The last month of the decade, December 2009, is here, and with it, the last Patrician Economic Report of such decade.

Well, it looks like my prediction last month of the upward move being a farce turned out to be correct. On November 15 (the last entry), the S&P 500 was at 1093. Today it closed at 1103. For the past month, it has been trapped in a range between 1083 and 1117, which is a change of 3 percent from top to bottom. That's fairly tight.



However, I am convinced that this state will not last. I have identified a disturbing chart pattern, a rising wedge. Below is the chart of the S&P 500 since one year ago, showing the pattern:



The pattern is fairly well-supported by the facts. The upper line has been matched 5 times, and 5 times the market receded. The lower line has been tested four times, and four times it has rebounded. There was a brief break below the line in early November, but this was quickly corrected for and thus can be discounted.

There are two points with the rising wedge. First, that since the trendlines converge, they will meet at some point in time, and thus the pattern will end. Second, that when this pattern ends, the outcome is nearly always a sharp move downward, on heavy volume.

Take a look at the lower portion of the chart. That is volume. When the market settled into the 1083-1117 range, volume decreased markedly. However, notice the pop in volume as the index moved below the lower line. Since then it has struggled down in the lower end of the range.

This range is about to be breached, but probably not severely until after the Christmas holiday, since most traders are off next week. After New Year's Day, however, volume will pick up (even more so than it has already), and the range will be broken, and a downturn will result.

If and when this happens, expect a downward move down to the 1000-1030 area, which is what it will probably do since that is where most corrections since July have bottomed out. This would represent a 8-11 percent downturn from the peak of 1117. However, this downturn, judging from most historical wedge collapses, will probably be around 15-20 percent, perhaps 30 percent.

Below are differing increments for a downturn (greater than 20-30% is very unlikely at present):

  5 percent -- 1061
10 percent -- 1005
15 percent -- 949
20 percent -- 893
25 percent -- 837
30 percent -- 781
35 percent -- 726
40 percent -- 670 (matching 2009 low)
45 percent -- 614 (new low)
50 percent -- 558 (new low)

Just for a little fun before Christmas, and for the sake of presenting the other side of the coin, here would be bullish moves:

  5 percent -- 1172
10 percent -- 1228
15 percent -- 1284 (pre-Lehman level)
20 percent -- 1340
25 percent -- 1396
30 percent -- 1452
35 percent -- 1507
40 percent -- 1563 (matching 2007 high)
45 percent -- 1619 (new all-time high)
50 percent -- 1675 (new all-time high)

You may have noticed in this series that a 40 percent downturn would make a new low, and a 40 percent upturn would match the high. That is because we are near the 50 percent retracement area. A 50 percent retracement is the halfway point between the high of a bull market and the low of the succeeding bear market. This market's happens to be at1121.44.

There is another event which deserves mentioning here -- the recent downturn in the price of gold. Yes, the price of gold is down. It may seem hard to believe, after months of a non-stop uptrend, but it is true. Below is a chart of gold since September, showing its rise and recent fall:



Since hitting a record high of 1212 per ounce earlier this month, gold, in the wake of a stronger US Dollar index, has taken a dive of 8.9 percent to 1108 per ounce. It has some worried that the price of gold may collapse.

However, I have a slightly more optimistic view than this. Yes, the price of it has broken a parabolic uptrend, but the final upturn which broke this was not that severe, going from 1100 to 1200 per ounce (+9 percent), in contrast to oil's nonstop rise from 50 to 150 per barrel (+200 percent). This downturn in gold is in my assessment a temporary correction in a long-term uptrend driven by the devaluation of the dollar, which will only get worse next year. Gold may fall down to 1000 per ounce (a downturn of 17 percent). If it stays above 1000 I would not be worried about a collapse in gold.

The next report will come in the next year (2010) and decade (2010's), in January of 2010. First up will be my decadal predictions, and I will forewarn -- they are dire, but they have an upside towards the end. Next will be the regular report.

See you in the next decade. May all of you have a happy Winter Solstice, Kwanza, and New Year's Day, and a very Merry Christmas.

Special Economic Bulletin

In Dubai, an emirate in the United Arab Emirates, there is a crisis which has unfolded while Americans were eating turkey on Thanksgiving. The Dubai government has announced a massive restructuring of the state-owned firm Dubai World, which involves ordinary restructuring, plus the suspension of debt payments for the next six months.

This has raised serious doubts about the fiscal integrity of Dubai's government and banking system as a whole. As you probably know, Dubai is the emirate which is attempting to diversify the economy by turning it into a resort state, thus making them independent of oil. A good idea in principle, but all of this economic transformation has been built on a mountain of debt, and there are indications now that Dubai will be unable to pay that debt.

There have been rumors about a banking crisis there, and it could spread to other parts of the world. For instance, Citigroup, the quintessential American zombie bank, has lent Dubai $8 billion. If this debt is not repaid, this could seriously hurt the bank. Europeans and Asians are even more heavily invested in Dubai, and the entire world financial system, which has been patched together using tens of trillions of dollars of devalued money and is still fragile, is at risk.

