and oil and commodity prices will slip. In fact, ever since Bernanke’s first press conference in late April, when he basically said “no QE3,” the dollar had been stabilizing with oil prices slipping lower.
Bernanke is right to hold off on QE3; we could all be surprised with a stronger dollar. Then we could lower tax, spending, regulatory, trade, and immigration barriers to growth. If we did that, we wouldn’t need another short-run, so-called government fix, this time from the strategic petroleum reserve.
Lord save us from short-run government fixes. Haven’t we had enough of them?
WHO LEAKED? DID GOVT OFFICIALS LEAK? WAS LEAK TRADED ON? - CNBC’s Eamon Javers reports from Washington.
IS IEA RELEASE QUASI QE3? IS THIS BERNANKE'S DREAM - LOWER OIL TO BOOST ECONOMY? - John Kilduff, CNBC Contributor; Again Capital LLC Partner - Anthony Grisanti, GRZ Energy President - Rep. Steve Scalise, (R) Louisiana - Rep. Bill Owens (D) NY - David Goldman, Former Head of Fixed Income Research at Bank of America
VOLATILE MARKETS - Louis Navellier, Navellier & Associates CIO - Lincoln Ellis, Linn Group (CME)
OBAMA’S BIG APPLE FUND RAISER - CNBC’s Mandy Drury reports.
GOP NEGOTIATORS PULL OUT OF BIDEN-LED BUDGET TALKS - CNBC’s John Harwood reports.
DEBT TALKS FALL APART OVER TAXES: ARE WE GOING TO DEFAULT SOONER THAN GREECE? - Rep. Brad Sherman, (D) California - Rep. Cathy McMorris Rodgers (R) Washington
A UNITED POST OFFICE SERVICE BAILOUT? - Patrick Donahoe, Postmaster General
The market is sharply lower in early trading on a host of concerns coming together simultaneously. Yesterday's comments from Bernanke did little to inspire confidence, as the Fed cuts its forecast for economic growth and slightly raised its forecast for unemployment. That led to a selloff in the market in the final hour of trading yesterday.
Overnight, Asian markets were mostly lower, and this morning European markets were lower on some disappointing PMI manufacturing surveys, and continued concern about the situation in Greece.
So our futures were lower before the market opened. The jobless claims report this morning was weaker than expected, which added to the selling pressure.
But the big news is that the IEA has said it will release 60 million barrels of oil into the market to help lower prices and ease disruptions from the Libya situation. I applaud the timing of this release, as it has helped push oil prices down near $91.
You have to realize that in the short-term, this hurts the market as oil and materials stocks selloff, and those two groups are a big part of the market. But longer-term, it is a big positive as it will help consumer spending, it will help inflation pressures, and it will help profit margins, all of which should provide a boost to GDP economic growth over time.
The dollar is rallying, which is weighing on commodities across the board. Gold prices have fallen back to $1518, and grains are sharply lower as well.
Another factor weighing on the market is the news that the talks on the debt ceiling in the US have hit an impasse over taxes. Markets don't like uncertainty, and the issues with the debt ceiling and the Greek bailout need to get resolved to calm the markets.
The 10-year yield has fallen back to 2.90%; and the VIX is spiking +14% back above 21.
Trading comment: The S&P 500 is testing its 200-day average support near 1262. This is an important level to watch. As I said, lower oil hurts the markets (energy and materials sectors) in the short-term but is a long-term positive. Bearish sentiment is spiking again this morning, with the VIX up 14% and the put/call ratio hitting a very high 1.29. As I have said, bearish sentiment can be a precursor to a market bottom, but you then need a catalyst to spark a rally. Let's hope the govt. can get its act together and pass this debt ceiling issue soon.
