SP Futures Hourly Chart at 2:30 PM

The Jobs Number today was a horror show, not so much for the 'headline number' which is routinely manipulated, but rather in the utterly cynical, almost Orwellian, of the January number down to a breath-taking low.

The Obama Administration did this as part of an effort to spin 'a bottom.'

Is there a V bottom in the making? Is this a legitimate rally in equities?

We don't think it is, at least in terms of the economy. The indicators continue to deteriorate badly.

But we need to be aware of the possibility of an attempt to reflate the asset bubble, and this will show up in equities first, with a possible deflation in the Treasury bubble as hot money moves from relative safety to risk.

Everything about this market, and our economy, is directed by expediency rather than principle, and is therefore short term in its goals and outlook.

Having said all this, the market is overbought and the rally overextended. It may get more overbought and overextended, as we saw in the market 'recovery' of 2004-6 in which the US equity indices were managed up to new highs, even while the rot in the real economy spread, crumbling the foundations of wealth.

It is hard to comment on this market, because the Obama Administration is a profound disappointment, to the extent now that our short term optimism and confidence has dissipated.

If Democrats were trying to create a new Weimar Republic it would be hard to imagine a more sincere and effective effort. The problem is that the shadow of what comes next looms over the world like a dark cloud of misery brought about by the madness of men.

US Dollar (DX Index) Hourly Chart

Trichet disappointed today by not cutting the Euro interest rates more sharply to match the monetization of the US dollar by the Federal Reserve.

The US dollar hegemon is based on relativism. The monetization of a fiat currency does not matter so much if the most reasonable alternatives are also in decline. It will show up as an inflation in the price of real goods, but these can be managed in a financial services regime in the short term.

Do not confuse what the Fed and the Obama Administration are doing now with any sort of long term plan. Their bias is the same as corporate management: getting through the short term and looking as good as is possible in doing it.

Obama would like to shift to a longer term strategy, but this is difficult given the huge momentum of malinvestment that grips our national economy.

Nasdaq 100 Futures Hourly Chart at 11 AM

This has the look and feel of an 'official rally' to create the appearance of enthusiam for Gordon Brown's bid to save the world.

Do not get in its way while it is in progress. Buying of the SP futures led us higher yesterday, with the Nasdaq 100 confirming with its own breakout attempt.

Jobs Report tomorrow is key.

We would rather miss a portion of a move than be early and suffer losses and exhaustion by fighting the tape.

Potential near failure points are at 1312 for the NDX futures and 842 for the SP futures.

Longer term nothing has changed. The real economy is paper thin, the paper being supplied by the US dollar and the monetization of debt to create the appearance of vitality.

SP Futures Hourly Chart Updated at Noon

Here are three views of the SP 500 Futures on an hourly basis.

Notice that in the 'big picture' there is still an inverse head and shoulders bottom that is an active formation.

The question is whether this downturn is a natural fallback from the obvious tape painting exercise that occurred for the end of quarter, or a trend change that will challenge the inverse bottom.

Time will tell. But since the real economy continues to deteriorate, albeit at a less shocking rate of decline, we doubt this very much unless the government begins to encourage monetary inflation with abandon.

So, our bias is to the downside but keep an open mind. We would expect a fresh decline to test the prior near term bottom at the very least, with an eye to the lows if that gives way.

One might conclude that the rally we have seen is just a 'back-kiss' to the bottom of the longer term uptrend channel which, if it fails, brings a very bearish cast to the charts indeed.

We have to add, in editorial fashion, that the Obama administration is a complete failure when it comes to putting the economy in order. This is because of the embedded thinking from Summers and Geithner and their backers at the big five money center banks.

There will be no recovery until the banks are restrained, made into banks once again, and speculation is wrung out of system to be replaced by productive efforts and the creation of real wealth.

We prefer to attribute bad results to incompetence rather than inappropriate motives, but we're keeping an open mind with regard to these jokers.

