Romney Didn't Make the Sale

Did Mitt Romney make the economic sale at the Republican National Convention? Did he convince people who are living at the margin or unemployed and discouraged that he has the answers to the economy? Frankly, I don’t think so.

I do not understand why he did not talk about his 20 percent across-the-board personal tax cut plan that would help the middle class enormously. He never mentioned it and he went into no detail on the business tax cut plan.

This plan is terrific for competition and global investment. He talked about a jobs tour. I frankly have no idea what a “jobs tour” is. I do know that 23 million Americans need jobs. I don’t know that they need a president on a jobs tour to inspect them.

It concerns me that in the economic zone, he didn’t make the sale to the independents, so-called Reagan Democrats, or to Clinton Democrats. I didn’t hear anything new. I didn’t hear anything specific, and it troubles me. I do think he helped himself enormously with his biographical narrative. He came off as a humble, grateful man.

Again, on the economic front I don’t think he made the sale; I don’t think he convinced the independent voters and I don’t think he’s going in the right direction in tax policy.

ON BIG BUSINESS:

I think he needs to be more specific. It’s not about big business -- it’s really about small business. And guess what? Small businesses pay the personal tax rate — the LLCs and the S-corps. That is another reason why I don’t understand why he doesn’t talk about the 20 percent tax cut. It helps small businesses and it’s the opposite contrast to Obama, who wants to raise taxes on those people. I didn’t hear any contrast Thursday night, except a passage on success. The best line from an economic standpoint was “In America, we celebrate success, we don’t apologize for success." That is a great line, but I wish he had more contrast with President Obama.

ON MARCO RUBIO:

Sen. Marco Rubio’s introduction of Romney was one of the most brilliant speeches I have heard in a long time. Freedom was his key point. America is about freedom — economic freedom, political freedom, religious freedom, and faith. It was just utterly brilliant and the guy is an absolute Republican superstar.

Bernanke: The Song Remains The Same

The market is higher in early trading, coming more off the heels of developments in Europe as opposed to comments from Bernanke's speech in Jackson Hole.

Europe's markets were higher this morning after the EU plans to make the ECB the sole authority in granting back licenses.  This could pave the way for the ESM to get a bank license which as we have said would dramatically increase its lending capacity.  There is also chatter that the head of the Bundesbank is resigning, which would remove one of the biggest opponent's to the ECB's current plan of action.

The above news has the euro rallying as well as Euro stock markets.  Asian markets were lower overnight on continued fears of a hard-landing in China.

As for Bernanke's speech, I have been saying for weeks that I thought it was highly unlikely that we would hear about new QE initiatives and that it was more likely that he would reiterate what he as been saying recently - that the Fed stands ready to provide additional stimulus as needed by the economy.

That is exactly the tone that Bernanke's speech took today.  He said that the use of non-traditional policies involves higher costs that traditional policies, and as such the bar should be higher for the use of such policies.  He also took a stab at the Administration for its lack of further fiscal initiatives by saying that "Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve."

The market showed some initial disappointment with his remarks and sold off, but that dip was quickly bought again as investors conclude that the Fed stills stands ready to step in, and the ECB is getting closer to providing more support to Europe.  Also, a note out of Goldman this am says they think China's economy will pick up into the end of the year.

Commodities are higher on the lower dollar today.  Oil prices are higher near $95.88.  Gold prices are up to $1672, and silver prices are higher as well.

The 10-year yield remains weak falling to 1.60%.  And the VIX is down -4% back to 17.13.

Trading comment: Looks like the Bernanke selloff came a day early and today's market strength is more about optimism that the ECB will announce some policy initiatives next week to help the eurozone crisis.  I expect volume to be light today ahead of the holiday weekend so I don't want to make any big bets before next week.  Volume levels should pick up again in September and we will see if the market has the strength to push to new highs or if it needs a deeper pullback first.

Possible portfolio change

A possible portfolio change has been posted to the website.

Bulls Pull In Their Horns Ahead of Jackson Hole

The market is lower in early trading, following weakness in overseas markets overnight.  Asian markets were lower across the board.  A Chinese State economist said inflation will rise above 3.0% in August, which might explain why the PBOC has been reluctant to lower interest rates.

Europe's markets are also lower despite Germany posting an in-line unemployment rate of 6.8%.  Bond yields in both Italy and Spain are slightly higher today after Italy auctioned off 5- and 10-yr debt.  Angela Merkel is visiting China, where the Prime Minister said his country remains committed to investing in Europe.  But I haven't seen many initiatives aimed at helping Europe at large, rather the moves I've seen are strategic investments by China to strengthen their commodity needs.

In the US, retailers released same-store sales for the month and many have been better than expected.  But retails stocks are flattish overall, being held back by the bearish tone of trading today.

The dollar index is rising again weighing on most commodities.  Oil prices have pulled back to $94.00, and gold prices have eased to $1654.

The 10-year yield is hovering above its 50-day support near 1.62%.  And the VIX has spiked 5% this morning, breaking above its 50-day average to 18.0.

Trading comment: I think some traders were hoping the market would rally more going into the Jackson Hole event, looking for a buy-the-rumor, sell-the-news type pattern.  But the market has been flat the last few days so maybe some of these folks are taking some chips off the table today ahead of the big event tomorrow.  I am on record as saying I do not expect any explicit new QE initiatives, and that could leave the market ripe for disappointment.  To the extent that the market pulls back today, that could lower the odds of a larger selloff tomorrow.  I also expect that volume will be relatively light tomorrow ahead of the Labor Day weekend, which could add to the element of volatility.  But next week things heat up again as traders return from their vacations and the ECB meets next week hopefully with some further policy announcements.

Paul Ryan's Speech: Too Much Debt, Not Enough Growth

Republican vice-presidential candidate Paul Ryan gave a powerful speech Wednesday that repeatedly brought conventioneers at the Republican National Convention in Tampa to their feet.  I am going to give him high marks for his speech’s delivery.

Ryan, in typical fashion, seriously and analytically ripped apart the Obama Economy, what has been called Obamanomics.  He ripped it to pieces, and it needed to be done.  But most especially, he ripped apart Obamacare.  Ryan also did his level best to defend the Republicans against the usual attacks on Medicare reform—that is, what the Democrats call “Mediscare”.

However, I was disappointed that his economic growth solutions were somewhat muddled and unclear.  At one point in the speech, rather than speak about Mitt Romney’s own tax rate proposals, Ryan used the term “tax fairness,” a Democratic term frequently used by President Obama and other liberal Democrats.   This was surprising to me.   Ryan cited Jack Kemp and the Reagan tax reform (and I am, of course, part of that gang).

But the reality is, Ryan never mentioned tax cuts during his speech.  Not the 20 percent across-the-board supply-side reduction in marginal tax rates, nor the 25 percent corporate tax rate down from 35 percent.  These pro-growth measures have been proposed by Mitt Romney, but it is a mystery to me why Ryan did not mention them.  

He dwelled on debt to an extreme point.  I don’t think discussing debt connects with people who are unemployed or marginally employed.  I think they want a good-paying job, and debt is almost an academic abstraction.    When Republicans run on debt and deficits, they almost always lose.    When Republicans run on growth, limited government, lower spending, lower tax rates, and de-regulation—they win.  Ryan’s speech was confusing on the growth issue, and that was disappointing;  I don’t want to be confused and the American people shouldn’t be confused.

It will be left to Mitt Romney on Thursday night to clarify his own growth policies.   I want growth, growth, growth.  Wednesday night,  I didn’t get growth, growth, growth;   I heard debt, debt, debt. 

Q2 GDP Gets Positive Revision

The market is again flattish near the open but not really giving much back.  This quite action looks to me like more consolidation of recent gains that could lead to another push higher, although I also think the lack of any QE mentions on Friday from Jackson Hole could lead to some short-term disappointment.

In economic news, Q2 GDP got a positive revision from 1.5% to 1.7%.  Separately, pending home sales for July rose 2.4%, which is a big turnaround from the previous month's -1.4% decrease.

