Earthquake Rocks Washington Area

Rumor has it that the earth began shaking yesterday when several members of Congress decided that it probably wasn't a good idea to be on a month long vacation with a 9% unemployment rate and 46 million Americans struggling to get by on food stamps.  There is no word yet on if they actually returned to the area, or just discussing this caused the shifting of the plates beneath the U.S. capital.

One person on the street was quoted as saying, "Imagine what would happen if Congress actually wanted to fix Social Security or Medicare.  I wouldn't want to be any where near the capital if that were to happen."

Immediately following the earthquake the Vice President's office released a statement blaming the Tea Party for the earthquake.

The House Republicans quickly followed the release with their own statement blaming the absentee president.

The White House issued a statement saying, "The president is aware of the earthquake.  In fact it caused him to hit his golf ball into the woods.  He is deeply concerned and will spend the rest of his vacation working on a plan, which he will announce after the long Labor Day weekend."

The White House added, "we would remind you that these things were in place when the President took over, so he cannot be blamed for any of this."

The U.S. Geological Survey reported that the quake measured a 5.8 on the Richter Scale.  Members in Congress and the Obama Administration quickly condemned the report saying that it could cause  Americans and people around the world to think that the ground around the nation's capital is unstable.     

There are unconfirmed reports that Goldman Sachs paid for the earthquake to occur in order to shift attention from the Bloomberg report released on Monday that detailed the $1.2 Trillion in secret, emergency loans made by the Fed from 2007-2009.

Nothing really changed with yesterday's big move in the market.  The market is attempting to bottom and the fact that it did not break below 1120 is a positive sign.

The market was able to close on its highs (a good sign), but stopped right at the declining 10 day moving average as well as the sharp downtrend line.  It may need to consolidate for a day or two before it makes a run to get through it.  The real key will be if it can close above 1204, the level it was at 9 days ago when everyone thought the "all-clear" signal had been issued.

Besides the earthquake there were some news items that continue to show signs of stress in our economy that can lead to more earthquakes and aftershocks.

-Bank of America is acting a lot like the banks that failed in 2008.  Yesterday we discussed an article posted on Business Insider that described the reason BofA's stock was getting crushed.  Basically, Henry Blodget said the market didn't believe the assets listed on BofA's books were anywhere close to reality.  Rather than releasing DATA to dispute the article, B of A instead personally attacked Mr. Blodget.  As anyone that watched the implosion of the tech bubble or the 2008 credit crisis knows, when a company begins attacking short-sellers or the media and blames them for their problems it means there are SERIOUS problems at that company.

-Remember, the Federal Reserve and all of the banks were assuring us all was well in 2007 and early 2008 while the Fed was handing out $1.2 Trillion in secret emergency loans.  Problems at B of A are system wide problems because as the cartoon bears put it, "now the banks that were too big to fail are now too biggerer to fail?"

-Moody's downgraded Japan one notch to Aa3.  The ratings agency blamed the build-up of debt since the 2009 global recession and the frequent changes in political leadership that have prevented the government from implementing effective economic and fiscal policies.  Correct me if I'm wrong, but can't the same be said about the United States?  Don't believe me?  Check out The Reason America was Downgraded. 

-So did Japan blame Moody's, call for an investigation, or try to blame anybody else for the downgrade?  Nope.  They immediately announced a plan to try and help their businesses that are struggling due to the strong Yen.

-The United States continues to use the wrong model as our leaders try to run from the truth.  Japan has some serious problems, but you'd think that our leaders would be able to see the mistakes they made so we do not follow down their 20 year depression path.

-The market was higher, so that should be a positive sign for the economy, right?  Not according to the bond market.  The High Yield Bond index was down 0.43% yesterday.  Both in the U.S. and in Europe there are many signs of serious strain happening in terms of liquidity both for businesses and banks.

-The market appears to be pricing in some sort of strong policy announcement from Helicopter Ben when he speaks at Jackson Hole on Friday.  This makes the possibility of a sharp sell-off much higher if he doesn't announce something that the market is expecting.  Remember, the consensus view was the market would shoot higher once the debt ceiling was raised and it has lost 8% since then.

-The Grand Experiment is failing and the longer our central banker fails to realize this the bigger the pain will be when it all comes to an end.

Unless you hear otherwise, we remain in "bearish" mode.  This means we have little to no stock exposure.  It also means that our advice continues to be to use any sort of rallies to transition out of investments that carry too much risk for your comfort level.

Be on the lookout for aftershocks.  They are inevitable.

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