The Chinese people show great wisdom and could become a great free intelligent society.

The Chinese people show great wisdom and could become a great free intelligent society.

America is a great free society but is not necessarily an intelligent society anymore. President Hu Jintao reported that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. China is learning quickly that the future is purchased with free outside-of-the-box thinking that free enterprise encourages.

China's intelligence is in its wisdom of watching and learning. China is evolving and knows it must be careful to chose its steps wisely because truths about economic realities and human nature once learned must be built into the fabric of the national culture and not changed in a haphazard manner. At the same time each nation is not an individual but more like a flock of birds or a school of fish that also rely on the intelligence of each other. If one sees a food source, then the others change direction quickly to follow it. It is our hope that China will grow to realize that liberty is all about the increase in group intelligence that is released with the liberty of each bird. Birds, fish, and people flock together because it is the intelligent thing to do and we evolved that way because nature rewarded hard work, genuine love of our fellow men, and respect for leadership and intelligent thinking. America is a Republic not a democracy. The government is run democratically but the government does not run the economy. Individuals flocking together in businesses and corporations run the economy. The American government is dedicated to the freedoms and principals laid down in our Constitution by our forefathers. Our American Constitution was the first in the world to protect the rights of individuals, minorities, and states while limiting the federal government by dividing the power of the federal government into three independent branches, each selected differently with different terms, different responsibilities, and different purposes. So while under socialism and communism corrupt politicians and lazy unions can repress creative and intelligent thought, in America the government only gets involve with health, safety, corruption, ethics, fraud, crime, monopolistic, and security issues. Here the creative and intelligent are as free the birds to flock to whatever enterprise or opportunity they think best.

The socialists and Communists can survive via copying and piracy and stay within 20 years of the USA if they work hard at it. If the socialists dally as they do in Russia and the formed Soviet block then they will stay 50 years behind the USA. Socialist tribal Africa, aside from the silly cell phone, will remain about 200 years behind because they like to have and do silly things. The Moslem tribal world will decay into an African type tribal oblivion as soon as they run out of oil because their religious leaders are open to the use of cruelty, vindictiveness, spite, genocide, hate, envy, and corruption. The Nazis and the Mullahs are quite similar except the Nazis were much smarter and not as corrupt.

America is a great free society but is not necessarily a great free intelligent society because witness what we just did in just electing the loony left into office right after a dim wit and before that a philanderer.

World Markets:
Brazil’s Bovespa stock index rallied, rising sharply as real-estate companies and commodity producers climbed after the measure fell to the cheapest level in more than a year. According to Bay Crest Partners LLC, Brazilian stocks are poised to rebound after a key momentum indicator gave the strongest buy signal since the bear- market low in May 2004.

We believe for now the worst of the current market decline is just about spent. Volume spiked up in the capitulation last Thursday. It looks like we had an intermediate double bottom and it is up from here for about two more months.


Economic Calendar
Payrolls increased in 38 states in April, led by Ohio, Pennsylvania and New York, indicating the recovery in the labor market is becoming more broad-based. Federal Reserve Bank of New York President William Dudley said that while the economic recovery is slower than desired he sees the start of substantial growth in employment.

According to a survey by the National Association for Business Economics, the U.S. recovery that began last year will be stronger than previously estimated and the revised estimates will signal a 3.2% growth rate. Purchases of U.S. Existing Homes Probably Increased, Spurred by Tax Credit Sales of U.S. previously owned homes probably rose in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report today.

Last Week
Crude Inventories dropped significantly from 1.95M down to 1.62M and that should cause energy prices to continue rising. The WSJ thinks even 1.62M is a glut, but if that were true the glut is evaporating at a rate that it will be gone in six months. So it seems that even the WSJ had joined GE/OBAMA/MSNBC/Pravda on the negative side thus adding further contrarian evidence that now is the time to buy.

The declining stock market has caused the leading indicators to turn down like a self-fulfilling prophecy.

