Under socialism, banks give incentives for incompetence.

A recent study shows top pay at tarp banks exceeds average for S&P 500 executives, thus proving that under socialism, banks pay higher for incompetence.

Since continued deflation is the expectation, gold and oil are expected to soon fall sharply with the rest of the market.


Market forces September 2

Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley both got it wrong in declaring the start of an economic recovery. Jones’s Tudor Investment Corp., Clarium Capital Management LLC, and Horseman Capital Management Ltd. are taking a bearish stand saying that record government spending are only delaying a market selloff. Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.

The Standard & Poor’s 500 Index jumped 51 percent from its 12-year low in March. Yesterday our market cash flow index plunged as selling volume picked up. It had been bullish since January 31 and now is within a week away of possibly returning to a bear market signal. The volume increased another 30% yesterday as the market declined indicating that the market makers are now losing the control they enjoyed in recent weeks when price movements appeared to be orchestrated. The Re-spiral index is saying take profits for it is within six days of confirming a sell signal and saying "you are too late getting out." When both the MACD and Re-spiral say sell the best opportunities to sell are usually gone and you should hang on to your hat for a while until a buy signal occurs.

“If we have a recovery at all, it isn’t sustainable,” said Kevin Harrington, managing director at Clarium. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

Tudor, a Greenwich, Connecticut-based firm recently told clients that the stock market’s climb was a “bear-market rally. Weak growth in consumer income and unemployment were among the reasons to question the bear rally's chances of survival.

GDP shrank 4 percent in the second half of 2008, 6.4 percent in the first quarter of 2009 and just 1 percent in the second quarter of 2009. But stagnant high unemployment limits any potential growth. As existing U.S. home sales rose 7.2 percent in July from the previous month, distressed deals including foreclosures accounted for 31 percent of transactions, and housing prices continued to fall according to the National Association of Realtors. Yesterday the US Treasury warned that toxic commercial real estate was the next major problem banks would face.

“Some critical initiatives have been cut short,” Tudor said. “As a result, toxic assets remain on balance sheets and credit growth is likely to be subdued for a long period.”

Brevan Howard, Europe’s largest hedge-fund manager with $24 billion in assets, told clients the U.S. would likely stumble again when stimulus spending fades after this current quarter.

Banks are reporting better earnings because they haven’t been forced to account for their losses yet, Clarium’s Harrington said. “We haven’t fixed the problem,” he said. “We’ve just slowed down the official recognition of it.”


Market Outlook

Pessimism is fueled in part by the U.S. government’s inadequate response to the financial crisis, which continues to fail to address its root cause, that banks still hold toxic assets on their balance sheets that squeeze their liquidity and the money supply for smaller innovative businesses which are America's engine of growth.

Horseman, with $4.1 billion under management out of London, is investing in long-term U.S. Treasury bonds. The firm believes interest rates will stay low for longer than the market expects. “Despite every effort by government in North America and Europe to avoid deflation,” Horseman wrote, “the current numbers suggest they are losing the battle.”

Falling stock prices and deflation will strengthen the currency by forcing leveraged investors to sell equities to pay down the dollar-denominated debt they used to finance those trades. That will cause precious metals and oil to fall in price also. Therefore this market decline will be broad and fairly deep sparing few if any equities.

We hope you took your recent spectacular short term profits and have cash set aside. It is time to be cautious on the sidelines with a bundle of cash. Even GE/MSNBC/Pravda is expecting a 10% to 20% decline in the near future. We expect it will be over within two months.

Asian markets were down last night, China down -1.8%, Japan down -2.4%, India down -0.4%, and Hong Kong down -1.8%.

European markets are currently down in a range from -0.1% to -2% this morning about half way through their day.

US market futures are flat at 8 AM EST before the opening today.

The stocks of communist China have dropped about 25% in the past month and Jim Cramer considered them a leading indicator for the economic recovery in the world. We warned that fraud could be expected to run rampant in their socialist experiment unleashing free enterprise. Socialism pays the indolent and incompetent and heavily taxes the people who try and do well.

A sharp decline is now possible because many leveraged funds are fully invested, have hair-trigger stop sell orders in at about -3%, and the market was already down 2% yesterday. The market makers are doing their best to avoid triggering the selling by keeping the daily declines small. Our strategy now is to continue to take profits and wait for future buying opportunities. Market volume has increased and the FED will have more difficulty now supporting the stock marked as Greenspan did especially at the time of the 1986, 25% US market panic.