Asian stocks were mixed overnight, with China down another -1.0% after the Vice Commerce Minister reiterated that weak exports will weigh on the country's growth objectives.  Last night Joy Global (JOY) missed estimates and lowered guidance due to weakness in both Europe and China.

Europe's markets were lower this morning but have bounced since after ECB President Draghi reiterated that it will do whatever is necessary to maintain price stability.

The dollar index is higher today and weighing on most commodities.  Oil prices are lower to $95.15.  Gold prices are pulling back near $1660.  And silver and copper prices are lower also.

The 10-year yield is higher today to 1.67%.  And the VIX is also higher by 1% to 16.68, which is bumping it right up against its overhead 50-day resistance.

Trading comment: Our market continues to hover near recent highs without giving much back.  Normally this is bullish action, and shows the market is resting and potentially building its internal energy for another push higher.  This comes against a backdrop where global growth continues to slow.  Europe is in recession with austerity measures still taking hold.  And China is slowing with less levers to pull to stimulate growth as easily as it has in the past.  The Shanghai stock market is back to March 2009 lows, which has to be a bad sign in and of itself.  So those are the crosscurrents facing investors today.  It almost feels like a game of musical chairs where investors want to stay in stocks for as long as the music continues to play, but once it stops there could be a rush to the exits. 

KAM Advisors has short positions in JOY

Consolidating Ahead Of Jackson Hole

The markets are down slightly in early trading, but have mostly been consolidating in a sideways fashion after failing to hold at new highs last week.  This Friday brings the big Jackson Hole symposium where investors think Bernanke could comment on further QE initiatives. 

I still fall in the camp that says with the markets near new highs, the Fed would rather keep its powder dry.  My guess would be we will just hear more of the same from the Fed, that they stand by ready to support the economy with easy monetary policy should economic growth continue to slow.  As such, I think if the markets are pricing in more QE announcements on Friday then we could see some disappointment.

In economic news, the latest consumer confidence reading for August came in at 60.6, which is well below last month's reading of 65.9.  Separately, the Case-Shiller home price composite rose 0.5% which is a nice turn from last month's decline of -0.7%.

Asian markets were mixed overnight after the Japanese govt. downgraded its economic assessment due to slowing exports.  European markets are generally weaker this morning despite stable peripheral bond yields.  ECB Pres. Draghi said he will not attend this week's Jackson Hole symposium due to a heavy workload.

The dollar is lower today, with commodities mixed.  Oil prices are higher to $96.25 after weakness yesterday.  Gold prices are flat near $1675.  Silver prices are higher while copper is lower.

The 10-year yield is lower again to 1.63%, nearing its 50-day support.  And the VIX is currently flat 16.32.  It also bumped into its overhead 50-day resistance this morning before turning lower.

Trading comment: The market continues to trade in a fairly tight range.  It has been awhile since we have seen big swings in the market.  And with the VIX at 16 and change, it doesn't appear that traders are expecting volatility to pick up in the near-term.  But in my experience, having an event like Jackson Hole on the Friday before Labor Day could be a recipe for increased volatility.  I think trading volumes are likely to pick up in September, and the contrarian prediction would be for the market to complete this multi-month cup-and-handle formation its working on and stage another upside breakout. 

Larry Kudlow Interview at the RNC

Monday Morning Musings

The markets are roughly flat this morning despite some declines in Asia overnight.  The Jackson Hole summit is coming up later this week, and investors are still hopeful that Bernanke will talk about some additional easing.

There was also quite a bit of M&A news coming out of the weekend.  Hudson City Bancorp (HCBK) will be acquired by M&T (MTB) for a 12% premium.  Kenexa (KNXA) will be bought by IBM for a whopping 42% premium.  And Dollar Thrifty (DTG) is being bought by Hertz (HTZ) for an 8% premium to Friday's close. 

The other big news was from the courts late Friday when Apple (AAPL) won a big patent victory over Samsung.  The stock has boosted AAPL to new highs, while hurting those stocks that will have to either redesign their products or even pull some from shelves pending resolution.  AAPL was also awarded $1.05 billion in damages. 

Separately, the energy sector is on alert as Tropical Storm Issac enters the Gulf of Mexico and could disrupt oil production in the region.

Asian markets were lower overnight after China got hit by 1.7% following the release of disappointing industrial profit growth (5.4% in July).  The Shanghai composite continues to hit levels not seen since March 2009. 

Europe is roughly flat this morning despite comments from Germany over the weekend again speaking against the ECB plans to buy government debt.  The President of the Bundesbank repeated that such actions could be illegal and could produce intended consequences.

The dollar is flattish today, as are most commodities.  Oil prices are slightly lower to $95, while gold prices are flat near $1672.

The 10-year yield is lower to 1.65%.  And the VIX is 5% higher today almost back to the 16.0 level following last week's options expiration.

Trading comment: We finally did get a down week in the market last week, but it wasn't by all that much, and volume was relatively light.  The SPX got down to its 20-day average on Friday, where buyers stepped in and the market rallied.  This morning the market is trying to add a little bit to those gains.  I still expect more consolidation overall this week, but any news out of Jackson Hole could cause some fireworks.  I continue to watch for stocks breaking to new highs, and the group that seems to have a lot of names is the biotech group. 

KAM Advisors has long positions in AAPL

Kudlow Goes One-on-One with Paul Ryan

On last night’s Kudlow Report, Paul Ryan talked to me about pro-growth policies and the American idea. He defended his Medicare option as a bipartisan plan going back to the Clinton era. He talked supply-side tax reform, along with spending reduction, deregulation, energy, and sound money. Preventing the fiscal-cliff recession threat will be Romney-Ryan’s first action. 

Are You Looking For More Than A 2% Pullback?

The markets quickly shook off some mild weakness after the open and are currently in positive territory.  Overnight action in Asian and Europe was lower, though not much in the way of impactful news.

Asian markets gave back most of the previous day's gains.  There is still chatter about China's central bank easing, but who knows if and when.  Meanwhile, HSBC lowered its China growth forecast for 2012 from 8.4% to 8.0%.

In Europe, Greece's PM is meeting with the German Chancellor.  It will be interesting to see if he can persuade Germany to extend the timeframe for Greece to meet its commitments.  Peripheral yields are rising today, with Spain's 10-yr at 6.49% and Italy up to 5.77%.

In economic news in the US, durable goods had a nice showing up +4.2% in July, up from 1.6% in June.  Not bad.

In earnings news, Autodesk (ADSK) got hit by more than 20% overnight after missing earnings and lowering guidance, but it is bouncing back a little bit so far.  Also, Salesforce.com (CRM) was lower overnight after a mixed report and guidance, but it has since climbed back into positive territory.

Commodities are mixed so far with the dollar index up slightly.  Gold prices are down a little to $1671 while silver prices are higher.  Oil prices are also up a bit near $96.65.

The 10-year yield is down a little to 1.65%.  And the VIX is also 2.7% lower to 15.51.

Trading comment: From its intraday highs on Tuesday to this morning's lows, the S&P 500 has pulled back 2.0%.  Sometimes in a normal uptrend that is about all an investor should expect from a pullback.  A 2% pullback is often considered a pause that refreshes.  The SPX has also drifted back to its 20-day average, where so far it looks to be finding support.  So if you are bullish, you are probably buying this morning's dip.  But there is still a lot of concern out there, and a lot of folks are still looking for more of a pullback before committing more cash.  If I had to guess, I would probably fall somewhere in the middle with the thinking that we could just chop around in this general range for a bit longer before seeing another push to the upside.  But it will be interesting to see how the market closes ahead of the weekend.

Gold Breaking Out On Hopes Of More QE

Global markets were higher overnight on hopes that the Fed left the door open to more QE, even though I think with the S&P 500 near new highs it is unlikely that they move now.  I think they would rather wait for another rough spot in the markets, or possible if the economy gets hit by the fiscal cliff issues.

Asian markets were higher after China's HSBC PMI index rose to 47.8, even though this reading is still a 9-month low for the manufacturing sector.  In Beijing, Fed member Charles Evan suggested that QE3 would add confidence to the markets.  I'm not so sure I agree, as it would also send the signal that the Fed remains worried about the economy.  But it would reinforce the "Bernanke put" moral hazard.  On the flip side, Fed member Bullard threw some cold water on the whole idea.

