Weekend Update for August 29th, 2009

With the current state of the economy we have to wonder why our business leaders had their yearly get together at Jackson Hole, WY. Wouldn't it have made much better since to have their meeting to discuss the economy in one of our small mid western all American towns that have been hit the hardest by the latest recession? But no, they have to go to Jackson Hole where the typical room costs $600 per night.

Fannie Mae and Freddie Mac are soaring while at the time mortgage delinquencies are on the rise, deficit spending is out of control, income is falling, GDP is shrinking but yet the market is rising. Obama's own accounting office said to expect 2.3 million people to lose their jobs next year. The post office is cutting 30,000 jobs, people are having trouble paying their utility bills, the whole world is depending on the American consumer, but yet the American consumer is not spending. This doesn't make sense, but it doesn't mean we can't money on this fraudulent rally by simply following the money flows. There is a record number of empty houses in this nation, but CNBC has you to think everything is fine.

The cash for clunkers program will be used to rig the GDP numbers to come in positive for the third quarter. Every time somebody trades in a clunker, our deficit goes up even more. We are spending 2 trillion more than we are taking in. This will kill the stock market, but not at first. In the beginning the stock market goes up because the government is putting money in the economy. You get this false rally, not a true rally and eventually when they stop, the market crashes. This is called creating a bubble. Remember the .com bubble, remember the real estate bubble. These rallies are good, but you have to know when to get out. You are working in our third bubble right now. The market continues it's stellar rally as volume is coming down. This is a negative divergence.

Here is an example. Suppose a store is selling red dresses that are selling very well. The store will raise the price on the red dresses. As the number of people buying red dresses begins to slow down, what do you expect to happen to the prices of the dresses? Logically, they would decline in price, but this isn't what is happening in the stock market right now, they are continuing to drive the prices up on declining volume.

The housing numbers are only increasing on the houses under $250,000. People buying houses in the $250,000+ range are the "step-up" buyers. Until those numbers get better housing isn't going to get better.