"Ms. Jackson, my husband and I are in our late 40s and have significant debt or as you call it in your book, Financial Fornication, a severe case of Financial STDs (substantially tremdenous debt). Before the economy crashed my husband and I had great jobs and our household income was 6 figures. We saved a little but obviously not enough. About two years ago I lost my job and then my husband got sick and could not go back to his high salary paying job. To make ends meet we used our credit cards to pay our bills in hopes that one or both of us would find a good paying job to pay it later. I was recently contacted by a creditor about a debt we owe for over $30,000 (unsecured) that they are about to charge off. We can not pay this and we are also past due on everything. We are hoping to be approved for a mortgage modification. We do owe the debt and we want to pay it, but we owe over $100,000 in unsecured / revolving debt, plus our car and mortgage and we are only making around $50,000 a year combined. What should we do? We don't want to ruin out credit any more. - Desperately Seeking Solutions, Marietta GA"
Dear "Desparately Seeking Solutions,"
I can definitely empathize with what you are going through. This economy is a "Bear"! I know you are concerned about your credit but Reality Check, your credit is already shot! Therefore, it's now time to think "preservation." There are a few things you may want to consider executing to assist you through this process.
Contact your creditors (not 3rd party collection agency...yet) by phone and in writing to explain your financial hardship situation and request a loan modification down to a payment you know you can afford. This may be through lowering the interest, extending the term, or forgiving some of the principle balance. Every financial institution is different in what they may allow and be able to do, but you won't know if you don't ask.
If a 3rd party Collection Agency is calling you about a debt that they bought from or are calling on the behalf of a creditor, make them validate the debt. Validation of Debt includes the agency providing you with the following: a) Proof that the collection company is legally entitled to collect the debt from you or has been assigned the debt, example: a direct contract between the collection agency and you; b) Some account statements from the original creditor that calculates exactly what is owed (excluding their collection fees); and c) Copy of the original signed loan agreement or credit card application. Some 3rd party Collection Agencies are junk debt buyers and may not be able to provide the requested information. So make them prove it. Send a letter requesting this information. If you want them to stop calling you, you will need to send this request in writing (make sure it is certified mail that requires a received receipt).
Increase your income through another job, network marketing, or self employment. Do your research and do what is best for you and your family. You can try to find a second job, however, what most people would consider as a second job is other people's primary job because of the limited job market. So, you will need to be innovative and creative to find alternative (legal) income streams.
Now, if you cannot increase your income significantly enough to help your financial situation and loan modifications are not possible or doesn't help, you may want to consider your legal options as a last resort. Although I am not an advocate of Bankruptcy, sometimes it may be financially necessary to protect your family's financial well-being and assets.
Bankruptcy Chapter 7 is what I call Financial Abortion because it is the termination of debt. If you have a home or car, it will be considered an Asset case where you will have to determine if you are going to allow the bankruptcy court to sell the property to pay on the debt that you can't pay are trying to terminate... OR you will "reaffirm" and exclude a creditor(s) from the bankruptcy and continue to the creditor(s) outside of the bankruptcy.
Bankruptcy Chapter 13 is what I call Financial Plastic Surgery because it is an alteration or modification of debt. Based on your budget, the court will determine how much of the overall debt you will be able and ordered to pay back, that could be 100% of the debt or less, over a certain amount of time.
With both Chapters 7 and 13, once the bankruptcy has been "discharged," creditors can not take collection or legal action against you for the unpaid balances. Should the bankruptcy be "dismissed," because you did not meet the requirements or you changed your mind about filing, it will be as if you did not file for bankruptcy and the creditors may resume their collection or legal action against you.
If you must consider either one of these options (as a last resort), please consult with a Financial or Legal Professional that specializes in this form of Financial Surgery first before you make any rash decisions and moves. There are many things you should take into consideration as it relates to the rights of Creditors in Bankruptcy that most people aren't aware of. (Hint Hint)
In my book, Financial Fornication, I explain the different possible cures of Financial Di-Eases, including Financial STDs, before you should consider bankruptcy.
All in all, I know that this is a difficult time for you and your husband and can be extremely emotional and stressful. I recommend that you begin to look at your situation as if it were a business. As the CEO, COO, or CFO of your family "business", you must make the right financial decision to keep your business operating. Hey, K-Mart did it and Trump does it all of the time. Just don't use Bankruptcy repeatedly as Financial Birth Control and try to abuse the system, like you know who.
Also, should you decide to exercise your legal options, make sure you establish a plan of action for after the Bankruptcy.
This is not the end of world and you can recover. Although the decision and process may be painful and morally conflicting, a Preservation Plan will help you recover from your current Financial Dis-Ease.
* Do you have Financial Relationship questions? Submit your questions to Tarra Jackson for "Real Life Real Talk" answers to www.FinancialFornication.com/contact.html.