Despite gains in Asian and Europe, markets in the US are lower this morning.  I think this is normal action after Tuesday's downside reversal.  So far this is just a normal pullback.

In economic news, new home sales for July hit a rate of 372,000, which is up from June's rate of 359k.

In earnings news, GES, HPQ, and BIG are all down a lot after missing earnings reports.  HAIN is a standout on the upside, up 18% after beating estimates and raising guidance.

Gold and silver prices continue to add to their recent breakouts, which many are interpreting to mean the market is anticipating more QE.  Gold prices are higher to $1676, and oil prices are up near $97.65.  Copper prices are higher as well.

The 10-year yield is falling back to its 20-day average near 1.67%.  And the VIX is rising +4.6% so far to 15.80, which is still a pretty low absolute level for the index.

Trading comment: On Monday I said that the market has had quite a string of weekly gains and I thought it was likely that markets would take a rest this week.  That call looked iffy on Tuesday as the market made new highs for the year.  But the inability to hold those levels, the downside reversal from there, and the pullback follow through action today are in-line with what I was expecting.  This action is actually healthy, as it allows the market to work off its overbought condition.  I think it is likely that underperforming investment managers and dip-buyers will come back in, but be patient in letting the market find some support.

Don't Hold Your Breath For FOMC Minutes

The market is lower for a second day after yesterday's breakout to new highs was sold into and the markets reversed lower.  Volume is running pretty light this morning as many participants await the release of the latest FOMC minutes.  There have been high expectations for the last few meetings that the Fed would tip its hat in terms of further QE.  I don't think we will hear anything new, and with the markets making new highs I think the odds of something coming out of next week's Jackson Holy symposium have diminished as well.

Asian markets were lower overnight after Japan's trade deficit missed expectations and showed that exports to Europe fell -25% and exports to China even fell 12%.

Europe's markets are also lower after S&P said even a full bailout in Spain wouldn't cause them to change their ratings, which are at outlook negative. 

In US economic news, existing home sales for July hit 4.47 million units, a bit below estimates but up from the prior months reading.  Separately, Toll Brothers (TOL) reported strong quarterly results and that is boosting homebuilding stocks.

In the REIT space, Health Care REIT (HCN) will buy Sunrise Senior Living (SRZ) for a whopping 62% premium to yesterday's closing price.

On the flip side, shares of DELL are down -6.5% after missing on revenues and issuing downside guidance.

The dollar is roughly flat so far, as are commodities. Oil prices are up slightly near $97.20 and gold prices are at $1643.

The 10-year yield has given back some of its recent gains and is trading near 1.75%.  As for the VIX, it is up 2% so far to 15.30.

Trading comment: Yesterday's failed breakout stands out on the charts.  The S&P 500 briefly touched new highs before reversing lower into the close and finishing down for the day.  Today the market is down again (so far).  So the inability to hold at new highs and follow thru on that move likely means that the market has some consolidating to do of its recent gains at best, and more of a pullback in store at worst.  We also know that investor sentiment has grown more bullish of late, which lowers the wall of worry a bit.  I would not be surprised to see the market chop around more to keep investors on their toes.

Germany Still Opposed To ECB Bond Purchases

The markets are higher in early trading after a lackluster day yesterday in which stocks didn't give back much at all of the gains they've made over the last several weeks. 

The S&P 500 has touched new highs for the year, and the 1425 level where it currently trades is about a 4-year high.  The last time the SPX was at these levels was May 2008. 

European markets are higher this morning despite comments from the Bundesbank which once again reiterated its opposition to the ECB purchasing government bonds.  Much of the global stock rally has been predicated on the ECB's commitment to do whatever it takes to aid the situation, but if Germany doesn't give its consent it is going to be difficult sailing for Draghi.

Separately, Moody's analysts believe that the eurozone crisis is only at about the half way point, and that countries like Greece and Ireland could need extensions out to 2016 to get the economic situation in order.

Asian markets were pretty flat overnight.  The Reserve Bank of Australia's minutes suggested that they will hold rates steady in coming months as they monitor China's growth which they believe is stabilizing.

In earnings news Urban Outfitters (URBN) reported strong earnings and the stock is up 17% on multiple analyst upgrades this morning.

The dollar is lower this morning and trading near a 6-week low.  That is helping boost commodities across the board.  Oil prices are higher near $97.25, once again within shooting distance of the $100 level.  And gold prices are also higher to $1641, as are silver and copper prices.

The 10-year yield is pushing further into high ground, reaching 1.85%.  And the VIX started out higher this morning but has since slipped back into negative territory on a quick drop to 13.50, back near 5-year low levels.

Trading comment: I had thought the market could have a down week this week, but so far that isn't happening.  After trading in very quiet fashion yesterday, the SPX spiked higher today to make new highs for the year.  Financials are starting to act better and play a little catch up with the market.  The markets also probably like the fact that Spanish and Italian bond yields are moving lower.  I still think the pressure on those markets will resurface, but the timing of this is difficult to predict.  In the meantime we are respecting the price action and monitoring for new breakouts among quality growth stocks.

Common Sense

I returned to Moab yesterday, camping out in the heat last night.

The Peace Corps reunion in San Diego went really well.  My Peace Corps friend, Stephanie, drove me there from Colorado, and, of course, it was splendid getting to know her better.  We were both so happy we overcame our reluctance to go. It was the first I'd seen most those folks in 23 years, since we were in Ecuador together.  I was actually really surprised to see how little everybody had changed.  Joe Griffith (I think voted the "sexiest" in Peace Corps training), who had disappointed his fellow female volunteers (and some male :-)  by marrying an Ecuadorian, pretty much organized the whole event.  His Ecuadorean wife and sister-in-law even cooked up a gourmet Ecuadorean feast for us, which brought back a flood of magical memories.

On returning to Moab, I got to spend time with Carolyn and her new boyfriend, Thembe, who had dropped into the area for a couple weeks.  They then brought me to Fruita, Colorado, to visit my parents.

In Fruita, I discovered a group of new friends (Kyle and Jeanine, Ken and Rachelle, Cullen and Veronica), and a rad, artsy center they'd created, called Cavalcade.  They wanted to jam in Cullen's woodshop (he also makes harps and guitars), and I figured I'd join these refined musicians with my rookie guitar skills.  There were a bunch of woodsaws hanging up, and somebody jokingly asked if anybody played the saw.  I said, "yes," and sawed some tunes with them.  They convinced me to stay longer and play saw in Cavalcade's variety show with Kyle Harvey.   

Meanwhile, I've been reading a book my Missoula friend, Kate, gave me, "The Spell of the Sensuous", by David Abram. At first I'd thought it was just another nice nature book.  The title kind of throws you.  But it is utterly profound, with revolutionary ideas.  Maybe if it had a different title, and not classified as a nature book, it might be more well known, in fact revolutionary, to scientific, as well as theological and philosophical, thinking.  It's helping me crystallize ideas developing for decades in me.  I hope to write them out sometime.  Meanwhile, here's some musings it inspires in me:

COMMON SENSE

All physical reality is sensual.
All physical reality is known only by the senses.

The senses are the prophets, the seers, the sent,
bearing witness to Unchanging Consciousness.

To repress the sensual is to deny physical reality,
To deny the sensual is to deny compassion,
to deny the Word in the flesh,
Consciousness in the flesh.

Paradoxically, to repress the sensual is to be a slave to the sensual,
to express and share the sensual is to be served by the sensual.
To express and share passion is compassion.
How?

Passion is sense.
Shared sense is common sense.
Common sense is common passion.
Common passion is compassion.

Senses hidden, senses not shared,
Passion hidden, passion not shared
are our slaveholders,
are our destruction.

Compassion is Omni-pre-sence
Omnipresence is God in everyone,
One Consciousness in everyone.
Compassion is Common Sense.

All physical things are sensed.
To share all things is to commonly sense.
To share everything is common sense!
Common sense is concensus.

To think we own anything
is to deny common passion,
to deny common sense,
is to deny omni-pre-sence!

To breathe is to share,
air common to all.
To breathe is to be alive.
To breathe is to sense.
To breathe is to make sense.

