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November, Wednesday 16, 2011

DOW – 190 = 11905SPX –20 = 1236NAS – 46 = 263910 YR YLD – .03 = 2.02%OIL + 2.38 = 101.75GOLD – 18.90 = 1763.00SILV – .87 = 33.80PLAT – 21.00 = 1627.00 We have a bunch of stuff to cover, so I’ll try to be quick. The Greek parliament gave a vote of confidence to the interim government of Lucas Papademos. This was an important step to getting a bailout for Greece. Greece’s economy shrank 5.2% in the third quarter. Greeks will have a nationwide protest tomorrow. Spain’s government admitted for the first time today it will miss its 2011 economic growth target. There is a confidence vote scheduled Sunday. It is widely expected that the government will lose the vote and get kicked out. Spain held a bond auction today; they had trouble finding buyers. Yields on one-year bonds now top 5.02%, which is more than the yield on 10-year bonds just 40 days ago. Fitch Ratings said further contagion from Europe’s debt crisis will pose a risk to American banks. Italy’s 10-year bond yield stayed above the precious 7% line. Mario Monti formed a new Italian government without a single politician, drawing upon bankers, diplomats and business executives for a team to steer Italy away from financial disaster. Monti will serve as Italy’s economy minister as well as its premier; he is calling for “sacrifices” from across the political spectrum to solve the economy’s woes and get it growing again. Italy is giving us a possible …

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November, Tuesday 15, 2011

DOW + 17 = 12096SPX + 6 = 1257NAS + 28 = 268610 YR YLD +.01 = 2.06%OIL + 1.19 = 99.33 ***GOLD +.80 = 1782.10SILV +.33 = 34.67PLAT unch = 1643.00 One of the headlines today reads: “Stocks advance on Italian Optimism”. Seriously, a 17 point gain in the Dow is a sign of optimism? It actually looks more like a sign of somnambulism. Italy’s new Prime Minister designate Mario Monti said he is “convinced” the country can overcome the current crisis. The bond market was not convinced. Yields on 10-year Italian bonds climbed back above the 7% threshold that is considered the tipping point for insolvency. Italian 10-year bonds are yielding 7.07%, Spain is at 6.34%. meanwhile the yield on the 2-year bonds are ugly: Spain at 5.31%, Portugal at 17.4%, and Belgium at 3.8%. so now Belgium is looking like it has a few holes in their waffles. Despite all the optimism, Reuters reports the United States is ramping up attempts to safeguard its financial system from a worsening of Europe’s debt crisis, joining nations in Asia, Latin America and elsewhere in trying to build firewalls. Policymakers are digging into the books of American banks to find out how exposed they might be to euro zone creditors and the plunging value of sovereign debt. The Financial Stability Oversight Council is trying to identify specific firms that could be hit by financial turbulence and then sort out ways that each one can fortify its balance sheet. Direct U.S. …

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November, Monday 14, 2011

Dow – 74 = 12,078 SPX –12 = 1251Nas – 21 = 2657 10 YR YLD = 2.04% OIL – 1.34 = 97.65GOLD – 8.20 = 1781.30SILV – .42 = 34.34PLAT – 1.00 = 1647.00 Last week the stock market got excited about the prospect of new leadership in Greece and Italy. Papandreou was out of Greece and there would not be a referendum vote on whether or not Greece would be saddled with the bailout plan. Lucas Papdemos was put in to head a caretaker government. Papademos is a former vice president of the European Central Bank. The Greeks did not vote for Papademos. Then came Italy. As Athens threatened to go under, the contagion spread to Rome, which also has unsustainable high levels of debt. Silvio Berlusconi was booted out on Saturday and his replacement is Mario Monti, a former EU Commissioner and former advisor to Goldman Sachs. Berlusconi had become quite unpopular with the Italians and global investors. The Italians did not vote for Monti. The president of the European Council said the countries need reforms, not elections. A dirty little secret was uncovered; the markets don’t really like democracy; it is messy and ugly and slow and it doesn’t always go the way you might want. The idea is that the new technocratic leaders of Greece and Italy will be able to push through economic reforms that can only be done by a government that is not responsive to a single electoral base. The question is …

