The bulls have their reasons, of course. Manufacturing is recovering, they say. Green shoots are sprouting! What they don’t seem to know/care about is that the reason manufacturing is recovering has little to do with a better economy.

This from Payout Trader editor Charles Delvalle (who, by the way, is bullish on US equities in the medium term):

Truth is the economy is still circling the drain, albeit at a slower pace. The real reason why the Institute of Supply Managements Factory Gauge showed better than expected numbers was because of the 12% increase in government spending due to fiscal ‘stimulus’ programs.

The June report showed up at 48.9 – just shy of the 50 mark. If the ISM rises above 50 it signals growth in manufacturing; less than 50 signals contraction. This 50 mark is extremely important, because most economists look at it to determine whether we are in a recession or

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China is making preparations for the ultimate demise of the dollar … and so should you.  Stories knocking the dollar never get much exposure in the mainstream media (many outlets wrongly consider it unpatriotic to bash the buck).

But here’s the story in a nutshell. Li Lianzhong, a senior economist in the ruling Chinese Communist Party, directly attacked the dollar yesterday. Li’s message is simple: China should buy more gold because the dollar is poised for a fall. Li also said that China should use more of its $1.95 trillion in foreign reserves to buy energy resource assets.

Speaking at a forex and gold forum, Li asked the very valid question, “Should we buy gold or U.S. Treasurys? The U.S. is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be

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“Stocks are clearly having trouble extending their gains,” reports today’s Wall Street Journal. And that a number of key market health indicators are flashing red right now.  When were these indicators flashing green? We don’t recall.

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

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We’ve been keeping a close eye on US Treasuries lately. That’s because the bond markets are full of useful information about the real state of the economy. For one, they tell us how investors really feel about government wastefulness.

Yesterday, the yield on the 10-year Treasury bond rose sharply to about 3.7%. This is still well below the 5% it hit before the credit crisis. But it is a clear sign that bond investors are concerned about the amount of money the government is borrowing to ‘fix’ the economy.

As yields rise, so do mortgage interest rates. Right now, the Fed is keeping them artificially low by buying Treasuries. But pressure is building on the mortgage rates as oversupply in the Treasuries market pushes yields higher.

And with prime mortgage delinquency rates at 6% (more than double the long-term norm) and a quarter of subprime loans delinquent, the government simply can’t afford for

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The top 30 most volatile days for stocks since 1969, bar one, all occurred in 2008. The one exception was in November 1987, shortly after the Black Monday wipe out. These are the startling results compiled by one of our favorite market gurus Dr Van Tharp.

Tharp is a trading psychologist and the author of one of the best books ever written about making money in the markets, Trade Your Way to Financial Freedom. His key insight into trading is that position sizing as a way to control risk is critical to success.

Tharp used a measurement called Advanced True Range (ATR) to analyze market volatility since 1969. ATR is a way of measuring the degree of price movement of securities developed by J Welles Wilder and introduced in Wilder’s seminal 1978 book on trading, New Concepts in Technical Trading

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According to Crisis Strategy Alert senior analyst, Charles Delvalle, “the big reason the Goldman did so well was because the bid/ask spreads on stock trades were far, far higher than normal.” Charles is fond of ranting about banks. We are too. It’s a match made in heaven. Here’s what Charles wrote to us in a recent email:

This reminds us of the program GS is involved in with the NYSE. This program is supposed to “facilitate liquidity” and “lower the bid/ask spread”. Since GS acts as a sort of market maker in this program, they are also paid to do it.

Do you see the conflict?

GS is making the markets. And it’s allowing them to profit handsomely by allowing the bid/ask spread to tick higher than normal. This is a conflict of interest that should have been obvious to the NYSE. But now days, everyone is in cahoots.

Over the last year, Charles

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”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 names will be instructive. Ever since the great bear market of 2007-2009 began, it has been led by the financial stocks. No matter which direction

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Notes from the Investment Underground

Thursday, April 23, 2009

Palermo Viejo, Buenos Aires, Argentina

The greatest economic disaster in recorded history (and how to profit from it)… Your market ”script”… Lessons on guerrilla investing… Banks switch sides… The best communications company in the world… 3 sectors you should own now… Your key to “permanent wealth”… A massive glitch in the administration’s matrix… Notes subscribers beat up on your editor… 1,159% gains as stocks go bust… And more!

*** “The current administration’s economic strategy could create the greatest economic disaster in recorded history,” says Porter Stansberry in today’s DailyWealth.

Not only is the administration planning on enormous deficit spending this year, but the current plan calls for increasing deficit spending for the next decade – spending that will more than double ...

Notes from the Investment Underground Friday, April 17, 2009 Palermo Viejo, Buenos Aires, Argentina

Here comes subprime II… 3 toxic time bombs to come… The Richebächer legacy lives on… “Scamonomics” explored… Goldman bites the hand that feeds it… TARP loses 75% of taxpayers’ money… How to get $4,201 in your pocket by June 4… Banks’ top 4 accounting gimmicks… Short squeeze pushes market higher… John O’Neill on government’s deceit… James Dale Davidson: How to grab 19% yields on Treasurys (if you’ve got government connections)…  And more!

*** Rob Parenteau, the editor of the reincarnated Richebächer Letter, warns that we are in for the second wave of these toxic mortgages ahead. The first time subprime mortgages reset at a higher rate was in 2008 and the subsequent flurry of defaults sent banks into a tailspin.

Well, get ready, warns Rob. We still have “Option ARM” and “Alt-A” loan resets

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Notes from theInvestment Underground

Tuesday, March 24, 2009Recoleta, Buenos Aires, Argentina

The 15-year depression is coming… Drink yourself to death! Martin Weiss’s deflationary outlook… A sucker’s rally with legs… Protecting your wealth from inflation… Jeff Clark: the S&P will go below 600… The truth behind China’s dollar holdings… Big government gets bigger… And more! 

*** “This is the big one,” says Republican Congressman Ron Paul, who yesterday said the depression will last 15 years. It makes a nice change from all the hooting and wailing about a bottom being in for stocks.

“The U.S. government just won’t allow the correction the economy needs,” says Paul, citing the mini-depression of 1921, which lasted just a year. This was because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”

Paul

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