When they blow smoke at you, there is fire

China is accusing some Austrailians of spying. That is blowing smoke and what that means is they are trying to gag someone who discovered just what a sorry state the Chinese economy is in. As we have been saying for over a month, the emerging market countries especially the socialists of China and India are hollowed out facades similar to Russia in the 90's when free enterprise collapsed there and the Russians returned to totalitarianism. If you believe power is transferring from west to east at this time you are experiencing the same smoke induced hallucinations that people had in 1989 when stock pushers were predicting that Japan would be #1. It was believable then because four of the ten largest world banks were Japanese. That was one of the reasons America was forced to deregulate. Japan had none of our bank liquidity and conflict-of-interest regulations so we deregulated to be able to compete with Japan and Europe. That is why pure American financial regulations will not work by themselves. The regulations must be international to prevent another bubble. Countries that do not comply with the banking regulations cannot be allowed to do business with any businesses in regulated countries. Our warning once again is to sell out of hollow emerging markets.

CIT is floundering again and that smoke is a clear sign that all the bank and financial stocks are vulnerable at this time. We would not be in banks at this time but would be interested 30% to 40% lower from current prices. The commercial real estate market is also in collapse. In addition, about 40% of the states refuse to balance their budgets. California and New York State legislatures are a complete disgrace and public jokes while eighteen other state legislatures suffer from the same socialist lunatic hallucinations and are becoming public jokes. The problem here is the Obama Administration has done nothing to eliminate toxic mortgages and derivatives. Obama suffers from the Japan syndrome of paralysis of analysis, talk, and their Zen Buddhist philosophy of "Ignor-ance." The lunatic left believes American taxpayers will be willing to bail out socialist lunatics everywhere. After all the Americans voted the socialists in and gave them a mandate to destroy free enterprise, a veto proof Congress, the presidency, and the power to install the lunatic left in the Supreme Court as well.

The socialist-democrat parties historically always accuses the free enterprise parties of corruption but it is always the socialist-democrats who run the corrupt cities, corrupt governments, and corrupt elections. Free enterprise and tyranny are mutually exclusive.

Market forces July 10
Obama still has done nothing to ease credit. The Abernanke de-leveraging of banks is consuming more than all the money the treasury can print. Mortgage failures are still occurring faster than toxic mortgages are being dissolved. The commercial real estate market is reeling in losses now and ready to collapse. Financials, emerging markets, and real estate are extremely vulnerable for a major correction at this time. That is why there is some much smoke right now. Mad Money and the traders love to pump up the pigs when they are selling them to the public. They call it "pump and dump" time. They are pumping financials and emerging markets like maniacs now.

Japan's wholesale prices dropped 6.6% last month typical of what happens during a socialist initiated Great Depression. Japan's socialists in the 1980's bragged about the superiority of their cradle to grave life-long socialist employment system. It ultimately has put them in a recession-depression cycle that started in 1990 and has gone on for 19 years now. The cradle to grave socialist system is what socialist Obama and democrat-socialists in congress are trying to force on America right now. FDR started as a socialist but although he returned to free enterprise, his socialist experiment cost America about 8 years of depression that America could have avoided in the 1930s.

Market Outlook
We expect U.S. stocks to slide, for the fourth week of this correction. Greater uncertainty abroad is helping the dollar. There is a flight to safety beginning again.

Last night most Asian markets were down slightly: Hong Kong down -0.5%, China down -0.3%, Japan down -0.1%, and India down -1.8%.

Most European markets were down more than -1% yesterday and this morning are down in a range of -0.7% to -1.1% half way through their session.

US futures indicate a -0.7% opening this morning.

We believe the drop in international trade has hollowed out emerging markets. International demand for their commodities and products has collapsed and their socialist governments are squandering their reserves on public projects and internal consumption which helps the dollar but destroys and competes with their productive entities.

We will be cherry picking into the market during what we expect to be about two months of market decline. We expect the decline will be the typical rotation with sharp drops in individual stocks while other stocks flatten out and then decline. Therefore the change in the market indices will be much more gradual.