Our memory of the recent rally was on kicked-off by a bogus memo from Citigroup CEO Vikram Pandit about profitability, followed by a load of baloney from stress test regulators about banks’ health.

“People also are beginning to question whether the economic fundamentals are strong enough to justify continued gains,” continues the WSJ. This has got to be one of the most naïve sentences ever written. The 40% rise in stocks since early March never had anything to do with a 40% increase in economic fundamentals. The economy is collapsing (albeit at a slightly slower pace than before).

Stocks rose because the same “irrational exuberance” that got us into trouble in the first place caused investors to ignore economic fundamentals and pile into equities on the basis that the government wouldn’t let any more failed companies go bust. At no point during this rally did economic fundamentals improve. Economic news was simply less bad than before.

The following three indicators should make it patently clear to investors that stocks are in trouble.

1. There has been a consistent drop in trading volume going back to April. Average daily volume for all NYSE stocks hit a record of 7.21 billion shares in March (much of which was thanks to program trading by Goldman Sachs on the bank’s principle account). That fell to 6.42 billion in April… and 5.14 billion in May. This is below the average of 6.15 billion shares traded a day in 2009. In a true bull market, trading volumes tend to rise as more and more investors pour into stocks.

2. New stock issuance hit a record in May. This has dramatically increased supply at the same time that demand (as measured by trading volume) is falling off.

3. Senior corporate officers are net sellers, not buyers. This inside selling is inconsistent with a real bull run.

Here at Notes we have repeatedly stated that there has been money to be made in the recent upswing but that investors better be nimble to avoid the inevitable bull trap. We repeat this warning again today. If you are investing in equities, keep a close eye on events. Right now, you’re money is sitting in dangerous quicksand.

The beginning of the end for the stock market rally is finally here, says Payout Trader editor and technical analyst Charles Delvalle. Charles has been predicting a sell-off for quite some time. Here’s what he has to say on the subject:

After staying above the 20-day moving average since March 12, the Dow finally broke under it on June 16. Four days later, the Dow is trying desperately to stay above its 50-day moving average.

This signals an end to the shocking display of strength the market has shown in recent months.

Typically market bottoms are not V-shaped. They are usually W-shaped or form a reverse head-and-shoulders pattern. For example, after the last bear market the Dow formed a reverse head-and-shoulders pattern before signaling the start of the following multi-year bull run.

Let’s be clear. The “green shoots” hysteria in the mainstream media was designed to boost consumer and investor optimism and to send stocks higher. (Remember, the mainstream media needs large corporations – their advertisers – to succeed as much as Washington does.) The “green shoots” rarely indicated that the economy was improving. More often than not, they simply signaled that things were getting worse more slowly.

For readers taken in by the “green shoots” meme, it may surprise you that the Fed’s recent Flow of Funds report – which tracks the country’s financial flows – shows that credit conditions actually got worse in the first quarter of 2009.

As underground investor Dr Martin Weiss points out, “This directly contradicts Washington’s thesis that the government’s TARP program and the Fed’s massive rescue efforts began to have an impact early in the year.”

Weiss, of MoneyAndMarkets.com, says, “ The credit market shutdown actually gained tremendous momentum in the first quarter. And although it’s natural to expect some temporary stabilization from the government’s massive interventions, the first quarter was SO bad, it’s impossible for me to imagine any scenario in which the crisis could be declared ‘over.’”

Here are the facts Weiss has compiled about credit conditions in Q1 2009:

1. We witnessed one of the biggest collapses of all time in “open market paper” – mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion.

2. Bank lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time.

3. Meanwhile, nonbank lenders pulled out at the annual rate of $468 billion, also the worst on record.

4. Mortgage lenders  pulled out for a third straight month. (Their worst on record was in the prior quarter.)

5. And consumers  were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

6. The ONLY major player still borrowing money in big amounts was the United States Treasury Department , sopping up $1,442.8 billion of the credit available – and leaving LESS than nothing for the private sector as a whole.

This is all very bad news indeed for the economy. And if it’s been reported in the mainstream media, we have yet to see it.

There are bigger fish being fried. The entire American nation is in the crosshairs and will be severely tested like never before.

Very few people comprehend the scope of the problems that continue to unfold. The Dow is up a couple of thousand points so everything must be normalizing, no?

No! Look deeper.

The US Hits the Treadmill

The core of our problems lies deep in the roots of the overall system.

• The US economic model has been extremely flawed for more than an entire generation. Our “money” holds no intrinsic value. We follow the consumption mantra instead of the production model. The good times come only when credit expands in bubblical proportions (don’t look that one up in Webster’s). Credit contractions, like the historical one we’re now in, threaten to implode the entire edifice. The Fed is the master of the boom and bust cycle and they have really overdone it this time.
• Low interest rates are damaging to the key individuals that can rescue us … savers. Save the savers!
• There are consequences to failed economics. Our central planners are a scant few decades following in the footsteps of the Ruskies. It is definitely not free market capitalism that is crumbling. Ignorance, greed and fraud are simply meeting their inevitable demise.