To breathe is common sense!
To breathe is to respire, inspire,
be filled with the Spirit,
To realize all life
literally is One Breath,
One Spirit,
Whole Spirit,
Wholly Spirit,
Holy Spirit.

Can you possess air?
can you own breath for later? 

To deny this common sense
is to deny Omni-pre-sense.

Possession means possessed.
Possessed means not free.
Not free means bought and sold.
Only slaves and prostitutes
can be bought and sold,
Slaves to our senses,
because we repress our senses.

Free means priceless.

Free Market is an oxymoron!
Free literally means free!

Market is price institution.
Price institution is pros-titution.
Prostitution is commerce.
Commerce is common market.
Common market opposes common sense.
Common sense is com-passion.
Common sense is consensus.

(In Hebrew, commerce is canaan.
All the world has become Canaan).

Mammon is delusion.
Delusion is idolatry,
mistaking illusion for reality.
Compassion is reality.
Reality is omnipresent.
Omnipre-sence is common sense.

Either love Mammon
and hate Reality
or vise versa.
It 's impossible to love both.
Can you simultaneously love
both the Prostitute of Babylon
(Queen of Commerce)
and the New Jerusalem
(Queen of Grace, of Gratis)?

If life cannot share
how can it be life?
To buy and sell life is to deny life.
Every particle in the Universe is life.
Universe means omnipresence.

To not share is to reject all the Universe,
to repress your own senses,
to not sense the senses of others,
to reject compassion,
to not make sense,
to reject common sense.

Compassion is the Spirit
breath, sense,
Spirit confessing the Word in the flesh,
beyond words.
Any spirit that does not share
denies the Word made flesh.
Because any spirit that does not share
is in a lung that does not breath,
not speaking the Word beyond words.

Common Breath
Common Sense

I said in my heart, 
"Concerning the condition of the descendants of Adam, 
God tests them, 
that they may see that they themselves are animals."
For what happens to the descendants of Adam 
also happens to animals; 
one thing befalls them: 
as one dies, so dies the other. 
Surely, they all have One Spirit*.
Adam has no advantage over animals, 
for all is emptiness.
All go to one place: 
all are from the dust, 
and all return to dust.
(The Bible, Ecclesiastes 3:17-20)

*Hebrew, Ruach, meaning Spirt or Breath.

  

Monday Morning Musings

Global markets are struggling for direction, and the US markets are slightly lower in early trading.  Financials are leading the early action, and there is some strength in healthcare stocks after a big acquisition, but the rest of the market is mixed at best.

Aetna (AET) said it would buy Coventry Health (CVH) for $7.3 billion, and CVH is trading nearly 20% higher than Friday's closing price.

Asian markets were mostly lower overnight.  The latest report on Chinese home prices showed gains in 49 of 70 major cities, which is the best showing in over a year.  But sentiment has soured after the Chinese media are now saying they do not expect the PBOC to cut rates in the near-term.  This helped push Chinese stocks lower, closing at a 3-year low.

In Europe, markets are flat to mixed after Der Speigel speculated that the ECB could implement a new bond buying program aimed at specific yield triggers.  The ECB quickly denied the rumors. 

In earnings news, Lowes (LOW) is lower after reporting disappointing earnings and lowering guidance.

Outside of that, there are not a lot of big earnings reports or economic data to move the markets.  The dollar is down a little, but not enough to have a big impact on commodities.

Gold prices are slightly higher near $1621 while oil prices are a bit lower to $95.50.

The 10-year yield is holding the 1.80% level that it finally got above last week.

As for the VIX, it hit new lows last week at 13.30.  According to my charts, I had to go all the way back to June 2007 to find levels that low.  That is pretty surprising.  Today the VIX is bouncing 8% higher from said low levels.  I would tend to think the VIX should find some support around these areas and at some point we will likely see a spike higher, if we ever get any news again that spooks investors.

Trading comment:  The equity markets are overbought once again.  The S&P 500 has put in 6 consectutive weekly gains, which is a bit of a rare occurrence.  My bet is for a down week this week, just to break the streak.  I know that sounds a bit like amateur roulette theory, but I would still bet that way.  I am also seeing more complacency show up in the sentiment indicators.  The 10-day CBOE put/call ratio hit a new low for the year last week, and the NAAIM investor survey tied its yearly high in bullishness.  Technically, the SPX is building a large cup-and-handle formation and appears poised for a breakout.  SPX 1422 is the level to watch for new highs on the year.  But keep an eye on bullish sentiment, as it could be sowing the seeds for the next pullback in the market.

Dollar, Stocks, CRB

Just a quick post today illustrating what I expect over the next 2 years, and the intermarket relationship between the currency markets, CRB and stocks.

Pay particular attention to the inverse relationship between the dollar index and the CRB. Notice how the CRB almost immediately began moving down into it's three year cycle low once the dollar formed it's three year cycle bottom in May 2011.

Stocks are driven by not only the dollar but to some extent by commodity prices. When commodities start to surge too high they act as a drag on the economy and consequently the stock market begins to stagnate. When commodities are falling, like they have been for the last year, it tends to act as a mild tailwind for the stock market, which explains why stocks have continued to rise for most of this year despite the dollar moving generally upwards since February.

I think I have mentioned before that virtually every recession since World War II has been preceded by a spike in oil prices of 80%-100% over a short period of time (usually a year or less).

The surge from $50 a barrel to $100 in 2007 was the straw that broke the camels back and tipped the economy over into recession, which began in November 07. A further spike to $147 a barrel the next summer guaranteed that the recession would be the worst since the Great Depression, especially considering that the real estate market and debt bubble was imploding at the same time.

Now that the CRB has formed its three year cycle low the dollar index should be at or pretty close to a final top, which should then be followed by a move down into its next three year cycle low sometime in 2014.

If the intermarket relationships continue to hold up, and I don't see why they wouldn't, then we should see commodity prices moving generally north for the next couple of years until the dollar forms its 3 year cycle low in mid-to-late 2014. At some point along the way rising commodity prices are going to begin pressuring the economy, just like they did in 2007 and 2008, and also in 2011 as the CRB surged up into its final three year cycle top.

My current guess is that we will see the stock market start to stagnate in 2013 forming a very extended rounded topping pattern. By late 2013 the stock market should be clearly in a new bear market that will begin to accelerate to the downside as commodities spike into their final top as the dollar bottoms in 2014.

At that point I expect to see a severe deflationary event as the stock market and commodities collapse, similar to what happened in the fall of 2008 and early 09. This collapse and deflationary event should be accompanied by the dollar rallying out of its next three year cycle low in 2014.

Most bear markets tend to last between 1 1/2 to 2 1/2 years so we can probably expect a final bottom in early to mid 2015.

CONGRESS ARE YOU LISTENING?

Well, it's that time again. Every two years our senses are assaulted as politicians spew an endless stream of nonsense in the attempt to garner votes from a mostly unsophisticated American population. This year the major topic, not surprisingly, is jobs. Each and every politician would like you to believe that he or she has the cure for the persistent unemployment problem.

Of course it's all completely ridiculous. You would think these people could read a history book. Never in history has government been able to legislate productivity. Governments just misallocate capital. They tax one group of people and give the money to another group of people to dig holes. Of course, once the hole is dug or the road built, that job expires. It's not a sustainable productive use of capital.

Real productivity is entrepreneurs creating sustainable companies that satisfy a human need. AAPL is a sustainable business satisfying a human need. GOOG is a sustainable productive business. XOM is a productive business. None of these companies were legislated into being by government.

Almost without exception, real progress involves creative destruction. For example, when oil was discovered the whaling industry collapsed. When the automobile was invented it destroyed equine powered transportation, and so on. The emergence of each new major technological advance, throughout the history of mankind, has caused creative destruction obsolete industries.

This is part of the normal and healthy sequence of human progress. Progress is a result of replacing inefficient technologies with ones that are not only new, but more efficient. Likewise, nations that refuse to allow this process of creative destruction are exactly the economies that stagnate and ultimately fail.

