Will the FBI take out the Senate Moral Hazards soon?

Perhaps not soon enough.

Senators Dodd and Rangel brought down the banks by shielding the mortgage fraud from investigation. Dodd took a cozy deal from Countrywide while Rangel has been accused of other real estate opportunism. Has the FBI put a tap on Senator Dodd so that they can find out why he is trying so hard now to destabilize the stock market? Again, he has been suggesting that a short period of nationalization could be needed. What does Dodd have to gain by spreading reckless rumors that imply US shares could be rendered worthless by incompetent, reckless, and no doubt corrupt government officials that perhaps have gone short against the future of America? Dodd seems to be doing everything in his power right now to bring down the American financial system.

Citi just retaliated by converting government cash investment infusions from preferred stock into common stock which means incompetent, reckless, and corrupt government officials will be red faced if they nationalize Citi because the government would lose value proportionately and thus the relative ownership of the common shareholders would be maintained. Therefore shareholders could be made whole again once the markets recover. It does not matter that the government could now vote their common stock because they are already dictating to the banks in spite of the fact their preferred shares gave them no voting rights. Converting the government held stock from preferred to common puts a limit on how much financial stocks could fall.

Seriously, the “Ab Scam” type investigations by the FBI of elected officials that cleaned out the morally hazardous politicians who were selling America down the river to Arab princes in the 1990’s is sorely needed again now. The stock market needs to see that the obscenely corrupt Senators are put away… not just the obscenely greedy corporate thieves. They worked together to set up the mortgage Ponzi scheme and just like Madoff… everyone could smell the corruption from the fact that no one could explain how it created any real value.

As we stated last week the performance of the blue chip DOW took a beating and hit new lows because the extreme fear of the financial talking heads in the media caused investors to shift into the Blue Chips last year. That resulted in the DOW being overvalued relative to the market as a whole. Consequently the Dow capitulation in November was not as low, and the current level of the DOW is now more consistent with the broader averages. Of course Russell got a DOW sell signal. But the fat lady has not yet sung. Bob Brinker said to get back into the market on dips starting on January 15, 2009. We have been recommending selling on advances since January 20, 2009 because that is when the market entered a whipsaw period where the market could end up going both south and north thus whipping investors. It is a dangerous market now even for traders. This is the critical week for our indicators when our selling window of opportunity could either close or could open further if the market advances.

The market is now so undervalued that the current prices have built in the worst possible depression. To go lower we need to visualize something like a revolution or something completely insane that perhaps only Senators Dodd and Rangel could conceive. But if their friends are in hedge funds shorting the market their friends could be at extreme risk (of prison) if the Senate moral hazards are driven out of office.

The lows of the broader market indices held again. The S&P closed 4% above its November low and the NASDAQ closed 10% above its November low.

The stock market behavior could support a major advance if it turns upward this week. The NYSE, S&P, NASDAQ, and QQQQ all held above their November lows. This current low has no volume like the November capitulation had. The market will gain confidence late this year as the moral hazard is dissembled and removed from the world financial systems.

China bottomed at the end of December and is now up 29%. Last night Asian markets were mixed with China up 2%, India down 2.2% and Japan down 0.5%. Hong Kong was up 3.8%.

At this moment most European markets are up about 0.8 % on average.

The US market futures indicate a slightly positive opening this morning. There is 30% to 40% headroom for this market to rally before hitting an upside resistance level. We could sure use a short squeeze right now.