We need to throw all the free spending leftists out of office this year and repeal all their wacko legislation.

The Fed begins to take action. Inflation to be ignited by higher rates. Then comes looming loony left Obama tax increase.

The Fed said late Thursday that it raised its discount rate by a quarter percentage point, or 25 basis points, to 0.75%. The move is largely symbolic, because banks do little borrowing at the discount window.

The unanimous decision to boost the discount rate has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the high Obama unemployment and the fragile state of the economy. The Fed also shortened the term of some discount window loans and raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks.

In its statement the Fed said, "The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy."

But higher rates actually cause businesses to build in the higher costs immediately and that causes anticipatory inflation because costs will be higher by the time goods hit the market.
Also it encourages dangerous inventory build-ups because raw goods inventories appreciate faster by inflation than the interest on the cost of buying them. Inventory build-up gives the false sense of recovery because it is usually mistaken as consumption not as inventory bloat. That gives false hope and a stock market rally like we are now seeing. It becomes contagious at first. Demand of all goods catches fire and the shortages cause rapid price increases that initially reward those who maintain higher inventories. Those inflation demand driven companies are the first to re-hire. But when consumer sales do not live up to the inventory build-up a new wave of layoffs begin and corporate losses mount.

Then add to all this the looming loony left Obama taxes that come into play and crush the small businessmen who fall into Obama's phony "rich person" 200K gross income bracket. Then we potentially have the Obama Great Depression when the small businessmen shut down and retire because it is not worth it to be indentured servants to the loony left indigent, illegal alien, union, government worker, welfare, single Moslem mom (with eight kids), socialist-communist-Democrat majority voting at the poles. We are facing the "tyranny of the majority" that the writers of the constitution warned about. That is why they made America a Republic first and a democracy second so that a majority of indigents, criminals, government workers, politically favored union members, and welfare recipients do not get to reign over honest hard working productive Americans who pay for the above.


World Outlook
Gold plunged from a recent $1128/oz to $1,096 a recent low on an announcement that the International Monetary Fund (IMF) that it will be selling 191.3 metric tonnes of gold. But 191.3 metric tonnes times 2200 lbs/ton times 16 oz/lb times $1096/oz is a piddling $7.38 Billion. If such a piddling sale can drop gold $32/oz what will Obama's $9 Trillion deficit projection do? Will the Obama socialist deficit raise gold to $35,000 per ounce?

Bondholders get cautious as Colombian interest on debt climb toward 9%. Colombia’s peso slump will drive Columbia closer to default.

A poll by Torcuato Di Tella University indicates Argentines expect consumer prices to rise over 31 percent over the next 12 months.

Week of Market Reports:

Faster-than-estimated growth in New York manufacturing spurred optimism the global economic recovery will be sustained. Commodities rallied, with oil jumping the most in four months.
Housing Market Index
The Housing Market Index moved up in February, but chronic mortgage foreclosures suggest tepid gains in home construction in the quarters ahead.
New Housing starts were up but building permits were down. Import prices were up 0.4% or at a 4.8% annual rate.
Industrial Production was up 0.9% and utilization rose to 72.6%.
Initial unemployment claims rose 31K from 442K to 473K
Producer Price Index rose from an annual rate of 4.8% to an incredible 16.8%
The Leading Economic Index was still positive but declined to +0.3% from +1.2% last month.

Friday, Feb. 19:
Consumer Price Index rose 0.2% in January and a measure of prices excluding food and fuel fell (0.1%) for the first time since 1982.

Market forces Feb 19, 2010
The stock markets ready to consolidate gains. We estimate the advance over the last 10 days is about half the total rally we expect over the next two months.

Warning; when the market rises close to the next high (in 2 to 4 months) it will likely be a critical time to take profits because FED tightening will likely be occurring soon after. After the next high point the subsequent decline will likely break the old October 30 lows and challenge even the July 2009 low. Our corrected NYSE cash flow index gave its Head & Shoulder neck breakdown sell signal on Jan 29 when the NYSE (corrected for trading volume) broke through the neckline of a head and shoulders formation and it plunged about 3% below. But that signal has a long lead time which allows us to know what is likely two or three months in advance. The reason we cannot do a Market Cash Flow Analysis (MCFA) of the other exchanges is because they use the NYSE volume; they no longer use their own real stock volume.

Asian markets were down over night; Shanghai closed, Hong Kong down -2.6%%, India down -0.8%, and Japan down -2.1%.

European markets are up slightly in the range from 0.3% to +0.5% this morning about half way through their day.

Today US pre-market futures are down about -0.3% at 9:00 AM EST. It is seldom a good indicator of what will happen but we are due for a small correction soon. Still inflation will stimulate inventory build-up, which will mean profits for suppliers. Suppliers should do well initially.

Yesterday many stocks tried to cover their gaps before advancing but many gaps still remain. We expect that will be an excuse some talking heads use to cover their mistakes three months from now when we estimate the market will decline.