Results- The patient literally fell off the treadmill.

The Telling Electrocardiogram (ECG)

There are some really weird heart rhythms on this now intensive care patient.

• This decade has been one of depression only disguised by official lies and distortions (altered statistics). A sustained recession is, in fact, a depression. The sustained recession started in 2001, with a brief interlude in 2004 and I’m sticking with that opinion regardless of how few see it. Check out the GDP chart at www.shadowstats.com for yourself. Any analysis is only as good as the documentation used.
• The collateral foundation is crumbling out from under all American banks. Real estate continues to deflate and this directly impacts the viability of banks. Their ability to lend disappears with foreclosed homes and non-performing shopping centers. Home prices were down 14% during the first quarter of this year compared to the first quarter of 2008. At least 30% of US households owe more on their homes than they’re worth. Real estate has not bottomed.
• Joblessness goes hand in hand with real estate failures. The Labor Department just fessed up to a 9% unemployment rate. The rule of thumb is to roughly double the propaganda figures that come out of DC/NY. We’re heading next for 20% unemployment and all but the most gullible know it. More reliable reporting, again, comes out of the Shadow Stats website.
• American debts are way, way past the point of ever being repaid. They will be defaulted on. I won’t bore you with excessive numbers here because eyes tend to glaze over. Our economic leaders are throwing down multiple trillions of dollars in between shots of tequila. Practically none of this funding is aimed at Main Street. Recent “stimulus” spending and desperate promises come to $29 trillion per Bill Buckler of the esteemed Privateer.
• Tax receipts for fiscal 2008-2009 are down 31% for individuals and 58% for corporations. Meanwhile, government is vastly expanding its spending and a collision is inevitable.
• Foreigners are balking at purchasing more American debt and the Fed, in an end game strategy, has stepped into the gap. Don’t try this at home.

Results- There is a dangerous cardiac arrest in progress. One more test to go.

The Dreaded Proctologist

This test is the most revealing one of all. You will need more than a Valium just to review these results. The creatures that have brought us to this fateful moment show no signs of seeing daylight anytime soon.

• Failed entities should be purged from the system. Fraud requires punishment. Instead, incestuous entities like Freddie Mac, Fannie Mae, AIG, Goldman Sachs, JP Morgan and others were and are deemed too well connected to fail. A financial coup d’etat has transpired as Goldman Sachs refugees have overtly grabbed the ring of power. The banking elite continue to clutch their power.
• The shadow banking system that directly caused this American catastrophe continues to bring forth more and more derivatives. The BIS, the bankers’ bank in Switzerland, reports $684 trillion in these hidden, unregulated and dangerous instruments. Other sources report them as high as one quadrillion dollars. There’s a Zimbabwean number if there ever was one. There can be little doubt derivatives are continuing to fail behind the scenes, further compounding all these issues.
• The printing press is also found with this scoping exam and it’s obviously turned to malignant mode. How do you cure a problem caused by extreme amounts of credit and debt with unfathomable amounts of the same?
• No observed green objects resembled “shoots”.

Results- A massive surgical resection is mandated. Today.

Test Results and Prognosis

Grievously, this patient has abused its heart and lost its soul. It is unrecognizable from its original Constitutional form and very unlikely to revert back to it. It exhibits no free markets, no honest money and few brave and rational leaders. Short of a miracle, you’re looking at a terminal case.

The banks passed their stress test but you dare not rest easy. Al Capone would have given himself a glowing report card if given the opportunity. The times remain extremely precarious. Protect yourself by staying away from the Kool-Aid and heading for the precious metals.

Source: A National “Stress Test”

]]> http://www.contrarianprofits.com/articles/a-national-%e2%80%9cstress-test%e2%80%9d/17040/feed 0 http://www.contrarianprofits.com/articles/beware-markets-are-confused-right-now/16014 http://www.contrarianprofits.com/articles/beware-markets-are-confused-right-now/16014#comments Wed, 29 Apr 2009 17:13:30 +0000 Contrarian Profits http://www.contrarianprofits.com/?p=16014 ”Despite the bad news the market is confused,” says Crisis Strategy Alert senior analyst Charles Delvalle.
On Monday the futures were down over 80 points. Yet somehow, the market ended the day in the green.
Then yesterday, the Dow futures were down over 100 points. So how did the Dow Jones recover most of the losses and end down less than 10 points?
The bulls aren’t happy. And neither are the bears. For once, both camps seem absolutely befuddled. But here at Notes, we think it’s only a matter of time before we see a big move happen.
Echoing Charles’s sentiment is Jack McHugh, writing at The Big Picture…
Divining a directional change in market prices is tricky, even foolhardy, but perhaps the market leadership…