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November, Friday 11, 2011

DOW = 259=12153SPX + 24 = 1263NAS = 53 = 267810 YR YLD bond market closedOIL + 1.44 = 99.22GOLD + 30.50 = 1789.50SILV + .63 = 34.76PLAT + 19.00 = 1649.00 Today is November 11, 2011, the only day like it ever. 11-11-11 if you were born on June 10, 1981 you would be 11,111 days old. Is there some special numerical significance to this date?  I don’t know but I can bet there will be some people going to the casinos tonight. Of course today is a special day for a very important reason: On the 11th hour of the 11th day of the 11th month of 1918 an armistice between Germany and the Allied nations came into effect. On November 11, 1919, Armistice Day was commemorated for the first time. In 1919, President Wilson proclaimed the day should be “filled with solemn pride in the heroism of those who died in the country’s service and with gratitude for the victory”.  There is a very simple formula to remember – without veterans there would be no America. So, to all veterans – thank you. On this Veterans Day and every day, let us remember the service of our veterans, especially those in active duty, and let us renew our national promise to fulfill our sacred obligations to our veterans and their families who have sacrificed so much so that we can live free. 93 years after Armistice Day and Europe is still a mess. The events unfolding in …

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November, Thursday 10, 2011

DOW + 112 = 11893SPX + 10 =1239NAS + 3 = 2625 10 YR YLD +.10 = 2.06GOLD – 10.60 = 1759.00SILV -.01 = 34.13PLAT – 6.00 = 1625.00 Lucas Papademos will lead a new unity government in Greece; he is a former vice president of the Eruopean Central Bank. He will certainly try to push through the Grand Bailout Plan proposed in Brussels last week. This is the plan that requires massive austerity, job cuts, spending cuts, and privatization of Greek national assets to try to pay down Greek debt over the next 50 years or so. The Greek people won’t get to vote on this. Silvio Berlusconi, Italy’s longest-serving Prime Minister, offered to resign as soon as Parliament passes an austerity package. Silvio’s resignation probably won’t be enough to prevent a death spiral for Italy’s $2.6 trillion in sovereign debt. Yields on 10-year Italian bonds topped 7% yesterday, a level seen as the tipping point where the cost to service the debt is greater than the ability to repay. The 7% level proved the tipping point for Ireland and Greece. Italy’s economy is bigger and slightly different, but it probably can’t survive the 7% tipping point. LCH.Clearnet, is a London-based clearing house, LCH raised the deposit it demands for processing the trades of Italian securities. The deposit protects LCH in case a deal fails and it gets stuck holding Italian bonds. For Italy, the LCH change “highlights the deterioration of its credit quality.” When Silvio finally leaves office, …

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November, Wednesday 09, 2011

Europe Falling Down   DOW –389=11780SPX  – 46 = 1229NAS – 105 = 262110 YR YLD -.11 = 1.95%OIL un = 96.80GOLD – 16.50 = 1769.60SILV – .86 = 34.04PLAT – 31.00 = 1631 O.K., let’s start with some good news – you know that asteroid that was hurtling toward earth – missed us by that much. Bruce Willis is still alive and the asteroid just went sailing past. That’s the good news. At some time or another we have all lost our balance; there is a precise point in time where you lose control and gravity takes control, and in that instant you realize there is nothing that can be done; you will fall; the laws of nature win and the certainty that you will fall becomes inevitable. The perceived tipping point was 7% yields on Italian bonds. Today, Italy smashed through the 7% barrier. Now we will watch the spectacle unfold, quickly or in slow motion, and try to measure or contain the carnage. But make no mistake, Italy is collapsing. Late yesterday Barclay’s issued a report on the European sovereign debt problem and the conclusion is that “Italy is now mathematically beyond point of no return.“ The European Central Bank, the ECB, said today that they were not the lender of last resort. The ECB intervened to buy Italian bonds in large amounts but remained reluctant to go further.  Like I told you yesterday, the reason for this is because they still don’t know who is in charge …

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November, Tuesday 08, 2011

 Earnings Smoke & Mirrors, Silvio is out, Iran heating up DOW + 101= 12170SPX + 14 = 1275NAS + 32 = 272710 YR YLD +.07 = 2.06%OIL +.73 = 96.25GOLD – 10.50 = 1786.10SILV -.08 = 35.00PLAT + 1.00 = 1663.00 Yesterday I reported that third quarter earnings have been extremely strong – coming in at record levels. With 90% of the S&P 500 companies reporting, the earnings and profits on a quarterly and one-year basis will almost certainly top the previous records set in the second quarter of 2007. If you add up the earnings per share for all S&P 500 companies over the last 4 quarters, you get a total of $94.80 compared to the previous peak of $91.47. If this market was based upon fundamentals like earnings, you might reasonably expect a big rally. Well, we have seen a rally, which we expected. What we haven’t seen is broad participation – in large part because there is a wall of worry coming out of Europe. Also, possibly because the earnings were achieved, in part, on cost cutting – and there are limits to profits based on cost cutting – so the outlook remains a bit shaky. And also, as an astute listener pointed out: “With all the lobbied for accounting options available to corporate America, their earnings need to be run through a forensic accounting validation testing process to ensure their real content.” Take away the smoke and mirror accounting and what are you left with? I don’t …