Make no mistake, the four-day rally we just saw was nothing more than short covering in front of the Fed meeting just in case Bernanke surprised us with QE3. As expected he confirmed that QE2 would end on schedule.The dollar rallied and the market sold off on the news.
Folks, I don't think this is over yet. In the chart below you can see that every intermediate cycle low exhibits some kind of capitulation volume as market participants panic.
We clearly have not seen any kind of a panic selloff yet. As a matter of fact volume has been running slightly lower than average. This is not what happens at a true intermediate bottom.
The average duration of an intermediate cycle is between 20 and 25 weeks. Two of the last three intermediate cycles bottomed perfectly in that timing band. The March cycle was slightly shortened by the Japanese tsunami which generated tremendous bearish sentiment in a very short time.
However there is no serious calamity that should shorten the current cycle. One could claim that the Greek situation is driving the decline, and once it gets resolved the correction will end. I think that's highly unlikely. The market has known for over a year that Greece is going to default. There's no surprise there. I suspect the next Black Swan will come in July as Spain, or Portugal, or Irish bond yields spike, or something completely out of the blue occurs, like an implosion of the Australian housing market. It's in times of stress that flaws in the system break.
Since we don't have any capitulation volume yet, and it's still too early for the intermediate cycle to have bottomed, the assumption is that this correction isn't finished.
So far the market is still following the template I laid out in "The Bear is Back" post. I expected some kind of counter trend rally to relieve the extreme bearish sentiment levels and oversold conditions. We are getting that rally now (it may have already ended).
Once the counter trend rally runs its course the market should have another leg down bottoming in late July to mid August. At that point I expect Bernanke to freak out and initiate QE3. That will be the signal for a more durable, and probably explosive rally.
But remember, the most violent rallies occur in bear markets!
THE FED AND ECONOMY - CNBC’s Steve Liesman - CNBC’s Rick Santelli - Wayne Angell, Former Fed Reserve Governor - Rep. Ron Paul, (R) Texas - Mort Zuckerman, N.Y. Daily News Publisher; U.S. News & World Report Chairman & Editor-in-Chief
MARKETS - Russ Koesterich, BlackRock iShares Group Global Chief Investment Strategist - Lee Munson, Portfolio Chief Investment Officer
WHAT HAPPENS NEXT IN GREECE? - Vassilis Kaskarelis, Greece Amb. to US
NLRB VS. BOEING DISPUTE - Sen. Lindsay Graham (R-SC)
Kudlow American Growth Council THE BARRIERS TO GROWTH: REGULATIONS…PLAN TO EASE WAY FOR UNIONS = BACK DOOR CARD CHECK - Jonathan Tasini, Economic Future Group President; Fmr. Labor Research Association Executive Director - Peter Schaumber, Fmr. NLRB Chairman
RON PAUL & BARNEY FRANK TO INTRODUCE LEGISLATOIN TO END MARIJUANA PROHIBITION - Rep. Ron Paul, (R) Texas discusses.
ATLANTA'S DEM MAYOR PUSHES TO REPLACE PUBLIC PENSIONS WITH 401(k)S
Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan.
Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations. To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.
The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The Committee will monitor the economic outlook and financial developments and will act as needed to best foster maximum employment and price stability.
The market is slightly higher in early trading, a good sign that so far we are not giving back yesterday's solid gains. The action in the market was good yesterday, with volume rising nicely and the Nazz scoring a 90% upside day (90% up volume).
Today we have the FOMC meeting and statement coming out later this afternoon. While few expect any surprises, it will be interesting to hear what Bernanke has to say about the end of QE2, the current softpatch in the economy, etc.
The euro is higher vs. the dollar this morning after the Greek PM was able to secure the votes needed to pass their measure yesterday. That should put them in shape to get the near-term loan they need from the IMF to make their interest payments, but they still have a long way to go until they can get their fiscal house in any sort of sustainable shape.
There were a handful of earnings reports last night. Fedex (FDX), Jabil (JBL), and CarMax (KMX) are all higher after reporting, while Adobe (ADBE) is trading down.
Asian markets were mostly higher overnight, although China and India are struggling to bounce along with most of the other markets.
