We need 2.6% inflation expectation and some cost of capital

Banks will not invest their cash in new businesses if they can borrow from the FED at essentially zero interest and use their cash to buy treasuries at higher rates as the banks do. They have guaranteed profits and no risk with the current deal the FED gives them. Businesses will not invest their hoards of cash when deflation tells them it is better to wait for lower costs. So rising rates and QE2 are the right thing to do except it is time for the FED to raise the cost of capital by raising discount window rates to encourage banks to invest in American business.

The treasury is running a monthly deficit at a rate of $1.7Trillion

New unplanned consequence of overpaying executives is they have more money than they need in just two or three years so they retire like the Pfizer executive. That just adds fuel to the myth that they are worth the money they get.

World Markets:
Tomorrow, China is announcing November economic data on inflation, retail sales, industrial output, and fixed-asset investments. There is speculation the People’s Bank of China will raise interest rates this weekend. China has a large bubble of unoccupied housing and office space that has been bid up by speculators who believe prices can only go higher. China has inflation of only 3% and may raise their target to 4%.

Chinese economic data could be entirely fraudulent now. There is no way to know anymore. China imprisoned an American with an eight-year sentence because he was in China doing investor research to see if the balance sheets and income statements were truth or a fraud. Seeking truth is now apparently a criminal offense in China. That means that we can no longer trust any Chinese financial reports because fraud in China cannot be reported. That means any investing in China could result in 100% losses when their bubble of Ponzi schemes and other fraud breaks. We would advise getting out of the Chinese markets until all Wall Street reporters are freed from China's prisons. Since there is no transparency and no independent verification allowed in China that means their whole system may be based on fraud. China may now be in danger of a stock market collapse because they find it necessary to lock up the people who try to verify the corporation data. It could be the biggest scam ever perpetrated.
Economic Calendar

This week's news
Yesterday
Consumer Credit Oct up 3.4B from 1.2B last month. Consumer debt not job income is behind higher sales.
MBA Mortgage Applications 12/03 down another 0.9% last month. Obama is a disaster case allowing Real Estate to fester this long.
Crude Inventories 12/04 down 3.8M as oil prices rise over $90 and this is with a stagnant world economy. Bad news-shortages are coming like they have in Obama's' favorite country Zimbabwe. Obama's favorite world leaders are Mugabe of Zimbabwe, Ortega of Venezuela, and Castro of Cuba all Socialist psychopaths.
Initial Claims 12/04 were 421K and it has to go to under 200K for unemployment to just level off. At this rate unemployment will be over 10% in 2011.
Continuing Claims 11/27 - hit 4086K up from 4036K last month.
Wholesale Inventories Oct climbed again to 1.9% from 1.5% last month. Bad
Trade Balance Oct -38.7B vs. 44B last month, weak dollar in September helped reduce imbalance. Good
Export Prices ex-ag. Nov rose 0.8% slightly more than 0.7% last month Not good
Import Prices ex-oil Nov rose 0.8% with weak dollar after 0.3% rise last month. Good inflationary
Mich Sentiment Dec was 74.2 up from 71.6 last month. Good
Treasury Budget Nov deficit was $150.4Billion up from the deficit of $120.3Billion last month. That means Obama's deficit is now running at $1.8Trillion per year or more than four times higher than the highest deficit George Bush ever had over eight years and actually close to the total sum of Bush's deficits over twelve years. And that is why Obama was elected because he was going to fix the deficit... so he said.

Market Outlook Dec 10, 2010
Most metals on the London Metal Exchange and crude oil futures fell again yesterday on year-end profit taking. Gold is up 26% and silver is up 33% this year. The fed wants 2.6% inflation. It will be 11 years before prices rise 33%. We have had moderate deflation these past two years and so far the FED has not been able to get any inflation much less their goal of 2.6%. The people who bought silver now could have to wait ten or more years before their investment pays off.

The stock market continually hits the wall at the recent high resistance level. The U.S. market continues in a narrow trading range. Today we could test the upper range yet again.

Bonds have started taking a beating from the FED and that beating will go on through much of next year. Usually the first effect of a declining bond market is a rise in stock prices and then is followed with a collapse in stock prices. We expect a sharp collapse of the equities markets in January. The people who lost their shirts on stocks went into bonds after 2008. Now as they lose their pants in Bonds they will want stocks again. So later next year could be good for stocks after the bond losers get back into stocks near the highs this year and lose again by investing high in stocks.

World Markets
Asian markets were net up last night. China's market was up 1.1%, Hong Kong down -0.1%, India up 1.4%, and Japan down -0.7%.

European markets are up slightly this morning in a range of about -0.2% to +0.5% half way through their day.

US pre-market futures are flat again at about +0.25% at 8 AM EST. The bad news is that taxes are in limbo again for the next two years, which means people may take profits this year and the economy could stall again.