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November, Monday 07,2011

US Poverty, Supercommittee, Euromess, Transparency DOW +85 = 12068SPX + 7 = 1261NAS + 9 = 269510 YR YLD -=1.99%OIL + 1.70 = 95.96GOLD + 41.60 = 1796.60SILV + .85 = 35.08PLAT +23.00 = 1663.00 Over the past four years, what single thing has increased the net worth of the average American more than any other financial move? Defaulting on an underwater mortgage. Households have reduced debt by $549 billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. Households have cut mortgage debt by 10.6% since the mid-2008 peak, after adjusting for inflation. Credit card balances and auto loans outstanding are down 9.6%. During that time, the federal government has added more than $4 trillion in debt, pushing the country’s total borrowing to a record $36.5 trillion, excluding the financial industry, according to the Federal Reserve. Private borrowers reduce debt quickly, government borrows more, a period of government austerity follows  Have no fear – Congress is looking into fixing the debt problem. Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families — the biggest impact will hit low income families. If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans’ benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would …

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November, Friday 04, 2011

DOW – 61 = 11983SPX – 7 = 1253NAS – 11 = 268610 YR YLD -=2.05%OIL – .45 = 93.62GOLD – 10.40 = 1755.00SILV – .35 = 34.23PLAT unch = 1637.00 What is the single most important thing in the economy today? (clip) No it’s not Kim Kardashian’s divorce, even though that story topped the news cycle this week. When we’re talking about the economy (clip) we’re talking about jobs. So, how’s that working out? The economy gained 80,000 jobs in October, with the jobless rate falling to 9.0% from 9.1%. Government revisions showed that an additional 102,000 jobs were created in September an August. Maybe we should make a few new jobs for people who count jobs. Inflation adjusted wages fell 2.4% in the third quarter. The U6 unemployment rate dropped from 16.5% to 16.2%. The U6 number includes people who work part-time to scrape by and people who have been out of work for so long they don’t get counted in the headline numbers. Job gains were reported in business services; apparently call centers are doing a booming business, as wages in Iowa are now more competitive with wages in India. Also, jobs were added in the leisure and hospitality sector. But the biggest jobs gains came from adjustments in the birth/death method of counting jobs. In 2001, the Bureau of Labor Stats started to compensate for the tendency to miss new business formation. Previously, BLS tended to under report new jobs in the beginning of a cycle turn. …

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November, Thursday 03, 2011

DOW + 208 = 12,044SPX  +23 = 1261NAS + 57 = 269710 Yr YLD += 2.06% OIL – .27 = 94.02GOLD + 27.00 = 1765.40SILV + .21 = 34.58PLAT + 32.00 = 1643.00 Yesterday, Greek Prime Minister George Papandreaou went to Cannes, France whistling a tune about democracy and calling for a referendum on the bailout; let the Greek people vote on the deal; Papandreou trusted the people; he trusted democracy; and then he met with Sarkozy and Merkel. The late night conclusion of the meeting resulted in an admission that Greece might have to leave the European Monetary Union. Nobody knows for sure what that means – best guess is that the European Central Bank and all private and public creditors would have to write off their claims on Greece is one fell swoop. That would be followed by a Lehman Brothers style credit crunch. Money would stop dead in its tracks. The chain reaction would spread across Europe. The contagion would spread rapidly and uncontrollably. Call it Eurogeddon. We would all turn into brain chomping zombies. That was yesterday. Today, the Greek Prime Minister thinks a referendum is a bad idea. Democracy is anathema to the markets. It’s simple math. In the markets, money is power. If you have a billion dollars, you have power. If you have 100-billion you have even more power. In a democracy, you have one vote. A poor taxi cab driver in Athens who doesn’t have two drachmas to rub together has the …

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November, Wednesday 02, 2011

