Commentary for the Week of March 8

Who’s to Blame for Death of the Middle Class in America? [We occasionally publish guest editorials with which we disagree, but seldom have we disagreed more vehemently than we do with the praise the author has heaped on Ben Bernanke – a mountebank in our book  -- for supposedly doing his job well.  Fortunately, it is not Bernanke that is the main subject of this essay, but rather, corporate greed and its role in impoverishing the American middle class. The writer is Shanghai entrepreneur and jazz pianist Mario Cavolo, an American expatriate and Rick Pick’s forum regular who usually manages to see the bright side of a darkening global economic picture without being a Pollyanna. RA] Ben Bernanke is the only person who is doing the right thing at the right time under the right circumstances. Let’s thank him for doing the only thing he can do to save the slowing world economy. I have decided to print up 10,000 “We Love You Ben” stickers. Even better, let’s go with “Ben’s Got the Balls We Need Because No One Else Does”.  Rather than blame “Helicopter Ben” like everyone else, ask yourself what is really going on.  What is the bottom-line problem for the average American? Yes, start reading between the lines, because the masterful spin doctors and populist media-driven messaging are more deceptive and manipulative than ever. They’ve mastered getting you to look in all the wrong places for all the wrong reasons.  If you were in Ben’s position, wouldn’t you be offering the world billions in easing rather than letting the economic edifice collapse, creating global havoc and spreading social unrest? Shall we compromise and say that you would do some parts the same and some parts different, but no matter what, you would have a supportive, accommodative, monetary

Beneath a façade of tedious price action, U.S. stocks appear to be weakening by the hour. On Thursday, for instance, the Dow couldn’t even muster a 100-point pop on news that jobless claims had fallen by 30,000 for the week ended October 6. Earlier this year, before our perennially recovering economy encountered stiff and persistent recessionary headwinds, that stat would have been worth at least 150 Dow points on the opening. This time around, though, DaBoyz could extract only a paltry 84-point short squeeze from it.  When a second-wind flurry of buying failed to drive the blue chip average any higher, it was time to unload. We said so in the Rick’s Picks chat room at the time, noting that the rally felt “doomed,” as it indeed was. Have investors finally figured out that virtually all employment-related statistics, especially with the election less than a month away, are economically meaningless at best and brazen lies at worst? Even if they have, it would hardly have mattered.  Since early 2009 and up until recently, any economic datum from the Labor Department that was less than catastrophic has been seized on by institutional traders as a catalyst to stampede bears into covering short positions. As we’ve noted here before, that’s the only kind of buying powerful enough to drive stocks past levels of supply or jolt them from doldrums.  Now this effect appears to be dead, or at least dying. From a technical standpoint, there are disquieting signs of distribution as the Industrial Average and the S&P 500 Index hover within striking distance of new all-time highs.  With breadth deteriorating on rallies and S&P insider selling at flood tide, leadership has gone flaccid as well. Several key bellwethers that we monitor very closely and trade, notably Apple, IBM and GE, have turned

[In the guest commentary below, Rick's Picks forum regular John Skerencak (aka John Jay) says that although the U.S. economy is but a pale shadow of its former self, its powerful military and corrupt financial system are a dominant and provocative force throughout the world.  Allied with Britain, America is reconquering the old Axis powers (plus France) so that the U.S. and U.K. can emerge from the rubble unchallenged for economic supremacy. RA] Everyone knows that a major reason for the dominant position of the USA after World War II was that Europe and Asia were left in rubble. The 8th Air Force in Europe and the 20th Air Force in the Pacific did a thorough job.  “Bomber” Harris of England pitched in, and Curtis LeMay’s B-29 fire bombings in Japan were so effective that Hiroshima and Nagasaki were spared so that the new atomic weapons would have pristine targets.  When peace arrived in 1945, the Cold War suddenly broke out, and that took Russia, East Europe, and China out of the picture.  Combined with a strong dollar that was much in demand and a matchless military, US manufacturing made the transition from war to peace and emerged stronger than ever.  This enabled the post-WWII US economic boom. Flash forward to today.   Now our manufacturing base is in ruins and the dollar is a shadow of its former self.  However, our military is still matchless, our provocateurs are global. Putting aside the issue of why and how our manufacturing and dollar were gutted, the question is...what now?  I look at the spread of financial fraud from our shores to Europe and see two “air forces” carrying the bomb loads: New York and London – a repeat from WWII.  We have teamed up once again to level Europe.  And once again,

