FED QE2 plan is raising interest rates not lowering long-term rates as they anticipated.

FED QE2 plan is raising interest rates not lowering long-term rates as they anticipated.

That is causing the implosion of the bond market as we predicted and higher rates. But higher rates will help create greater bank profits if they can borrow lower from the FED and loan at the higher rates. And higher rates are inflationary and 2.5% annual inflation is the FED goal.

The California State bond bubble has begun to burst in advance of gay friendly potted pothead Governor Brown.
http://www.sdgln.com/news/2010/11/03/gay-friendly-results-jerry-brown-elected-governor-part-democratic-wave

Read "The Cliff" by John P. Hussman, Ph.D. It forecasts more depression not inflation but beware of municipal bonds, which are a bubble ready to burst. It appears it has burst already in California the "Pot Head and Pervert" state.
http://www.hussmanfunds.com/
Last week, the return/risk profiles that we estimate for stocks, bonds and even gold declined abruptly, based on the metrics we track. We don't know how long this shift will persist, but at present, investment risk appears to have spiked considerably, and our estimates of prospective market returns have deteriorated. The abruptness of the shift in market conditions is exemplified by the weakness observed in Irish, Greek and Spanish debt, as well as the plunge in municipal bonds (particularly, as Barry Ritholtz observes, in CA issues - see the chart below), which was steep enough to erase nearly a full year of progress in just three days.
See charts at
http://www.hussman.net/wmc/wmc101115.htm

On the NYSE, hundreds of stocks achieved new 52-week highs, but ended down on the week, with technical evidence suggesting a uniform reversal from a "high pole" buying climax. The percentage of bullish investment advisors reached 48.4% - the highest since the April peak, while the AAII sentiment poll shot to 57.6% bulls - the highest since 2007. Our bond market measures shifted to an unfavorable status for yield pressures, putting the stock market in an overvalued, overbought, overbullish, rising-yields conformation despite QE2, which as anticipated, has been met with fairly eager offers from bondholders.
by John P. Hussman, Ph.D.


World Markets:

Asian markets plunged again. China plunged 4% again last night. The FED policy will devalue the $trillion of American currency that China holds at a rate exceeding 2.5% a year because China will get even less if they try to sell their US treasuries. Then the US can buy them back at a discount.

Nine Russian reporters were beaten to death this year. The latest had his head, hands and legs crushed with a baseball bat and has not regained consciousness. The Russian government is also continuing to prosecute another reporter who has had his skull crushed because local politicians accused him of slander. He is not even aware of his severe brain damage and the prosecution now amounts to persecution of his entire family. This is where national gangster socialism leads. Hitler and Stalin were Nationalist Socialists too.

The Chinese consumer advocate who complained when his son was poisoned by Chinese milk supplements was sentenced to two years in prison for the crime of reporting the problem. The sentence amounts to persecution of his entire family now. This is where international socialism leads.

All socialist dictators employ much more genocide than banana republic dictators do. Western socialists are only free now because the USA rescued them from Hitler and Communism. The socialists including Obama are now working hard to make America a socialist state too.

The EURO will come under pressure now and the dollar will rebound because Portugal, Spain, Italy, and Ireland have more rioting. QE2 last week seemed to show a stronger dollar and there is little reason to suspect it will have much more than the goal of 2% to 2.5% core US product inflation. The main effect is to raise inflation expectations so that businesses must put their cash back to work. A core product cost inflation of 1% to 2.5% is the goal. The inflation of raw materials prices could be much higher but the efficiencies of production improvements offset raw material price increases.

Last week:
Economic Calendar
New York State reported manufacturing plunged as US inventory build-up accelerated to 1.2% this past month.

This week so far:
Retail Sales Oct up 1.2% vs. 0.6% last month. Good sign
Retail Sales ex-auto Oct up 0.4% vs. 0.5% last month. Bad sign
Empire Manufacturing Index Nov down -11.1 vs. up +15.7 last month. terrible, terrible sign
Business Inventories Sep up 0.9% after being up 0.6% last month. Very bad as inventory buildup is acceleration. This is on top of the Obama communists lied again and he shifted 0.3% from this month to last month. Otherwise inventories would have admitted to be up 1.2% this month.

This week:
Nov 16 8:30 AM PPI Oct
Nov 16 8:30 AM Core PPI Oct
Nov 16 9:00 AM Net long-term TIC Flows Aug
Nov 16 9:15 AM Industrial Production Oct
Nov 16 9:15 AM Capacity Utilization Oct
Nov 16 10:00 AM NAHB Market Housing Index Nov

Nov 17 7:00 AM MBA Mortgage Applications 11/12
Nov 17 8:30 AM CPI Oct
Nov 17 8:30 AM Core CPI Oct
Nov 17 8:30 AM Housing Starts Oct
Nov 17 8:30 AM Building Permits Oct
Nov 17 10:30 AM Crude Inventories 11/13

Nov 18 8:30 AM Initial Claims 11/13
Nov 18 8:30 AM Continuing Claims 11/06
Nov 18 10:00 AM Leading Indicators Oct
Nov 18 10:00 AM Philadelphia Fed Nov

Market Outlook Nov 16, 2010

Market continues showing signs of topping.
Silver and gold continued to decline, as Japanese style world deflation remains the primary concern. China plunged 4% again last night. The FED policy will devalue the $trillion of American currency that China holds at a rate exceeding 2.5% a year because China will get even less if they try to sell their US treasuries. Then the US can buy them back at a discount. GE/MSNBC/Pravda/MadMoney once again recommended Gold and Asian markets at their market tops for the year!

Congratulation MSNBC for keeping your financial recommendations as consistently moronic as your political views. Obama continues to kill American jobs in the energy (Gas, Oil, and Coal) sector to stifle any possible economic growth before it can get a foothold. Gulf oil, shale fracturing, and mining permits are virtually impossible to get for American companies in the USA.

Since Oct 28, 2009 our market cash flow index has shown cash flow out of the market and the flow out hit its peak the third week of May. On a cash flow adjusted basis the recent new highs in the market averages did not surpass the previous high and it is still as low as during the free-fall following Lehman's collapse. Therefore it tells us this mini-bear market is still active.

It would be a bad idea to short commodities even though we do expect another US stock market decline soon. We expect the FED to be successful and for core price deflation to end this year. We would buy at cyclic lows and be wary of shorting the market other than to balance out alpha trades where quality is bought and weak companies in the same sector are sold short.

World Markets
Asian markets were down sharply last night after the plunge last week. China's market was down -4%, Hong Kong down -1.4%, India down -2.2%, and Japan down -0.3%.

European markets are falling this morning in a range of about -0.6% to -1.6% about half way through their day.

US pre-market futures were down about -0.4% at 7:30 AM EST.