Uppity Greeks. Gloomy FOMC DOW + 159 = 11817SPX + 17 = 1235NAS + 28 = 263510 YR YLD = 2.00%OIL +.37 = 92.56GOLD = 17.50 = 1738.40SILV =.82 = 34.37PLAT + 13.00 = 1611.00 Yesterday I told you the Euro powers-that-be would not take kindly to their debt slaves acting all uppity. Today, German Chancellor Angela Merkel and French president Nicky Sarkozy met with the Greek Prime Minister Papandreaou – and they place their boot heel firmly on the throat of the Greeks. The Greeks were told that if they want a referendum on the bailout package, they must hold it by December 18, maybe as early as December 4th; they were told that if they reject the bailout plan, they will be considered in default and bankrupt and kicked out of the Eurozone; they were told that until such time as they vote, they will not get any more aid. The 8-billion-euro installment that was going to be paid in the next week – not gonna happen. Greece will likely run out of money within the next month, possibly before the December 18th referendum deadline. Surveys show the Greek voters overwhelmingly oppose the bailout plan. If the Greeks didn’t like the austerity plan being shoved down their throats, now they get to see how they like running out of money. Meanwhile, Papandreou is trying to calm politicians in his own party and a no-confidence vote is scheduled for Friday. If nothing else, the Eruoleaders are going to have …

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November, Tuesday 01, 2011

Financial Review: Greek Referendum, MF Thieves, BofA Fees, Food Stamps and Soup Kitchens DOW – 297 = 11657SPX  – 35 = 1218NAS – 77 = 260610 YR YLD – 0.17 bp = 2.00%OIL – .94 = 91.55GOLD + 4.80 = 1720.90SILV – .79 = 33.55PLAT – 7.00 = 1593.00 Greece is insolvent. According to the Grand Plan announced last week, Greece will continue to be insolvent for another 20 to 30 years, give or take. Even if the Greeks take the bailout money it will be insolvent.  And over that next few decades, the Greeks will be forced to tighten their belts, forced to pay higher taxes, forced to privatize big chunks of the government, public services will be cut even more, unemployment will rise, the Greek economy will contract, and the standard of living will fall. All the sacrifices won’t make Greece solvent again. And so Greek Prime Minister George Papandreou decided to put the bailout to a vote of the people; he has called for a referendum. If Greek voters reject the draconian terms of the bailout, there will be default, the Greeks will get tossed out of the European Union, unemployment will go higher, the economy will contract, and the standard of living of most Greeks will deteriorate. And then in about six months to 2 years – things will get better; Greece will be solvent and they will get a fresh start.  The Greeks’ economy will grow without the bankers’ boot heel pressing down on their …

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October, Monday 31, 2011

DOW – 276 = 11955SPX – 31 = 1253NAS – 52 = 268410 YR YLD –0.13 bp = 2.17%OIL – .46 = 92.73GOLD – 28.30 = 1716.10SILV – 1.05 = 34.34PLAT – 52.00 = 1601.00 For the month, the Dow rose more than 1,000 points. It gained 9.5 percent, its best showing since October 2002. The Standard & Poor’s 500 index, the broadest major market average, rose 10.8 percent for the month, the best since December 1991. On Oct. 3, both the Dow and the S&P closed at their lows of the year. The market had been through a brutal summer and was one bad day away from falling into bear market territory, down 20 percent from its most recent peak. So, did October “Turn the Bear Market”? We won’t know till after the fact, but there are several factors that gave us the rally. Seasonality – we moved into the best six months of the year, we’re headed for the holiday season, the presidential election cycle. Also, oil prices going inot October – oil prices were down Oil soared 17.7 percent in October. West Texas Intermediate, the benchmark oil in the U.S., jumped from about $79 to $93 per barrel during the month. Recession? Oil market says different. Emerging market demand – 7 billion people. Can we continue a rally with oil prices moving higher? And then there is the concern that the European situation could crumble, and the debt problems in the US – we postponed those until …