Commodities are mostly higher, with oil prices up to $94.75 and gold higher near $1558.
The 10-year yield has drifted back down to 2.95%; and the VIX is down another -5% to 17.85.
Trading comment: As the buildup in bearish sentiment continues to unwind, the market should be able to lift a little more from current levels. The first big test would be at the overhead 50-day average, currently near 1319 (if and when). I continue to look to raise a bit of cash as things lift, and add some hedges to help get through what could be a long summer of volatility. While Greece has calmed down for the moment, I don't feel they will be out of the headlines for long.
The gold:oil ratio is nearing the upper limits of its trading band. When this level has been reached in the past it usually signaled a decline in gold (move down into an intermediate cycle low) and a rally in oil was eminent.
Normally I would expect the same this time as gold is very deep into an intermediate cycle and overdue for a major corrective move. There is a problem though. Oil is still very early in its intermediate cycle. Also oil has broken below its prior intermediate cycle low signaling a failed and left translated intermediate cycle is in progress.
Taking into consideration a normal intermediate oil cycle lasts 50 to 70 days, and this cycle is only on day 32, then oil should generally continue lower for another 20+ days.
As oil and stocks have been moving in lockstep lately it's not surprising that the stock market's daily cycle also has 20 or so days before an expected final intermediate bottom.
So if the gold:oil ratio is to regress back to the mean, and oil still has a month before an expected bottom the only way the gold oil ratio can decline is if gold starts to accelerate to the downside, dropping significantly faster than oil.
BREAKING NEWS: THE GREEK CONFIDENCE VOTE - CNBC’s Michelle Caruso-Cabrera joins us live from Athens.
WHAT CAN WE EXPECT TO HAPPEN NEXT IN GREECE? - Amb. Charles Ries, Senior Fellow Rand Corporation; Fmr. U.S. Ambassador to Greece (2004-2007) - Amb. Daniel Speckhard, former U.S. Ambassador to Greece (2007-2010) - CNBC’s Simon Hobbs - CNBC’s Michelle Caruso-Cabrera
MARKETS - Jason Trennert, Strategas Research Partners; Chief Investment Strategist & Managing Partner - Kenny Polcari, ICAP Managing Director - Boris Schlossberg, director of currency research at GFT
HUNTSMAN ENTERS GOP RACE -CNBC chief Washington correspondent John Harwood joins us from Washington.
DOES THE U.S. NEED 5% INFLATION?! - Rep. Barney Frank, (D-MA) - Brett Arends, Wall Street Journal Columnist
WHAT ARE WE LEARNING FROM THE GREEK SPECTACLE WITH OUR DEBT TALKS? - Sen. Lindsay Graham (R-SC)
TOKYO MARKETS - CNBC’s Kaori Enjoji joins us from Tokyo.
THE KUDLOW AMERICAN GROWTH COUNCIL - A WEEK-LONG SERIES... DID THE STIMULUS WORK? - Rep. Jason Chaffetz, (R) Utah - Jared Bernstein, Center on Budget & Policy Priorities Sr. Fellow; CNBC Contributor; Fmr. Chief Economist, VP Biden
I just lost my entire post on Blogger. Very frustrating.
Markets on higher this morning on improved sentiment from foreign markets. The Greek PM has an important confidence vote later today, but the markets are signaling they think that the vote will be successful.
Asian markets rose nicely overnight, while European markets are higher across the board this morning, led by a 4% spike in Greece's market.
The dollar is lower this morning against a basket of currencies. That is helping boost commodities, with oil prices higher near $93.80 and gold prices up to $1547.
Higher commodity prices are spurring rallies in the energy and materials sectors, which are leading the markets by a wide margin. Defensive consumer staples stocks are lagging.
The 10-year yield is higher at the 3.00% level. Yesterday I showed the negative reversal in the VIX and said it pointed to lower prices. We are seeing that today, as the VIX is plunging more than -10% back down below the 18 level.
Trading comment: The market has now rallied more than 2% since I penned my article on bearish investor sentiment. We are making some sales into today's rally, to raise cash and stay defensive. Although this rally feels good so far, the market is still in a defensive position as long as the SPX remains below its 50-day moving average, which is now downward sloping.