There is one way, and one way only, to cure our employment problem (and debt problem). It is the same cure that ultimately ended the Great Depression and serviced the gigantic debts that were incurred during World War II. A new technological advance that changed the world. 

The cure for the Depression and massive debt built up during WWII was the advent of two brand-new industries: plastics and electronics. These two industries created millions of jobs worldwide and spawned an economic boom from 1945 until 1966.

Now the world is back in the same position it was in 1930, and where Japan found themselves in the early 1990s. The world has created another debt bubble and we've chosen to kick the can down the road just like Roosevelt did in the ‘30s, and Japan has been doing for the last 20 years. And just like in the ‘30s, we are going to get the same result which is persistently high unemployment and generally declining global economic conditions.

What we need to do is allow human ingenuity and creative destruction to actually cure our problems. And the biggest problem the US faces today is the triple threat of Social Security, Medicare, and Medicaid. These three entitlement programs have bankrupted the country, and let's be honest, there is no way any politician can possibly reform these programs, or even attempt to do so, and have a prayer of getting elected.

The cure to our problem is staring us right in the face. We don't need to reform Social Security, or government health programs. We need to make them obsolete.

Rather than plowing taxpayer dollars into an insolvent banking system (as the Japanese have been doing for 20 years), we need to allow capitalism to work and insolvent companies to go bankrupt. The taxpayer dollars that are now flowing into an endless black holes which are the financial system and government stimulus programs, need to be funneled into the biotech industry. Rather than fund expensive surgeries or endless treatments that only manage symptoms, we need to discover real cures for disease, injuries and aging.

Imagine if a person with an arthritic knee, instead of a $20,000 knee replacement surgery, could simply walk into the doctor's office and receive a stem cell shot that would repair and permanently cure the disease. Or, how about a permanent cure for diabetes, heart disease, and obesity?

Yes, what I'm talking about is a complete overhaul of the global healthcare system. Yes, this is going to be creative destruction on a massive scale. Many doctors that studied for years are going to be put out of business. Health insurance will become mostly a thing of the past as the modern healthcare of the future will become easily affordable by all. No different than buying an iPhone today.

Yes, some industries are going to suffer and go bankrupt, like health insurance, and a big part of the pharmaceutical industry.

But millions and millions of jobs will be created, the same as they were in the 50' & 60's with the new plastics and electronic industries, and in the 80's and 90's with the personal computer and internet. When we reach the stage when we actually cure diseases, especially as related to aging, we will eliminate the gigantic burden of the three big government entitlement programs. If people can remain healthy and active for their entire life there will be no need for Social Security benefits or Medicare and Medicaid. These programs will become a thing of the past, as most diseases, and injuries will be quickly and easily reversed or permanently repaired.

So instead of the same old nonsense drivel we get during every election, it would be refreshing if politicians understood the real problems, and the real cures, and put in place policies that would actually have long-term benefits and accelerate the transition through these dark times and into the next Golden age.

Congress, are you listening?

China's Premier Keeps Stimulus Hopes Alive

It seems the whole world is anticipating more stimulus from central banks.  In the US the debate is heating up as to whether or not the Fed will provide additional QE this year.  In Europe, the ECB has hinted that they stand ready to provide additional monetary easing.  And comments from China's Premier keep hope alive for more stimulus in that country.

Premier Wen Jiabao made comments to reassure investors that the nation will meet 2012 economic and social development targets.  He also said that declining inflation gives them room to modify monetary policy, as we noted last week when the lower CPI figures for China were released.

Separately, China's foreign direct investment fell -3.6%, which is the largest decline since November 2009.  The Ministry of Finance warned that corporate profits may slow heading into year-end as exports are likely to weaken.  (maybe he didn't get the memo from the Premier)

In the US, the Philly Fed survey came in below expectations at -7.1 for August, but that is still higher than last month's reading of -12.9.  Overall this is still a weak reading for manufacturing activity.

The dollar is lower today which is helping boost commodities.  Oil prices have risen to $94.87 and gold prices are higher near $1619.  Copper and silver prices are higher also.

The 10-year is up a bit higher today to 1.81%.  And the VIX is also higher, despite the gains in the stock market so far, bouncing from its recent multi-month lows to 14.91.

Trading comment: The slow grind higher continues.  Cisco's strong earnings reaction is helping boost sentiment in the tech sector and boosting the Nasdaq.  CSCO also raised its dividend dramatically which speaks to the notion that company's are generating good cash flow but not seeing good opportunities to reinvest it in their businesses so they might as well return more cash to shareholders.  The S&P 500 is working on its 6th straight weekly gain, which is a pretty long streak.  With investor sentiment growing more bullish and complacency rising, I wouldn't be surprised to see a short, sharp pullback to keep investors on their toes.

No July Recession

While the fiscal-cliff tax hike still hangs like the recessionary sword of Damocles over the economy, the economic stats for the month of July do not show it. In fact, key data points suggest there is no double-dip recession. All in all, it’s still an anemic 2 percent economy -- the worst recovery in modern times dating back to 1947. But at least for the sake of the country, there is no recession in sight for now.

The 163,000 jobs gain for July -- even with a lot of weakness inside the report -- was a move away from recession. Retail sales had dropped for three-straight months, which made a recession look perilously close. But the July number came back at 0.8 percent. And today’s industrial-production report also surprised on the upside, with a manufacturing gain of 0.5 percent. That sums to 1.7 percent annually over the last three months and 5 percent over the past year. Prior to these releases, the ISM reports hovered around 50, which does suggest ongoing weakness. But it’s not yet a true recession signal.

Finally, the consumer price report for July shows zero inflation for the second straight month. The CPI is actually rising only 1.4 percent over the past year. Energy prices have fallen 22 percent annually over the past three months while food prices are up only 1.1 percent during that period. The Midwestern drought could drive up the food-price component, but it looks like it will be a manageable event -- not a catastrophe.

Now, a roughly 2 percent economic growth rate is only half the growth we ought to be having. In fact, Mitt Romney’s economic plan targets 4 percent growth. And supply-side tax cuts, spending restraint, lighter regulation, and a stable dollar could surely revive the animal spirits to get us back to that 4 percent number.

But that’s for the campaign trail. All I’m saying here is that the July economy does not show recession. For the sake of the country, that’s a good thing. But surely we can do better.

A lot better.

Are Stocks Poised For New Highs?

The markets are slightly higher in early trading.  The S&P 500 has basically spent the last week oscillating around this 1400 level with volume running very low.  Could the stock market be building its internal energy for a shot at new highs?  Wouldn't be surprising. 

Overnight markets in Asia were lower.  China fell -1.1%, closing near a 2-week low, as investors are still hoping for a reserve ratio cut from the PBOC, with rumors swirling that this could occur near the end of the month.

European markets are also lower, despite some positive news on the UK job market with their unemployment rate falling to 8.0%.

In economic news in the U.S., the Housing Market Index rose to 37 which was above expectations and higher that last month.  Industrial production for July increase 0.6%, which was in-line with consensus.

In earnings news, a few stocks that are higher after reporting profits including ANF, BOBE, JDSU, and TGT.  A couple of stocks on the disappointing side are DE and SPLS.

The dollar is higher today, and commodities have been mixed.  After opening lower, oil prices have climbed into positive territory to $93.70.  Gold prices are slightly higher near $1606.  But copper prices are lower on the day.

The 10-year yield is getting another boost, rising to a 3-month high at 1.78%.  As for the VIX, it continues to trade at very low levels at 14.65.

Trading comment: Volume levels are running light, and the action in the markets feels subdued.  But the price action remains constructive.  After reaching overbought levels, rather than embark on a pullback, the major indexes have merely consolidated their recent gains by trading in a tight, sideways fashion.  I have to view this as positive action, and think that at some point the market will make a push higher to new highs for the year.  There is still a lot of problematic datapoints coming from the macro picture with China slowing, Europe still a mess, the ECB yet to act, the fiscal cliff still lingering, insider selling, etc.  But investors don't seem overly concerned with those issues at the moment.  Just remember that any of them could resurface at a moment's notice.

Retail Sales Surprise To The Upside

The market is slightly higher in early trading, refusing to give back much ground despite being overbought after it recent rally streak.