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October, Friday 28, 2011

DOW + 22 = 12231SPX +0.5 = 1285NAS – 1 = 273710 YR YLD – = 2.30OIL – .47 = 93.49GOLD –2.30 = 1744.40SILV +.20 = 35.39PLAT + 14.00 = 1651.00 It’s Friday! Just in time; I think my brain is going soft; a spongy degenerative condition perhaps. I just can’t seem to grasp the fine points of the Grand Plan that came out of Europe yesterday. I think I get the dominant theme – the Europeans are going to hand out FREE MONEY to the banks, but I just can’t seem to comprehend the non-existent details. What has me troubled is the notion that banks will take a 50% haircut but only on the condition that it does not trigger Credit Default Swap hedges. The plan asks Greece’s private creditors to take losses of 50 per cent on the country’s bond they hold. Along with new loans and other measures, that is meant to bring Greece’s debt down to 120 per cent of economic output by 2020. After the private creditors have swapped their Greek bonds for new ones with a lower value, the country’s rating is likely to remain in the ‘B’ category, only a few notches up from its current CCC grade. Fitch rating agency says the deal would result in a temporary default. However, the ISDA, the International Swaps and Derivatives Association, claims the default is not a default and will not trigger a payout on Credit Default Swaps because acceptance of the haircut is voluntary. …

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October, Thursday 27, 2011

DOW + 339 = 12208SPX + 42 = 1284NAS + 87 = 273810 Yr. YLD +0.19 = 2.39%OIL – .21 = 93.75GOLD + 20.20 = 1746.70SILV + 1.72 = 35.19PLAT + 40.00 = 1643.00 Over the past few weeks I’ve been reading newsletters and blogs that seemed to have a recurring theme and similar screaming headlines: Euro collapse, Euro Crisis, Euro Armageddon, Global Meltdown. I didn’t read much saying the Euro leaders would play a game of extend and pretend and we’ll probably see an imperfect deal and there will probably be a rally on Wall Street, but that was my conclusion – that’s what I’ve been telling you – You’re welcome. The S&P 500 was up 3.4% sending its October gain to 14 percent, the biggest monthly gain since 1974, and erasing its 2011 loss. The 20 percent monthly advance for the Dow Jones Transportation Average, a proxy for the economy, is the biggest since 1939. Benchmark gauges in France, Italy and Germany rose more than 5 percent as German and emerging-market stocks extended gains from this year’s lows to more than 20 percent. The euro surged the most in more than a year and 10-year Treasury note yields rose 17 basis points to 2.38 percent. Maybe I’ve been too kind in calling it an imperfect deal; it is a lousy deal; it will result in more problems down the road. So the Euro leaders worked until the wee small hours of the night to hammer out a Grand …

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October, Wednesday 26, 2011

Euro Grand Plan and Catholics Occupying Wall Street DOW + 162 = 11869SPX + 12 = 1242NAS + 12 = 165010 YR YLD += 2.20% OIL +.75 = 90.95 GOLD + 20.90 = 1726.50SILV +.10 = 33.47PLAT + 29.00 = 1599.00 Today was the deadline – this was the day when the Europeans would announce the Grand Plan to solve the European Sovereign Debt Crisis. It was a day straight out of central casting. The Germans were stern and unyielding. The French were disdainful. The Greeks were tragic, and the Italians were confused and dramatic. Italian Prime Minister Silvio Berlusconi whipped up a last minute “letter of intent” promising to cut Italy’s huge public debt and promising to take action to boost growth in Italy and promising to balance the Italian budget by 2013 and promising to have all the details by November 15th. The German parliament voted to allow the EFSF, the rescue fund to leverage bailout funds. Chancellor Angela Merkel warned against complacency, saying: “No one should take for it for granted that there will be peace and affluence in Europe in the next half century. The world is watching Germany and Europe to see if we are ready and able to take responsibility. If the euro fails, Europe fails.” And so it appears the Eurozone will leverage its 440-euro bailout fund several times over, btu details are not expected until sometime in November. French President Sarkozy said he would speak with the Chinese about helping out with the …

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October, Tuesday 25, 2011

DOW – 207 = 11,706SPX – 25 = 1229NAS –61 = 263810 YR YLD – = 2.12%OIL – .55 = 92.62GOLD + 51.30 = 1705.60SILV + 1.53 = 33.37PLAT + 19.00 = 1573.00 Tomorrow is the big European summit to resolve the sovereign debt crisis. The idea is to present a plan to reduce Greece’s debt burden, pump money into the European banks to cover their bond losses, and pump money into the EFSF rescue fund to prevent market contagion. Global equity markets have been jumping and retreating based upon the rumor of the day coming out of Europe. Today, the rumor is that there are many details to be worked out. There is a self-imposed deadline of tomorrow to iron out the details. We might not get everything worked out in the next 24 hours. The sky is falling. My view is that the whole euro problem is getting a bit tiresome. The ECB and the Fed and the other central bankers will come up with some sort of a plan. The plan won’t really solve any problems. Right now, the real negotiation is to get the casino players to accept losses on bonds without triggering CDS defaults; in exchange, the plan will give away big gobs of FREE MONEY to the banks. Eventually, the cold, hard facts will hit – but I don’t think it will be tomorrow. For now the game plan is extend and pretend. The best bet right now is that the financial sector will …

