THE OBAMARKET WEEK THAT WAS: IT MATTERED, IT SPLATTERED, ITS SHATTERED

Yes, the market this week laid, well, a Banana Republic type of splattered banana.

The Obama administration thought that the world was his apple and he could bite into it any time he wanted. He forgot Mussolini’s rules for leadership however, especially the most important one:

Consolidate power and crush your enemies.

Will this error in history be allowed to continue unchecked? Before we proceed into the economic devastation this administration wishes to impose upon what is left of our George W. Hoover economic disaster started in 2007, let us review the President that the current administration under Obama models himself after when the mood hits him. Franklin Delano Roosevelt was a firm believer in the government to the subjects approach of dictating economic and political power and used ever method conceivable to crush his enemies, even when he suffered minor political setbacks, be they in Congress, the ballot box or via the Judiciary.

For those who have forgotten as much history as most of the citizens of this nation have ever learned, a quote from of all “shocking” places, the New York Times on May 7, 1933 from reporter Anne O’Hare McCormick and the atmosphere in Washtington D.C. ( as quoted in David Boaz’s Excellent Article in Reason Magazine Hitler, Mussolini, Roosevelt, October 2007):

strangely reminiscent of Rome in the first weeks after the march of the Blackshirts, of Moscow at the beginning of the Five-Year Plan.…America today literally asks for orders.” The Roosevelt administration, she added, “envisages a federation of industry, labor and government after the fashion of the corporative State as it exists in Italy.

This quote from the newspaper has been repeated within the conservative media and blogs many, many times but does it not remind everyone of what we experienced in Washington, D.C. just over one year ago? Thus the danger of an animal from the FDR/Wilsonian mold who believes not in the power of the individual, but in the power that government limits to and directs to the individual. This is why I fear the attack on the banksters was not only dangerous but ill conceived and the results of which will have implications for what is left of America’s quasi-capitalist society for years to come. Were those the individual idea of a loan leader who wished to impose political payback upon the “opposition” then it would be dangerous enough. Unfortunately as Larry Summers stated in the video below, Treasury Secretary Turbo Timmy Geithner and he co-wrote the memo for the revision of the banking regulations just after the first of the year and that now was the time to move forward and it has nothing to do with anything that happened in the Massachusetts special election:

Needless to say that those who think this was a passing comment by the President and the lackeys are dead wrong, and the danger of these new restrictions are not so much that they are not necessary, far be it for me to argue that the re-imposition of Glass-Steagall or a modified version thereof would be a bad thing; it is that the political atmosphere in Washington with each part up for sale along with the Executive Branch creates a dangerous environment, but for our nation’s economic viability from this date forward. We are in the most precarious of times that we have ever been in since the late 1830’s and early 1930’s, yet the gravity of the situation escapes the clowns who rule the roost and sell power and privilege like a produce vendor on the side of the road. Thus be wary of any actions or proposals put forward by anyone in this environment as the downstream economic consequences could be far worse than the original convoluted crony capitalist situation we find ourselves in now.

I. New Century, Old Deal

The chart above ties directly into this story from the February 8, 2007 Marketwatch:

Now what does that story above about the largest subprime lender beginning to fail at that point in time have to do with the VIX chart above and this VIX chart this week?

The 2007 action was the last time the VIX had a 3 day move of this intensity and voracity and that should be a screaming red flag to all of the “recovery is here, rainbows out of purple unicorn’s butts, and blue skies forever” crowd infesting the financial media which has once again mistaken currency dilution with economic viability. The need to divorce the American people from the remainder of their retirement funds and create more bag boys and ladies along with expanding the pool of available WalMart greeters apparently supersedes the need to allow the equity and bond markets to act and work as properly designed; to raise capital for American corporations for the purposes of expansion and internal investment be it in modernization or R & D. Yet the clowns who have turned America into one giant casino fail to understand that the power of the internet has allowed the individual the power to actually research and determine, should American Idol not be on at the moment, what is really happening.

Well, those two charts should give anyone with common sense some pause. In 2007 it was a precursor to a collapse which eradicated some of the largest financial institutions and numerous other corporations over the following 24 months from that time period. Thus one must ask, what does this week’s move warn us about and where will the markets head?

Let’s start by looking at the SPY in 2007 during that turbulent period:

The chart above is fairly simple to observe. When you look at the 2007 VIX chart above and the dramatic price decline at the end of February 2007 with volume you realize that it was a confirmation of a change in market psychology and direction. There were weeks after the initial decline of great volatility in moves upwards and down but during that period the VIX was safely under the magic “20″ level much touted at the time as a critical number to the upside. Fast forward to this week:

Three huge down days, on increasing volume with the VIX to match. That’s not a good sign and while the markets might rebound on Monday, the damage has been done, psychology shattered and the bull splattered for the short term. The words from Volcker, Summers and the President mattered and that’s what lead to the destructive splatter.

The key stock to watch is and always has been Goldman Sachs and let’s see how it has performed during this week:

In less than 3 days, the technical pattern was damaged severely but worse, the downturn sliced through the 50 and 200 DMA in less than 2 days of trading with heavy volume. Not only are a lot of downside targets now wide open, but the disaster of the damage done will not be realized for probably the next three weeks worth of trading sessions and a Bernanke confirmation failure could bring this stock down to the 120-125 level in very short order.

II. It’s the Economy, er Dollar Stupid

The U.S. Dollar might look like it is on the recovery and mend but in actuality it is the Euro which is swirling and twirling down the shiny white porcelain bowl.

The chart once again, says it all. The range that these currencies are trapped in is a direct reflection of the proverbial flight to safety out of the Euro and into the Yen but can the same be said of the US Dollar?

I like to use the ETFs as a good tracking mechanism for the dollar and what one can see is that as this rally in the UUP approached some lofty levels, it failed to reach the 23.40 area and meet the declining 200 DMA and failed also with declining volume. Thus a major reversal in the US dollar’s rise is imminent and the policy decisions in D.C. could have a major impact on the timing. The UDN also confirms this move with the same type of indicators:

Declining volume on the sell side, lack of conviction to make a new low and support holding firm. Whatever the blabberheads might say about this great dollar recovery is probably going to be shot to hell in the weeks to come barring a hard money Volcker type appointee to replace Bernanke should come out of the woodwork. I doubt that we will see that and instead an easier money political hack (like Larry Summers) seems to be more of the speed that Obama would appoint to insure that he can get re-elected and fund the policies he intends to move forward in the years to come.

In the next section I’m going to review the  housing starts and permit data and add to the misery by pulling more data about the deteriorating subprime and other creative loans which are about to start rolling over through the remainder of 2010. Look for a possible short term market bounce next week and a total crater if Bernanke goes down in flames next week.

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