In economic news, retail sales came in better than expected at +0.8% vs. +0.2% consensus.  That's a nice upside surprise at a juncture when most people think the consumer is pulling back.  One standout retailer that reported earnings today was Michael Kors (KORS) who beat both top and bottom line estimates and also raised guidance.  It's stock popped +15% in early trading.

Asian markets were higher overnight after minutes from the Bank of Japan indicated that the central bank was considering further stimulus measures.  Also, in India recent inflation figures showed that wholesale inflation fell to its lowest level in almost three years.

In Europe, markets were also higher after some better than expected GDP reports.  French GDP came in flat when expectations were for some contraction.  Also, German GDP rose +0.3%, which was a bit better than expectations.  But overall Eurozone GDP showed a contraction of -0.2%.

The dollar is slightly higher today.  And commodities are mixed. Gold prices are weaker to $1603 while oil prices are higher to $93.40.  Silver and copper prices are also higher.

The 10-year yield is getting a solid bounce on the retail sales figures, reaching last weeks highs near 1.72%.

And the VIX is bouncing +4% this morning to 14.30 despite the market in positive territory.  Yesterday's dip in the VIX took it back down to very low levels that haven't been seen since March.  So traders may be looking to buy a little volatility protection at these cheap prices.

Trading comment: The old mantra "don't fight the tape" is in full effect.  The market continues to stairstep higher.  The Nazz is leading the early action.  AAPL has broken out of its recent trading range and is very close to making new highs.  GOOG is also trading very well and today just broke to new multi-year highs.  You would have to go back to January 2008 to find the stock trading at higher levels.  Volume levels have been light, so it's hard to judge how much conviction is behind the buying.  But you can't ignore the positive price action.

KAM Advisors has long positions in AAPL, GOOG, KORS

Monday Morning Musings

The markets are lower in early trading after coming off a week where every session saw gains for stocks.  There isn't a lot of market moving news this morning.  The big news is actually on the political front with the announcement that Romney's VP candidate will be Paul Ryan.

Apple (AAPL) is bucking the weakness and trading higher after reports out that it will introduce its iTV possibly in December of this year.

Asian markets were lower overnight, led by China's -1.5% decline as investors were likely disappointed that there have been no further comments or actions regarding stimulus measures for their slowing economy.  Also, Japan reported that Q2 GDP grew only 1.4% when a figure closer to 2.7% had been expected.

In Europe, markets are mostly higher after Italy held a bond auction that was met with pretty solid demand.  This helped boost the euro, and overshadowed comments from Finland's prime minister who reaffirmed his opposition to granting the ESM a bank license and said he is not convinced the ECB should continue with additional govt. bond purchases.

The dollar index is lower today, but commodities are mostly flat.  Oil prices are lower near $92.25, and gold is down slightly to $1620.  Copper prices are also lower this morning.

The 10-year yield got a big boost last week reaching 1.72%, but has pulled back to the 1.63% area so far.

As for the VIX, it is lower again despite the pullback in the market this morning.  Volatility continues to creep lower and does worry me a bit that too much complacency is creeping into this market.  At its current level of 14.50, the VIX is at  a 5-month low.  It briefly dipped below 14.0 in early March.

Trading comment: The low VIX does concern me a bit.  The last time it was at these levels didn't lead to an immediate selloff, but it was a better time to add portfolio protection that it was a time to chase the market higher.  The S&P 500 has been up 6 days in a row, and so far looks poised to break that streak.  If we just get a mild pullback, my guess is that it will be bought again.  As such, until this stair-step higher pattern in the markets is broken the indexes appear poised to challenge their Spring highs.  This is a development that few were expecting in August, but we know that often the market's main goal is to keep folks off balance.

KAM  Advisors has long positions in AAPL

BULLS STILL IN CONTROL, BUT TIME IS RUNNING OUT

In last week's article "Three Weeks Left" I outlined a brief synopsis of what I was expecting based on how the daily cycles were unfolding. So far markets are playing out pretty much as anticipated.

This week I'm going to go a bit more in depth and tie cycles analysis with the upcoming fundamental calendar, namely the next two FOMC, and Jackson Hole meetings.

As you may recall from the last article, the dollar index is in the process of moving down into an intermediate degree bottom, which in turn is triggering a rally in virtually all risk assets, most noticeable in the energy and grain sectors as the CRB exploded out of its three year cycle low.

I think we will probably see the dollar continue to drift generally lower for most of the remainder of this month, possibly even into the Jackson Hole meeting as traders continue to hope for the next round of QE.

When the Fed fails to deliver, which they almost certainly will, we should see the market start to move down into its daily cycle low, which coincidentally is due almost exactly on the September FOMC meeting.
 

The September FOMC meeting will be the opportunity for the Fed to shorten the stock market intermediate cycle and possibly abort most of the move down into the yearly cycle low due in October. However I think the Fed is probably going to balk at the September meeting also, and when they do it will initiate the real move down into the normal timing band for an intermediate, and yearly cycle low in late October, or early November.

I suspect that the Fed will finally cave at the October meeting and begin an open ended QE with the misguided goal of achieving a nominal GDP target and lowering the unemployment rate. The one caveat would be that the Fed meeting in October would call for a slightly short stock market daily cycle, which is not unusual if the market is experiencing a hard decline.

Another possibility, although one with lesser odds in my opinion, would be a final intermediate, and yearly cycle low on the November employment report, or the presidential election results which would stretch out the daily cycle to its normal duration of 35-40 days.

Based on the current cycle count, and taking into account the timing band for the next two FOMC meetings, and the dollar's current intermediate cycle we should trigger a top in the stock market sometime around the end of August. However let me warn bears that the move down into the intermediate bottom is not going to be an easy short. I expect we will see most of September chopping back-and-forth with several retests of the highs before finally rolling over. Most of the losses will probably come in the final 5-10 days before the bottom. Like I said not an easy market for bulls or bears either one.

Gold is a bit of a different animal than the stock market and its intermediate cycle has a different duration. But gold is still tethered to the dollar index as it continues working through the consolidation phase of this new C wave. Here is a chart I posted back in February depicting the extended consolidation that I was anticipating this year.

Considering that gold is still in this consolidation phase I think we are probably going to see a test, or more likely a break of the D-Wave trendline as the dollar completes its move down into its intermediate cycle low later this month. That should be followed by an intermediate decline that should bottom ahead of the stock market in mid to late September.

At that point I suspect gold will start to sniff out the next round of QE and will begin to resist the remainder of the dollar rally, very similar to what happened between May-July.

Open ended QE, which I expect to begin at the October FOMC meeting (there is a small chance that the Fed will act early in September), is going to be the driver of what should be an inflationary spiral, culminating with a parabolic move in the CRB and the next leg up in the secular gold bull (probably to $3500-$4000) as the dollar drops down into its next three year cycle low in mid-2014.

SMT newsletter.

Paul Ryan's Old-Fashioned American Vision

Talk about apcryphal, here’s one of my better Kudlow forecasts regarding Paul Ryan as the conservative man of the year.

This was originally printed in Human Events in December of 2011.

When you think of Republican congressman Paul Ryan, terms like earnest, serious, and important come to mind. So does the term old-fashioned. Ryan comes from an old-fashioned place, the blue-collar town of Janesville, Wisconsin. He cherishes the old-fashioned values of a faithful family man. He even looks old-fashioned, with his white shirts and striped ties. And he uses old-fashioned argument skills, persuasively weaving big-picture themes with the numbers that back them up.


And Ryan has old-fashioned goals, too, like saving America from fiscal bankruptcy, economic stagnation, and a European-style entitlement state.

“Just look at what happened across the Atlantic,” Ryan told me in a year-end interview. “We have to avoid that. We must reclaim our founding principles of economic freedom and free markets. We must preserve the American Idea.”

With this vision, and with a pro-growth budget framework called “A Roadmap for America’s Future,” Ryan’s serious ideas have seriously gotten under President Obama’s skin.