Growth stocks today are really shining. Take a look at: APKT, ARUN, RVBD, LULU, ACOM, FTNT, EZCH, BODY, JOBS, etc.
I've said it before, gold will do everything in its power to draw traders in at intermediate tops. Then it will kick them off at intermediate bottoms.
There are a couple of dependable signals that almost always occur during an intermediate degree decline. The first one is a MACD crossover on the weekly charts. Second; gold almost always dips below the 10 week moving average (50 day moving average).
You can see in the above chart the divergence that is forming in weekly momentum. Gold is now starting to hug the 10 day moving average, possibly in preparation for a move down into the next intermediate cycle low. As the current cycle is now 21 weeks old gold is due, actually overdue, for an intermediate degree corrective move.
Another tell that occurs is a break of the intermediate trend line. That also has yet to occur.
Until we have confirmation that gold has completed its intermediate decline we will remain on the sidelines.
The Wal-Mart victory handed down by the Supremes today is a great win for all business, and a huge defeat for frivolous class-action lawsuits.
In fact, this business victory by Wal-Mart is so bullish, I believe it drove up stocks today, with the Dow finishing 76 points higher. There was no new news from Greece. Today’s stock market rally was the Wal-Mart effect.
By the way, the slam-down on class-action lawsuits is also a victory for individuals. If people have a beef, go ahead and sue. But the Supremes just said no to sociological or cultural or general statistical models, which provide no evidence in these cases. No proof.
Literally, the class-action slam-down by the Supreme Court will save business billions and billions of dollars over time. And of course, the liberal left has waged war against Wal-Mart for years. So that gang took it on the chin today.
And then there’s my friend Nancy Pelosi. She said today’s Wal-Mart decision “sets back the cause of equality for women.” She went on to re-endorse various equal-pay bills, such as the Lilly Ledbetter Fair Pay Act and the Paycheck Fairness Act. You gotta love it.
After the dreadful NLRB lawsuit against Boeing’s freedom to choose -- which is part of the war against business coming out of Washington -- today’s Wal-Mart decision is welcome relief.
MARKETS - Brian Kelly, Brian Kelly Capital President & Fast Money Contributor - Rex Macey, Wilmington Trust CIO - Steve Forbes, Forbes Media Chairman & Editor-in-Chief
REPATRIATION & CORPORTATE TAXES: COULD CUTTING CORP. TAXES ON OVERSEAS PROFITS BE THE ULTIMATE STIMULUS PLAN FOR U.S. ECONOMY? - Dean Baker, Co-director of the Center for Economic and Policy Research (CEPR) - Steve Forbes, Forbes Media Chairman & Editor-in-Chief
WAL-MART'S REACTION TO SCOTUS DECISION - Ted Boutrous, Wal-mart Lead Counsel; Gibson, Dunn & Crutcher
WHAT WALMART DECISION MEANS FOR BUSINESS - Julien Epstein, CEO, LMG Inc; Fmr. chief minority counsel to the House Judiciary Cmte; fmr. majority staff dir., House Govt Operations Cmte - Ann Coulter, Syndicated Columnist; "Demonic" Author
THE KUDLOW AMERICAN GROWTH COUNCIL - PART ONE BARRIERS TO GROWTH: IMMIGRATION -- MORE SILENT RAIDS OVER IMMIGRATION - Tamar Jacoby, Immigration Works USA President - Tom Tancredo, Fmr. Republican Representative from Colorado; Fmr. GOP Presidential Candidate
The chart that caught my eye today was that of the Volatility Index (VIX). This is the indicator that is often referred to as the "fear gauge" in the market.
This morning, the VIX started out higher, but it quickly reversed and continued to move lower on the day. This bearish action of opening higher than yesterday's high, and closing below yesterday's low is known as an "outside day" (as the high and the low are outside yesterday's range).
If this were a stock putting in that type of action, I would say that it is mostly likely going lower in the near-term. So if we apply the same diagnosis to the VIX, we should conclude that it is positioned to move lower in the near-term.
Traders know that a VIX that is moving lower is often associated with the equity markets moving higher. So a move under 20 in this indicator could be a sign that the near-term spike in volatility is set to take a breather, and that could give this market a little more room on the upside.
Please join us at 7pm ET tonight on CNBC.
