According to a Barron's editorial this week, "There's a problem with the prescription for Marcoeconomic Stimulus". The Barron’s editor feels the government and Fed should no longer stimulate the economy. Most of our problems stem from relentless stimulation dating back decades. Greenspan pushed the "wealth effect" for years. When consumer’s assets rose they felt better and spent. They borrowed against their assets. The economy grew on a mountain of debt that could not be sustained. It's all come home to roost now.

Now, evidence also mounts daily that current government spending (i.e. transfer type and union-saving jobs spending) cannot create net new jobs either. Instead over 1 million workers have dropped out of the labor force since April. Obama and his economic team bet big time that government spending and politically tax-directed monies such as the Clunker Program, coupled with zero interest rates from the FED could force feed private and corporate investment into the economy. Hopefully, Obama has learned that you cannot have a jobs recovery without business confidence and investment.

It's time to try a new economic plan to jump start the economy. Obama could start by extending the Bush tax cuts for all the next 2 years. Then concentrate to build an economy that's sustainable. Barron's editor mentions Richard Florida, an urban planner who wrote the book The Great Reset, that this new sustainable economy is going to be built around new technology, more skill development, a highly-educated population and more human capital. In addition, Americans must save more, invest more and consume less. The generational shift could take over 30 years says Florida. So let's get started.

Can we imagine where the economy and the Democratic election chances would be today if Obama announced the tax cuts were going to be extended for 2 more years six or more months ago? I'd hate to be running as a Democrat come this November if the party leaders don't pledge to extend the cuts before the elections.

I hesitate to say I told you so but it looks like the trading range is alive and well. It's still Mr. Double Dip versus Mr. Softee. Weeks ago the market was looking ahead to a double dip and sold off to 1000 or so in the S&P. When the market rallied rather sharply animal spirits began to run amuck. Higher stock prices brought the bulls out in force and fore told better economic times were ahead. Wrong! Somehow traders believe that higher prices forecast better economic numbers ahead. Some people will never learn. It's not buy high and hope to sell still higher. Today that's a fool’s game. It's still buy the dips and sell the rips.

Given the latest economic numbers the strategists will be all out lowering their own economic forecasts the next few weeks then just maybe we can retest the lows. Remember we will be heading into the worst 2 months of the year, September and October, shortly. If we don't retest the lows we may be getting a new message from Mr. Market that we should all heed.

GS last Friday has reduced 2011 GDP growth from 2.5% to 1.9%. We can now officially throw out the 2011 S&P record EPS estimate of $93.00. I guess we will have to wait at least another year for the S&P earnings to hit a new record. The market already knew this but stock analysts are the last ones to lower their company estimates. Remember the market anticipates as it looks into the future and not the past. Now the market doesn't look as cheap as it once did for these again frustrated bulls.

I just finished reading Peggy Noonan's insightful WSJ piece - America is at Risk of Boiling Over. And our out-of-touch leaders don't see the need to cool things off. Read It! She writes, "You will know that things have reached a bad pass when Newsweek and Time, if they still exist 15 years from now, do cover stories on a surprising and disturbing trend: aging baby boomers leaving America, taking what saving they have to live the rest of their lives in places like Africa and Ireland." She further notes. "I thought of this again when Drudge headlined increasing lines in London this week for Americans trading in their passports over tax issues and the sale of Newsweek for $1.

Here's a few more thoughts. She continues, “Do our political leaders have any sense of what people are feeling deep down? They don't act as if they do. I think their detachment from how normal people think is more dangerous and disturbing than it has been in the past." I feel that since Obama is not on the ballot this November the easiest way to send him a message would be to vote against every Democrat.

Peggy finishes with, "When adults of a great nation feel long-term pessimism, it only makes matters worse when those in authority take actions that reveal their detachment from the concerns--even from the essential nature--of their fellow citizens. And it makes those citizens feel powerless. Inner pessimism and powerlessness: That's a dangerous combination.”

I could not have said it any better. Normally I could care less which political party is in power. Somehow, I've managed to make money and live well regardless of which party was in power. But yes, I've done much better in a Republican administration. However, this time I'm so concerned as to where we're going as a nation that I too am looking to live outside this great country. I'm a pre-baby boomer so I'm looking now, not in 10-15 years. I'm also looking forward to the day when I can get all new body parts from BTIM stem cells and live to a ripe old age into my 100s. Hell, it only took me 20 years to finally crack, understand and write about trading the markets. (See my book The Definitive Trading Bible.) I don't want to die just yet - go BTIM!

Where is our leader's comment like the one I believe came from Bill Clinton, "I feel your pain," when we need it? For all of Obama's smarts he appears very dumb. Still it's hard I believe either of our current or past leaders can really feel our pain when signing books deals valued at upwards of $10 million plus attracting million dollar speaking engagements after leaving office.

Trade of the Week in Review:
Given the disappointing jobs data Friday it was easy to see the market would open lower and right into a T#3 buy level. I sent an Alert Email before the opening to buy calls into the 1110-12 buy zone. The OTM 510Ws traded as low as $0.60. The calls doubled to $1.30 by 10:00 at which time a good sell S&P E-mini hedge could have been entered. If held with only partial profits taken at the retest of the lows could have earned $400-500 per long call. Click here to see the NET Money Chart for 2010-08-06.

The market broke lower shortly thereafter. Price settled in to a much bigger, better buy area a 5-day 60% buy level, a large 30" shelf and a new daily chart up-trend line. I sent another Alert Email suggesting buying the 505W calls under $1.00. Shortly, the calls traded down to $0.65 where the hedging and parlaying commenced.

There were two small short S&P E-mini hedges that more than paid for the calls or allowed a NET trade to substantially increase one’s long call position. The market did as NET trades expected, by not going lower, the market was poised to rally. After 3:00, a NET Squeeze Time trade started. I immediately sent an Alert Email to start scaling out into strength. The 505W calls closed worth over $4.40! This is nice work if you can get it. Alas, the original Alert Email 510 calls only rallied to $0.20 and closed worthless.

Vacation Update/Correction. I will now be at the 4 Seasons in Carlsbad CA from Sunday, August 29th until Sunday, September 5th.

Again as always keep those cards and letters coming I read every one.

Good Trading,

Stan Moore
702.267.0396

P.S. I found these rather disturbing real estate mortgage figures that tell us we are nowhere close to the end of this recession, not by a long shot. But its effect won't be hitting us anytime soon. An Excel spreadsheet released from a recent briefing by Mark Zandi and Robert Shiller is making the rounds within the blogosphere. It provides a useful compilation of the underwater equity statistics in the country. In a nutshell here are the observations:

• 19% or 14.748 million of the 77.570 million US households are in negative equity

• 30.6% of the 48.243 million of homeowners with first mortgages are in negative equity

• 21.8% of the 67.578 million in owner-occupied single family homes are in negative equity

• 4.133 million of the 14.748 million of underwater homeowners are underwater by 50%+ meaning the owe more than 50% more than their homes are worth

• Of the 50%+ underwater category, the worst states are California (672K), Florida (423K) and Texas (344K)

• Total Negative Equity in the US is currently estimated at $771.1 billion

• California mortgages have $234 billion in negative equity, Florida mortgages have $79 billion in negative equity and Texas mortgages have $48 billion in negative equity

• $2.4 trillion in total mortgage debt is impaired due to negative equity.

How Mark Zandi, who prepared this spreadsheet according to the meta data, could look at this data and come up with his recent paper in collaboration with Blinder, claiming that the recession is over, is, in my opinion, simply beyond rationalization.