In a White House meeting this year, Ryan’s superior knowledge of health care baffled Obama and left him speechless. And the serious Ryan budget, which lowers spending by $6.2 trillion and reduces deficits by $4.4 trillion over ten years, totally outflanked the White House. It embarrassingly exposed the Obama administration’s flimsy and inconsequential 2012 budget, which even rejected the findings of Obama’s own Bowles-Simpson fiscal commission. (Another Oval Office embarrassment.)

And when Ryan unveiled his first Medicare-reform package, which featured patient-centered consumer choice and market competition, the White House went nuts. Team Obama whipped up a Mediscare panic, resorting to a fictional caricature of Ryan forcing old ladies off a cliff. But the charge that the Ryan plan “ends Medicare” couldn’t be further from the truth. The website PolitiFact labeled this “the lie of the year.”

Ryan later amended his Medicare reform to keep the existing system as an option, and bolstered it with a menu of market-based private insurance plans to promote cost-cutting choice and competition. But he did so with the bipartisan support of Sen. Ron Wyden, a Democrat from Oregon. How did the White House react? It went rhetorically ballistic, although it couldn’t put together a serious response.

No, Ryan’s reforms didn’t quite resonate in the White House. But they did force a serious debate about domestic policy and the economy throughout the country. With his comprehensive budget of deep spending cuts, entitlement reform, and tax simplification -- a plan that would strictly limit government and unleash growth at the same time -- Ryan became the most influential Republican of his younger generation. Quite likely, he became the most influential thinker in today’s GOP. For these reasons, Paul Ryan has been chosen as the Human Events Man of the Year.

The Ryan “Path to Prosperity” budget passed the House this past spring. In effect, it became Republican policy. Unfortunately, things went downhill after that.

The summer debt-ceiling crisis produced a meager $1 trillion in spending restraint, way below the Ryan goals. Then the Supercommittee, which couldn’t even produce a policy, fell back on the trigger of another $1 trillion in automatic spending cuts. And now the year is ending in a chaotic and unserious gridlock over the temporary extension of a temporary payroll tax holiday that has no economic-growth content and ultimately would blow more holes in the Social Security trust fund and the overall budget. A disappointed Ryan told me, “Tea Party enthusiasm hasn’t yet translated into the kind of reforms we need. One-third of the government has only limited political power.” He added that the 2011 budget narrative shows “the total un-seriousness of the left in tackling problems.”

Nevertheless, the Republican budget leader is an eternal optimist. He believes “there is a shift to the right” in the country, “toward free-market approval.” He sees evidence that “We are winning this debate.” He says, “The country will not accept a permanent class of technocrats that will diminish freedom, enhance crony capitalism, and allow the economy to enter some sort of managed decline.” Ryan talks about “reclaiming founding principles,” and about “fighting paternalistic, arrogant, and condescending government elites who want to equalize outcomes, create new entitlement rights, and promote less self-government by the citizenry.”

In other words, Rep. Paul Ryan is offering a completely different vision than the one Obama outlined in his Osawatomie, Kansas, campaign speech in early December. Ryan wants “the right to rise,” not a third wave of liberal progressivism. He wants to stop Obama’s attempt to add to the New Deal/Great Society with the statist universal-health-care program called Obamacare and an effective nationalization of the energy and financial sectors. And he completely rejects Obama’s divisive, big-government, punish-wealth, tax-the-rich leftist populism.

“A ruling system of big business, big government, and big-government unions does violence to the notion of entrepreneurial capitalism,” Ryan told me. “Whether it’s TARP, Fannie or Freddie, cap-and-trade, or Obamacare, this must be stopped.” Ryan stands against what he calls “the moral endgame to equalize outcomes.” He says: “No consolidation of power into a permanent political class. Equality of opportunity, not result.”

Drawing from the Declaration of Independence, Ryan believes that individual citizen power in a democracy comes from God and natural rights, not government. And he believes these natural rights flow directly to the people. It complements what Reagan always said: Government works for the people, the people don’t work for government.

The congressman calls himself a second-generation supply-sider, flowing from his mentor Jack Kemp. He knows that growth incentives work, and that our tax system should reward success, not penalize it. Ryan frequently notes that Obama’s vision would raise federal tax rates toward 50 percent, which doesn’t even include increasing state and local tax burdens. Countering this, the Ryan roadmap features a modified flat tax, with two brackets and a 25 percent top rate.

But Ryan also believes that under the threat of fiscal insolvency, supply-side tax cuts must be accompanied by entitlement reform, deep spending cuts, and an end to corporate welfare. Rounding out his policy proposals, the budget chief wants the Federal Reserve to move to a single mandate for price stability and a stable dollar.

So, many have asked, why didn’t the intellectual and policy leader of the GOP run for president? His supporters continue this drumbeat, with many hoping for a deadlocked convention in August, and the emergence of an optimistic, pro-growth, center-right man with a clear vision to save the country.

Well, here comes the old-fashioned Ryan, a man who’s interested in policy, not personal ambition. He also has to help raise his young family. He and his wife Janna have two boys aged seven and eight and a girl aged nine. He’s been teaching his nine-year-old Liza how to shoot a .243 light-caliber Remington 700 bolt-action hunting rifle. The weekend before Christmas, he took his crew to Medieval Times on the North Shore of Chicago, where they watched knights on horseback jousting with each other while eating a little junk food. Family is clearly more important right now than presidential ambition.

So would he become OMB director in a Republican administration? “I don’t think about it,” he said. But for the 2012 election, Ryan has a political vision: Republicans must develop and communicate a clear policy agenda along the lines of his “Path to Prosperity.” Then, should they win, the GOP can use this agenda to govern effectively.

“Reagan had this right,” Ryan told me. For the congressman from Wisconsin, it’s the American Idea. That’s Ryan’s vision. And the Republican party better take notice, because this election could be America’s last chance for a very long time.

Markets Try For Five In A Row

Asian markets closed higher overnight with China rising for a 5th straight session.  Interestingly, the latest economic data from China was weaker than expected, but that has prompted investors to continue to expect more economic stimulus measures from the govt.  China's CPI cooled to 1.8% from 2.2% previously.  And industrial production rose 9.2%, but that is also down from 9.8% previously.

For their parts, the Bank of Japan and Bank of Korea held their respective benchmark interest rates steady at 0.1% and 3.00% respectively.

After opening in positive territory, European bourses have reversed into negative territory.  At some point, folks are going to start to wonder how Draghi is going to implement his latest promises.  But for now investors seem to be in a forgiving mood.

In corporate news, National Oilwell Varco (NOV) will pay $60 per share for Robbins & Myers (RBN), a 20% premium to yesterday's closing price.  This is helping to boost sentiment in the oil services industry.

Stocks rising on earnings: MDRX, EAT, BDC, ATK, RRGB, RDEN

Stocks falling on earnings: KSS, BCG, TK, AAP, THI

The dollar is higher again today, but not weighing on commodities too much.  Oil prices are higher to $93.77, and gold prices are up slightly near $1618.  Copper prices are higher also. 

The 10-year yield is getting another big boost.  It hit 1.72% today, which is its highest level since late May.  I'm not sure what is driving the increase.  Economic data isn't much better, but maybe some of the pessimism is simply fading.  It could also be a bit of asset reallocations out of bonds and into stocks.

The VIX is flat again at 15.37, which is a very low absolute level and likely signals some near-term complacency in the market.

Trading comment: The S&P 500 is working on its 5th straight gain.  I sense a bit of complacency creeping into the market.  The VIX is at very low levels, and the AAII survey today showed a snapback of bulls exceeding bears (36.5% to 27.4%).  The market likes to keep investors on their toes, so a brief selloff would not be a surprise in this environment.  That said, it will most likely be viewed as a buying opportunity as the stair-step higher pattern in the market persists and underperforming investment managers look to put more money to work.

Is The Market Pricing In More Stimulus?

The markets in the US are slightly lower in early trade following three solid up days.  Overnight, markets in Asia were slightly higher again and the hopes for more stimulus persist.

In Europe markets are mostly lower this morning.  Bank of England governor King said the British economy faces headwinds, but further interest rate cuts are not the solution.

In corporate news, Dean Foods (DF) shares are more than 35% higher after the company planned an IPO of its organic food WhiteWave Foods division.