Derivatives: the Heart of Financial Darkness

The heart of our financial crisis is reckless speculation with "too big to fail" funds by a relatively small group of US based money center banks.

There is sufficient circumstantial evidence from their concerted lobbying efforts to undo and resist regulation to show planning and forethought in what is an almost amazingly straightforward case of fiduciary and financial fraud. Many a blind eye was turned to the decline of the nation as it occurred, as the media and politicians and financial regulators were caught up in a seductive web of corruption.

The perpetrators are still in place, relatively unrestrained, and certainly not facing anything that might be called 'justice.'

Before there is any recovery, the banks must be once again restrained and balance restored to the economy and the financial system. The efforts of the Obama Administration are hopelessly ineffective, conflicted, and supportive of continuing losses.


The Prime Suspects



The Killing Field



The Wagers on Failure



The Wages of Speculation

How the Financial Industry Holds America Captive

You heard this here first.

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

The Quiet Coup - Simon Johnson - The Atlantic Monthly

Here Come the Coupon Purchases by the Fed

The Fed made this announcement and the ETF we use to short the Treasury bond, TBT, took a nose dive.

FAQs on Fed Monetization of US Debt





Fed to start buying Treasurys on Wednesday
By Deborah Levine
2:58 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York will begin making purchases Of U.S. Treasury securities on Wednesday, starting with debt maturing between 2016 and 2019.

It will continue purchases on Friday and next week, with some days dedicated to purchases of maturities as short as 2-year notes with others for debt maturing in 17 to 30 years, it said in a schedule posted on its website Tuesday.

It did not indicate how much it would buy. The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months. Treasurys rallied, with yields on 10-year notes (UST10Y UST10Y) paring an earlier increase to traded up 1 basis point to 2.66%.

Guest Blog: The Cheapest Call Option of All

No doubt Ben and Timmy have it all planned out, how they will use the trickle down machine to reinflate the financial system, and thereby float out loans again, at interest, to the hoi polloi.

From the Irish gnome in Zurich:

The cheapest call option on the planet is being provided by the world's largest HF//Prime broker: the US govt. Its also the best camouflage for a continuing rescue of Citi, GS et al that the Congress and the public cannot penetrate.

TALF Bait and Switch - Zero Hedge

And if it all goes wrong, Geithner is now looking for power to bail out the hedge funds, not to mention Pimco et al.

This sounds like a pretty cheap option to me.

But what has also gone unrecognised is the fact they will all make up this money on their CDS and S&P calls anyway.

If they pay banks their fictional book value, they will be able to pretend that the financial problems were overstated, just a 'liquidity' issue after all.

The banks can claim they HAVE been doing things right and we'll have a huge rally again. Anyone who participates will no doubt reckon on a reduced Prime Brokerage fee and extra leverage from the grateful seller - -which means asset inflation has another leg up.

Remember, ALL banking 'capital' is notional, so it is easy to conjure up the illusion of wealth creation once more.

SP Weekly and Monthly Charts Updated at Noon

The question one must ask is whether this is a technical bounce off a short term bottom, or the beginning of somthing more sustained.

Barton Biggs of Traxis Partners is saying today that he expects a thirty to fifty percent rally off this bottom. His reasoning is historic comparison off lows this severe.

If sustained, is this a genuine economic recovery or another monetary reflation and resultant bubble in financial assets.

The charts speak to this, not definitively, but with sufficient weight to be important. Yet another bubble sets us up for a great cascade fall down to 545, with a potential final bottom as low as 380.

The numbers may start to be skewed and distorted on the chart if a more serious monetary inflation in the dollar begins. The commodities and the quality of earnings in the SP 500 will be the 'tell.'

But make no mistake. The Fed and the Obama Administration are firmly committed to monetary inflation and a weaker dollar as another short term cure for the economy.

If the government does not make the fundamental reforms to the financial system and economy to bring back a balance with real wealth creation, it is difficult to see how the dollar and the bond will emerge intact from the next bubble without a further devaluation of 50 percent at least.