This week:
May 24
10:00 AM Existing Home Sales Apr

May 25
9:00 AM Case-Shiller 20-city Index Mar
10:00 AM Consumer Confidence May
10:00 AM FHFA Housing Price Index Mar

May 26
8:30 AM Durable Orders Apr
8:30 AM Durable Orders ex Transportation Apr
10:00 AM New Home Sales Apr
10:30 AM Crude Inventories 05/22

May 27
8:30 AM Continuing Claims 05/22
8:30 AM GDP - Second Estimate Q1
8:30 AM Initial Claims 05/22
8:30 AM GDP Deflator - Second Estimate Q1
8:30 AM Initial Claims 05/22
8:30 AM Continuing Claims 05/22

May 28
8:30 AM Personal Income Apr
8:30 AM Personal Spending Apr
8:30 AM PCE Prices - Core Apr
9:45 AM Chicago PMI May
9:55 AM U. Michigan Consumer Sentiment May


Market Outlook May 24, 2010

Was it Aristotle who said, "Buy equities when the blood is running in the streets of Greece and oil in the water of the sea?"

The final capitulation last Thursday was greater than the 3-9-09 capitulation, and more comparable to 9-17-08 or 10-9-08. Capitulations are such big disturbances that they render moving averages inaccurate for several weeks. That is why the 150DMA is no more a sell signal now than it was in the panic of October 1987.

There could be six months of going horizontal with big swings. Think about the 1970's for a comparison or perhaps 2004 that started with a selloff and went horizontal for six months. We just had a 14% decline. Had the decline stopped two days ago we would have expected the market to rise now to just about the last high. But with the capitulation we saw, we probably will only recover perhaps 10% of the 15% decline in most markets. If that happens the new high will be considered the second shoulder of a head and shoulder sell signal. Back in 2007 the second shoulder was not seen because the volume adjustment was needed to see it. This means investors will be more bearish than usual as we hit our high point in 4 to 8 weeks.
Gold will now fall under further pressure at home and abroad. In the USA the 18-month slump in Treasury zero-coupon bonds is giving way to rising demand as the rate of inflation falls to a 40-year low. That is not inflation therefore gold prices may fall further than the 20% decline since GE/MSNBC/Pravda's Jim Cramer recently said get out of everything but gold and accidental high dividend stocks. The dancing bears of GE/OBAMA/MSNBC/Pravda are as usual full of bull

Using a new nonsense indicator, GE/OBAMA/MSNBC/Pravda showed was the 150-day moving average that sloped downward the last two days of last week. US Pravda ignorantly applied it wrong. It does not work for computer initiated sell-offs like October 1987 and May 2010. In the panic of 1987 it told you to sell short at the very bottom of the market. That was not too swift then and we believe it is just as stupid now. But the leftist loonies of GE/OBAMA/MSNBC/Pravda never were very bright. It (the 150 DMA) is only a halfway reasonable indicator even under normal times. For example it would have gotten you out of and then spastically back in the market in November 2007 before it gave a late consistent sell signal in mid December 2007 that lasted well beyond the market bottom buying opportunity in March 2009. In fact the 150 DMA gave the sell signal until mid May 2009 after which it gave three false sell signals and finally settled on a bullish position at the high in mid June thus missing 45% of the bull market. The MSNBC leftists are such inept market analysts that perhaps they are part of an Obama leftist conspiracy to discredit the world’s free market system. Obama thinks Obama is so smart yet he didn't even know what a Price Earnings ratio was. Obama also thought that the stock market is just an economic indicator. When Obama took office he and his leftist/communist staff did not even know that stocks and bonds are the primary way non-communist countries raise capital for industry and jobs.

If you followed GE/OBAMA/MSNBC/Pravda you would have bought in at the April high point sold out 15% poorer on May 7 and then invested almost exclusively in Gold on May12 at its peak and subsequently lost another 20%. Jim Cramer gave his viewers a 35% haircut in just over a month.

World Markets

Asian markets settled up last night, Shanghai up 3.5%, Hong Kong up 0.6%, India up 0.2%, and Japan down 0.3%.

European markets are mixed again today in the range from -4% to +0.3% this morning about half way through their day.

US pre-market futures are recovering this morning but were still down slightly by about -0.3% at 9AM. U.S. Futures are a snapshot of the moment and do not correlate with what happens by the end of the day. Friday was another buying opportunity and today we expect the bull market to resume again.