[ Erich Simon, author of jeremiad below, is a hard-core survivalist and the second most bearish person we know, out-doomsdayed only by a Nostradamian pen-pal who believes, for starters, that two World Wars will be fought within a generation.  Although we shudder to imagine a world in which all of Erich’s predictions have come true, we do not think his fear is misplaced that Americans will awaken one morning to learn that the banks have closed indefinitely. Our suggestion is that you keep a shoebox filled with $1s, $5s, $10s and $20s for that day, since “plastic” will be useless.  Much more elaborate preparations will be needed, however, if you share Erich’s very dire outlook. RA] The financial vultures are all around.  Things took a sharp turn for the worse three years ago, when a wave of store-closings turned strip malls across America into eyesores.  In just one year, 42,000 manufacturing businesses in the U.S. closed shop. But the recent announcement by the Fed that it would “buy” $40 billion of mortgage-backed securities every month was a defining moment. What can it hope to accomplish?  Printing-press money no longer subsidizes anyone but fat cats – corporate VIPs who can flee in their Learjets to the Southern Hemisphere when troubles that have simmered for years finally reach a boil. A generation ago, it took $2 of debt creation to generate a dollar’s worth of GDP. Then it took $5…and then $7 before Obama pushed the number off the chart.  Now, there is no longer measurable growth relative to each new dollar of credit "stimulus.” In fact, despite all the QE Bernanke can gin up, the economy is sliding backwards. Production is contracting and unemployment is poised to take off, even as new hires take jobs that will never pay them anything

Apple shares have looked like hell lately. Given the stock’s uber-bellwether status, can the broad averages be far behind? Probably not -- and that’s notwithstanding the very bullish projection we put out a while ago for the Dow Industrials.  It called for a 1400-point rally to exactly 14969, and although we no longer believe the Dow can get there by election day, the target remains theoretically viable nonetheless. As a practical matter, though, we have set all of our chart-based tripwires on “hair-trigger” lest we miss the onslaught of a 2500-point plunge.  That’s how much we think the market will fall, at a minimum, when the cliff dive so many of us have been expecting for so long finally comes. The technical logic behind our bullish Dow forecast is that the blue chip average exceeded a “midpoint Hidden Pivot resistance” at 13502 on September 13.  Moreover, it did so with considerable force and then appeared to consolidate above the pivot for nearly a week. Taken together, these signs were unmistakably bullish, and, going by-the-book, the 14969 rally target will stand until such time as the Dow breaches a key low at 12035 from a year ago. Even so, we always keep an open mind and an alert eye, since bullish technical indicators, even long-term ones, can sometimes change overnight. For the moment, however, you can infer that we are reluctant bulls: extremely bearish in our outlook for the U.S. and global economies, but compelled by our mechanical indicators to call things exactly as we see them. One Other Factor Besides the stratospheric Dow target, there is another factor that could conceivably buttress the bullish argument for a last-gasp rally. To wit, the Dow is within 600 points of record highs (see chart above). If you accept the premise that Mr

Stocks and index futures have shown a slavish devotion to our Hidden Pivot targets lately.  Only trouble is, the vehicles that we ordinarily trade have barely budged.  The E-Mini S&P futures, for instance.  Yesterday we hung out a very bullish, 1477.50 target for subscribers, implying a 40-point rally equivalent to about 320 Dow points.  This would have been no great 3-day feat during the supposed dog days of summer, when stocks stair-stepped steadily higher no matter what the news. Came mid-August, however, they went flat, taking a 20-day breather to recharge for two single-day spurts that temporarily alleviated the tedium.  Blink and you missed the opportunity. Is the same thing about to happen again?  If not, look out below.  Three weeks ago, the E-Mini went into a dirge after soaring for two days on the promise that Helicopter Ben was prepared -- yet again -- to do whatever it takes to keep the stock market afloat until after the election. Not to rain on anyone’s parade, but we would be remiss if we failed to point out that the broad averages have fallen back to where they were before Heli-Ben came galloping to the “rescue” for the umpteenth time. Stocks Hovering Dangerously Considering the foregoing, it feels like U.S. stocks are in a very dangerous place, hovering all-too-patiently as they wait for “something” to goose stocks again. We can’t imagine what would set them a-surge, even though we’re on record with a prediction of a 1400-point rally in the Dow, to 14969.  Every time we think too hard about this forecast, however, it feels like we’ve gone too far out on the limb.  Still, it’s based on purely technical factors, most particularly the Dow’s effortless push past a 13502 “Hidden Pivot midpoint” that is associated with the target itself.  We

