The Fed’s FOMC announcement came out…

We got exactly what I expected, a kind of wishy-washy, “hedging our bets” statement from the Fed. You have to remember that Bernanke was Greenspan’s right hand man for much of the bubble days of the ‘90s and early ‘00s, so the guy is an expert at walking both sides of the line when it comes to policy and public statements.

For instance, the Fed announced it would keep interest rates between 0% and 0.25% for an “extended period.” No surprise there. As I’ve noted previously, 80%+ of the $200+ trillion in derivatives sitting on US commercial banks’ balance sheets are related to interest rates.

For the Fed to hint at raising rates (let alone raise them) would kick off a systemic implosion that would wipe out the very guys the Fed has been bailing out. Suffice to say the Fed won’t be raising interest rates …

In case you have not heard the news, China has announced that it will be instructing its state-owned enterprises to potentially default on their derivatives contracts. As I have written extensively in the past, the derivatives market is a massive time bomb just waiting to go off. China’s latest move may be the match that lights the fuse.

All told, US Commercial banks own $202 trillion in derivatives in notional value. To put that number into perspective, it’s roughly four times the global GDP. And 96% of this exposure sits on five banks’ balance sheets. I’ve shown the below chart before, but it’s worth re-visiting (chart is denominated in TRILLIONS).

Of course, not ALL of the $202 trillion these guys own is “at risk.” As their name implies, derivatives are “derived” from underlying assets (homes, debt, etc). The actual “at risk” money can be far FAR smaller than the “notional” …

Earnings season has always been a crapshoot largely because of the nature of our financial system. To whit, we have accountants whose jobs consist entirely of finding ways to minimize taxes and eek out profits from even the flimsiest of circumstances (financial firms have become masters of this).

Indeed, it’s common practice for companies to prepare TWO tax statements, one that is released to the public and another that goes to the IRS. The IRS version usually features numerous tax dodges such as shifting revenues to tax havens/ off shore subsidiaries, as well as phony accounting charges and the like. Consider the below chart comparing individual income tax receipts (blue line) and corporate tax receipts (red line) for the last 50 years and tell me which group has an accounting department devoted to finding every tax loophole possible.

After the accountants get through with “cooking the books,” corporate earnings are then supposed …

Ok, now I’m starting to get spooked.

Long-time readers know that I’ve frequently commented on the eerie similarities between how the financial markets behaved in 2008 and 2009. However, at this point, things are beginning to border on “conspiracy theorist.”

In both years, commodities bottomed first (Jan 23, 2008 vs. Feb 23 2009). In both years, the Feds stepped in with a major intervention in Feb/ March (Bear Stearns ’08 vs. Obama Stimulus ’09). This in turn kicked off a major rally in which both stocks and commodities soared higher together.

Both asset classes began to lose momentum in the early summer with the Baltic Dry Index peaking in late May ’08 vs early June ’09. Stocks and the Baltic then rolled over, falling into July:

June 1-August 5, 2008: Baltic collapses 28%

June 1-August 5, 2009: Baltic collapses 25%

Stocks first followed the Baltic, but then staged a massive reversal due to interventions/ short squeezes. …

Stocks are overbought.

And by overbought, I mean WAY overbought.

The relative strength index (RSI) is a metric used to measure the velocity and momentum of a given investment by comparing its upward and downward moves from close-to-close. If an investment is moving up strongly, its RSI is higher. Similarly, if an RSI is low, it means the investment is performing weakly.

Historically, RSI’s of 70 or higher mean an investment is overbought while an RSI of 30 means an investment is oversold. In these situations the market is primed for a “revert to the mean” trade, meaning you could see a quick correction or turnaround rally as the market snaps back to a more reasonably RSI.

Well, have a look at the NASDAQ today.

As you can see, the NASDAQ recently hit an RSI of 75. This is the highest reading we’ve seen in nearly two years. In fact, the last time the NASDAQ …

Starting with the re-opening of formal trade arrangements in 1971, China has undergone a near unprecedented level of economic transformations. The country’s per-capita income doubled from 1978 to 1987 and again from 1987 to 1996.

In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and diet: between 1985 and 2008, average Chinese meat consumption more than doubled from 44 pounds to 110 per annum.

However, most Americans (including the Government) have been blind to this economic reality, choosing to focus instead on China’s social qualities. Indeed, it was not until the Chinese Dragon was literally breathing down Uncle Sam’s neck ¾ China overtook the US as the world’s largest consumer of coal, meat, grains, and steel in 2004¾ that the latter became aware of the former’s economic developments in any real fashion.

Which brings us to today, where the US is trapped …

Yesterday we detailed the different between this current economic contraction, and your usual run of the mill plain vanilla recessions. We also went over the MASSIVE consumer credit contraction that needs to occur before American households have finished de-leveraging.

Today, we’re detailing why stocks will Crash this coming fall. As you know the media is rife with folks calling the end of the recession and the beginning of a new bull market. It’s clear to me that this is a load of nonsense. Today I’ll show you why.

Because a lot of the alleged “analysis” that is backing up the bulls’ claims of a new bull market comes from technical analysis and charts, I’m presenting the below chart from David Rosenberg of Gluskin Shef. It charts today’s bear market over that of 1929-1932.

As you can see, today’s bear market is mirroring that of the ‘30s almost to perfection. Indeed, …

A lot of commentators have begun heralding a new bull market in stocks. Day after day, I hear that March was THE bottom, that the next bull market has begun, and that anyone betting on another collapse is a moron.

These claims are not only wrong, they are completely misleading and should be depicted for what they are: nonsensical hype from sources with conflicted interests: folks whose jobs and income stem largely from people remaining bullish.

More often than not, these are the same guys who claimed that Bear Stearns marked the end of the Financial Crisis (how’d that work out?) and that the Federal Reserve can pump our way back into a bull market (how’s that working out?).

The reason this is entirely wrong is because this recession is not your average run of the mill excess inventory recession: the kind of economic contraction we’ve experienced post-WWII.

No, this is a DE-flationary debt …

Gold may be nearing its next major leg up.

No investment ever goes straight up or straight down. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50% (see the chart below).

As you can see, from mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.

Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, …

How’s this for private? Over the last year, the Fed’s balance sheet has exploded as it opened various lending windows and programs to Wall Street banks. All told, the Fed’s balance sheet has ballooned by $1.3 trillion year over year. And the rate of expansion is increasing. Last week alone the Fed added $142 billion!!! Setting aside any specialized financial insights on these matters, you have to wonder whether it’s a good idea for a country’s central bank to buy up the garbage that rendered its private banking sector insolvent. Indeed, it is hard to believe, but a mere 10 months ago commentators—including yours truly—made a big deal about the Fed taking on $30 billion worth of crummy mortgages and derivatives from Bear Stearns. However, since September 14, the Fed has gone on what can only be described as an orgy of lending: in ...