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October, Monday 24, 2011

DOW + 104 = 11913SPX + 15 = 1254NAS + 61 = 269910 YR YLD +=2.23%OIL +.32 = 91.58GOLD + 11.30 = 1654.30SILV + .34 = 31.84PLAT + 34.00 = 1545.00 Five years ago, the real estate bubble started to leak. Three years ago, the global financial economy nearly collapsed. Today, we got a plan to save all the embattled, underwater homeowners of America. Hallelujah and pass the potato salad. Now you realize that 23% of all existing mortgages are underwater; plus banks are sitting on home equity loans and second mortgages at the original values, not market values. If you marked to market all the negative equity – then all of the big banks in America would be insolvent. The big banks are living on life support tossed their way by the government and the Federal Reserve; this is a situation that seems destined to result in another crisis. And so today, the Obama administration announced plans to help troubled homeowners. Actually, homeowners who benefit would just be coincidental – understand that this plan is really designed to help the banks. The Home Affordable Refinance Program, or HARP, was started in 2009. It lets homeowners refinance their mortgages at lower rates. But few people have signed up. Many “underwater” borrowers — those who owe more than their homes are worth — couldn’t qualify under the program. Roughly 22.5 percent of U.S. homeowners, about 11 million, are underwater, according to CoreLogic, a real estate data firm. As of Aug. 31, …

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October, Friday 21, 2011

DOW + 267=11808SPX + 22 = 1238NAS + 38 = 263710 YR YLD +=2.20%OIL +1.46 = 87.53GOLD +21.80 = 1643.00SILV +. 82 = 31.50PLAT +20.00 = 1516.00 Today we had two bits of news that bolster the stock market. First, the rumors that the Federal Reserve might, maybe, possibly consider Quantitative Easing Round 3 – in other words the Federal Reserve might throw FREE MONEY at the markets. The second bit to bolster the markets was a jolt of optimism that there is at least slightly improved visibility on the path to nearing a resolution of the European sovereign debt crisis and the troika would pass out FREE MONEY. Just in case you were wondering why Wall Street is hated – this is it. Wall Street should have been celebrating the fact that a coalition of allies managed to take out Kadaffi in Libya in a relatively short period of time and with zero loss of US soldiers lives AND President Obama announced this morning that the United States will withdraw nearly all troops from Iraq by the end of the year, effectively bringing the war in Iraq to an end. He said the last American troops will depart the country by January 1 “with their heads held high, proud of their success, and knowing that the American people stand united in our support for our troops.”  The truth is that Wall Street doesn’t give a tinker’s dam about supporting our troops; there is no recognition of the sacrifices made …

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October, Thursday 20, 2011

DOW + 37 = 11,541SPX +5= 1215NAS – 5 = 259810 YR YLD +=2.18%OIL – .66 = 85.45GOLD –22.50 = 1621.20SILV – .65 = 30.68PLAT –22.00 = 1501.00 The European leaders will be meeting tomorrow and through the weekend; they are expected to unveil their Grand Magical Stupendous Super Plan to solve all the problems by November 3. Don’t hold your breath. Sarkozy and Merkel promise a magic potion. They will probably deliver; the magic potion may be temporarily intoxicating, however I suspect it will prove to be little more than snake oil. France and Germany disagree over the best way to bolster the facility, with Paris fearing its triple-A credit rating could come under threat if the wrong method is chosen. Germany can’t leverage the 50% of the funds they have already committed to the EFSF – that would require a referendum to change their constitution – and that will never get passed. That’s why they’ve called on the IMF to backstop the increased leverage. However, so far the IMF and the US Treasury, the number one donor to the IMF says no, go back into negotiations. This is the sticking point – How to scale up the European Financial Stability Facility – the $600 billion dollar fund that has already been used to bailout Portugal and Ireland. Failure to agree on leveraging the EFSF will further damage confidence in the euro zone. In July, banks and insurers agreed to contribute 50 billion euros to reducing Greece’s debt via …

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