We dodged a bullet yesterday, exiting a bull calendar spread in Apple for a nice theoretical gain just before the stock tanked. AAPL was up about $7 in the early going, trading for around 674.00, when we put out a bulletin to sell for $8 some Nov-Oct 730 call spreads we'd purchased earlier for $7. The spread was trading for around $8.30 with Apple near its intraday highs, but we’ve recorded a 7.90 sale officially -- for a theoretical gain of $720 on the trade-- because it is our practice to use the worst price actually reported by a subscriber. Apple finished the day at 659.51, down $7.46 -- a nearly $25 reversal from high to low. But even when it was buoyant in the early going it felt like the stock was being distributed, and that's why we decided to ditch.  Our position was initiated when Apple looked like it would blow past $700 a couple of weeks ago. Playing the 730 strike for an October expiration seemed like a good bet at the time. However, when the stock wasted five precious days of would-be "rally time" in a power dive last week, it was time to bail. From a technical standpoint, AAPL became an odds-on bet yesterday to continue lower to at least 649.74. If it gets there, we'll put out an intraday guidance to help subscribers stake out yet another bull calendar spread, possibly buying December 700 calls and shorting October 700 calls against them.  But we'll have a better idea of how much to pay for the position if and when the stock approaches the target.  (Want to join us in real time? Click here for a free trial subscription.) Why So Punk? So why has Apple looked so punk lately?  Perhaps because the stock could

Spain’s deflationary quagmire now lies well beyond remedy, dooming Europe’s bold but ill-conceived attempt to forge a political and economic union under a single currency.  That Spain’s collapse is imminent should be obvious to all by now, as the country attempts to borrow its way back to prosperity amidst 25% unemployment, savage budget cuts and a flight of capital to banks in England, Germany and elsewhere.  Recall that it was just two weeks ago that the world’s bourses wildly celebrated a German constitutional court's decision to uphold the latest bailout facility, the European Stability Mechanism (ESM).  Stocks and bullion rallied sharply on the news, acting as though yet more monetary pump-priming would somehow surmount the irresistible deflationary drag of the world's imploding, quadrillion dollar derivatives edifice.  In fact, the supposedly all-knowing, all-seeing stock markets showed themselves to be deaf, dumb and blind to fact and reality, since the court’s decision actually raised more obstacles to a bailout than it eliminated. (Traders have since repented, having given up nearly all of their earlier price gains.) Concerning the legal ruling, “the establishment of the ESM is about the only thing that the German court did say yes to,” our Australian colleague Bill Buckler noted in the mid-September edition of The Privateer.  “The rest of its ruling is a litany of the word NO!”  We quote the Privateer at length here, since Buckler appears to have been alone in describing what actually went down:  “In the first place, the court insisted that the German parliament must have a veto over any increase in Berlin's Euro 190 Billion contribution to the ESM. Any increase in that amount would require the prior approval of both houses of the German parliament. Oh, That EU Treaty... “Much more important," continued Buckler, "the court effectively vetoed any move

Our very bullish projection for the Dow Industrials, currently trading near 13485, calls for a powerful, last-gasp rally to 14969 before the elections.  But what if the blue chip average were to simply fall from these levels without rallying to new highs?  At what point would we give up on our target? asks a reader who goes by the handle  “Mega-bear” in the Rick’s Picks forum.  Before answering his question, we should mention that the trading “touts” and forecasts that are hidden from public view are much more finely nuanced than those you see trumpeted here occasionally in the headlines. (Click here for a free trial subscription to see how subtle and useful this information can be.)  Moreover, and regardless of what the headlines would seem to imply, we are always prepared to turn on a dime, going from very bullish to sky-is-falling bearish if changes in the technical picture warrant it.  That said, let’s looks at the technicals to see where things stand right now. 14969 is the rally target of the of the ABCD pattern shown above. By our lights – i.e., Hidden Pivot Analysis – a surge to that number became an odds-on bet when, two weeks ago, the Dow bulldozed its way past 13502, a “midpoint pivot” mathematically related to the D target itself.  Notice in the chart that the first time buyers encountered the midpoint resistance, they showed no hesitation in pushing decisively past it. It is the ease with which they did so that boosted our confidence that the midpoint’s D “sibling” at 14969 would eventually be reached. Importance of Minor Swings Even so, there’s reason to be cautious, since a recent peak 13653 came very close to a secondary D target at 13639 that has the potential to be a major top.  Considering