In earnings news, Express Scripts (ESRX) is nicely higher after beating expectations and raising guidance.  Priceline (PCLN) is on the other side as its shares are getting hit hard after lower forward guidance (although they did beat earnings).

The dollar is higher today, but it is not weighing on commodities.  Gold prices are a bit higher to $1616, and oil prices are up again topping $94.15.

The 10-year yield is holding its recent gains and trading near 1.63%.  And the VIX is up a tad to 16.05.  It appears to be finding some support near this 16 level, and if prior patterns hold we should expect a down day in the market to coincide with a pop in the VIX at some point.

Trading comment: The market seems to be pricing in something good, I'm just not sure what.  Forward earnings estimates don't seem to be going up.  In fact, they are going down slightly.  The economy isn't exactly heating up, although we did have a good jobs report last Friday.  Which brings us back to the question of whether the market is pricing in more stimulus?  We are in that odd situation where the weak economy can be applauded by stock investors because it increases the probability for more QE.  And recent comments out of China suggest they are planning more stimulus as well.  I don't like to fight the price action as much as the next person, I just find it disconcerting that we still have big problems in Europe as well as the upcoming elections and fiscal cliff in the US.

KAM Advisors has long positions in ESRX, PCLN, and DF bonds

Is Merkel Softening Her Stance?

The markets are higher again in early trading on little new news.  Asian markets were mixed to higher overnight.  The Res. Bank of Australia held its key rate steady at 3.50% and also said that while growth in China has moderated it does not appear to be slowing further.

European markets are higher this morning despite a terrible GDP number out of Italy (-2.5%).  Spain and Italy are up the most, and Spanish bond yields have eased back to 6.71%.

There are also comments out of Germany this morning that Merkel may be softening her hard stance on the ECB's bond buying program.  This would be a surprise.  And its not just Merkel, but the Bundestag that has reiterated its stiff opposition to shared liabilities at each and every turn of this saga.  So we will have to watch for more commentary that either confirms or refutes these rumors.

Stocks rising on earnings: CHK, FOSL, BSFT, TDG

Stocks falling on earnings: CVS, FE, TAP, CHD

The dollar is lower vs. the euro today.  Gold prices are flattish near $1615 and oil prices are higher to $93.25.  Silver and copper prices are higher as well. 

The 10-year yield is getting another boost to a 1-month high at 1.63%.  And the VIX is down again to 15.75, which is pretty near recent lows from which it has bounced.

Trading comment: The market continues to stairstep higher.  Volume has been on the lighter side due to the fact that we are in the thick of summer trading.  But don't rule out the prospect of performance anxiety setting in and pressuring portfolio managers to chase the market higher.  I have seen reports that more active managers are trailing their benchmarks this year than ever.  That's not a good feeling for portfolio managers and could result in near-term dips being bought fairly quickly as they look to keep up.

KAM Advisors has long positions in FE

Monday Morning Musings

The markets are higher in early trading, after Friday's enthusiasm carried over into Asian markets.  Asian markets rose overnight and also got a boost after the PBOC in China suggested that it would ease monetary policy in the back half of the year and vowed to help bolster the economy.

In Europe, regulators in Greece over the last week cited progress on its efforts.  European markets are higher this morning.

In earnings news, CTSH matched estimates and slightly raised full-year guidance.  Expectations had been pretty low for the company and as a result the stock popped over 12% at the open.

In other corporate news, the founder of Best Buy (BBY) submitted a proposal to buy the company for $24-26.  But its unclear if he will be able to get all the financing and actually go through with the private buyout.

Among the sector ETFs, financials are leading the early action followed by materials.  Utilities are lagging the most, followed by healthcare stocks.

The 10-year yield is slightly lower near 1.55% following Friday's spike higher.  As for the VIX, it had gotten so low on Friday that even this morning's rally can't push it lower, as the VIX is up +3.7% this morning to 16.22.

Trading comment: Don't fight the tape is an old Wall St mantra.  This market has certainly been choppy, but it has also been putting in a series of higher lows and higher highs since its June bottom.  Today the S&P 500 nearly touched the 1400 level, which would be the highest level since early May.  The one knock on this market is that it has been led more be defensive issues like utilities, staples, and healthcare as opposed to the traditional growth stocks likes tech and consumer discretionary.  But if we start to see more classic growth stocks breaking out it could be a sign that this rally has legs.  Many market participants are also leery of chasing a market at this point in the year, since seasonal patterns often lead to a correction in the Aug.-Oct. timeframe.

KAM Advisors has long positions in CTSH

3 WEEKS TO GO

3 weeks, that's how long the bulls have left before stocks roll over and begin the next intermediate degree decline. That being said the next 2-3 weeks we should see some very healthy gains in virtually all asset classes. Why is that you ask? Because the dollar has begun moving down into an intermediate degree correction.

As of Friday the dollar was on the 11th day of its current daily cycle. The normal duration of a daily cycle is 18 to 28 days, with the average being about 23 or 24 days. That would suggest that the dollar should bottom somewhere around August 21st or 22nd. As you can see in the chart below whenever the dollar moves down into an intermediate degree trough it generates strong gains in asset prices.

What follows once the dollar bottoms and the next intermediate degree rally begins is not going to be pretty. Stocks are going to start to struggle and ultimately move down hard in September and probably October if the Fed doesn't unleash QE3 at the September FOMC meeting.  

By the end of August, and certainly by the time we get into September the markets are going to call central bankers bluff, and it is going to take more than words and the threat of quantitative easing to keep asset prices propped up.

I have covered the rest of the forecast in depth in the weekend report available to premium subscribers.

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Markets Jump On Delayed Reaction To ECB

The markets are up strongly this morning on the heels of big gains in Europe this morning.  While the headlines will only focus on the jobs report that came out this morning, our futures were already up strongly before that report was released.  Europe was rallying on a delayed reaction to the ECB meeting, coming to the conclusion that they have successfully kicked the can down the road again.  Spain and Italy's markets are up nearly 5% today.

In Asia, markets were mixed overnight.  China was one of the few gainers as hope bubbles that Beijing will announce further support for their financial markets.  Recently there were rumors that the govt. was urging companies to buy back their own stock.  Can you imagine if that happened here?

In economic news, our jobs report was much better than expected, which helped boost stocks.  Nonfarm payrolls for July came in at 163,000 vs. expectations for 100k.  And private payrolls rose 172,000 vs. 105k consensus.  The unemployment rate ticked up a bit to 8.3%.

Also, the ISM Services index rose to 52.6 in July from 52.1 last month.  So at least we are getting some economic reports that don't point to further slowing in the economy.  We still know growth is slowing, but at least its not across the board and in a straight line. 

Among the sector ETFs, financials (XLF) are leading the early action, while utilities (XLU) are lagging.  Energy stocks are also rallying after a big spike in oil to $90.75.

The boost in the euro is helping most commodities.  Gold is back above $1600, and silver and copper are higher also.

There were also a ton of companies that reported earnings last night and this morning, with many stocks rising after reporting. 

Stocks rising on earnings: MELI, KFT, PG, LNKD, NILE, IT, SIRO, TM, NYX, PSA, EOG, AWK, FEIC

Stocks falling on earnings: HNT, WCG, PKT, MCP, SWN

The 10-year yield is getting a rare boost on the strong economic data, bouncing to 1.57%.  It is barely breaking above its 50-day overhead resistance, which would be the first such penetration above that key moving average since early April.

As for the VIX, it is down -7% back down to 16.30.  The 16 level has acted as good support the last few times with the VIX bouncing from these levels.

Trading comment: I don't think most investors were positioned for such a strong jobs report.  The S&P 500 just broke above its July highs at 1391, which leaves the door open to 1400 near-term.  The SPX has been holding in this channel of higher lows and higher highs since its recent bottom in early June.  I still have concerns about the macro backdrop, as we know that sentiment towards Europe can change on a dime.  But I don't want to ignore the price action, which is very positive.  We are not looking to increase our equity allocations much at this point, but we also don't want to be too aggressive in adding to our ETF hedges unless we get another technical breakdown in the indexes.  So far now we are just sitting tight.

KAM Advisors has long positions in MELI, PG, PSA, AWK