Stock and credit markets have been rattled by the news, and a wave of selloffs are engulfing the world stock markets. European stocks are down by more than 3 percent, and Asian stocks (which have yet to close) are down by almost 2 percent, hitting their lowest levals since July. American stocks aren't looking that much better. Dow futures are indicating a nearly-200 point drop at the open tomorrow.

This crisis could amount to nothing, and the stock market may just register Black Friday as a blip on the little bull market. On the other hand, it could become the spark which will reignite global financial crises, and thus translate into a vicious stock market and economic downturn.

Tomorrow, Black Friday in America, will tell us more. I decided to bring this bulletin out earlier than I otherwise would have because Americans may be caught off-guard by this imminent crisis while they were celebrating a major holiday.

Further Reading:

Dubai Woes Roil Financial Markets
Asia Sown Sharply on Dubai Banking Crisis
Euro Shares Record Biggest Drop in Seven Months
US Market Bracing for Selloff On Worries About Dubai's Debt

Well, November has come, and with it, the Patrician Economic Report for the penultimate month of the decade.



Not much has changed since one month ago, when the Dow was over 10 000 and the S&P 500 was at 1100. Between then and now, there has been a 6.5 percent downturn, which was promptly met with a spike back to 1100, which has since stalled back down to 1090.

The Dow has hit a new high of over 10 300, but the S&P 500, which is a broader measure of the market, has only briefly cracked the old high of 1101, to hit 1105, before sinking back down.

On the 1-year chart, you can notice that since the July rally, each successive phase of the market trend has become more volatile, with bigger swings up and down over time.

However, I believe that the trend belies a market and economic condition which is much worse than it appears. First of all, here is a 2-and-a-half month chart of the S&P 500, with volume (the amount of shares traded) being shown at the bottom of the chart:



Notice that volume is heavier on the downturns, and lighter on the upturns. This implies that when trading activity is vigorous, there is selling pressure on the index. This is not a good sign. Anemic volume on the upside and heavy volume on the downside indicates that the uptrend is, for lack of a better term, a farce, and thus not sustainable once heavier volume kicks in (and it inevitably will at some point).

This is also how all previous bear market rallies have ended -- heavy volume at the beginning, waning volume at the peak, and heavy volume taking it back down. And yes, we are still in a bear market, at least until the current rally has proven itself to be a real bull market, which it cannot do in a mere 9 months.

Secondly, there is the matter of unemployment. The official rate as reported by BLS (the U3 rate) is 10.2 percent. Yes, it has finally cracked that "10 percent" threshold every American has talked about.

However, as I have outlined previously, the U3 rate is a very inaccurate picture of the jobs situation. It excludes discouraged workers, and others "marginally attached to the labor force", who are in fact unemployed (i.e. out of a job).

If we include these people, the rate has been over 10 percent for months. In fact, the October statistics show that this rate (which is recorded as the U5 rate) is now at 11.3 percent, and has been rising for 15 months, adding a full half percentage point from September to October.

But the situation is even worse than this, if the underemployed are included in the unemployment rate (which they were from 1949-1994) to compare apples to apples. If the people working part-time for economic reasons, those who are considered not in the labor force but want a job now and cannot find one are included along with the truly unemployed, the October figure shoots up to 20.9 percent, unchanged from last month.

The underemployment rate may be unchanged, but the real unemployment rate is worsening quickly, signaling an economy which is far weaker than it appears, despite the fact that government GDP data showed a rise of 3.5 percent in Q3 2009, confirming the "third quarter recovery" stock traders were looking for. However, if the number is adjusted for real inflation (an underestimation of 2.7 percent), and government spending (cash for clunkers and other stimuli) is taken out, then Q3 GDP was, in fact, essentially flat.

Lastly, a check on September's inflationary factors:

- Stock market continuing a rabid runup with no supporting facts. Maybe (stocks have stalled)
- Doubling of the money supply. Check.
- Gold continuing to rise. Check (new record high of 1120)
- Commodities in general shooting up. Check (though at less of a pace)
- Weaker dollar. Check (still on verge of new low)
- Higher inflation. Check (inflation is accelerating)

So basically, all is mostly as it was in October. The next report, the last of the decade, will come in December.

"Dow 10,000!"
            - Various commenters and traders

Well, well, the Dow has crossed 10 000 for the first time in 377 days. The bulls are partying just like they did on March 29, 1999, 2 hours past noon, when the closing bell rang on wall street and the big number had five digits for the first time in history.



From then to now, a span of 3 852 days, the Dow is precisely at the same level, 10 000. How is this a cause for celebration and jubilance? This environment in the market is perhaps the most irrational in all of history, exemplified by this -- celebrating that over 10 and a half years, they made absolutely zero dollars if they invested in the Dow (or the S&P for that matter, and they would have lost money if they had the Nasdaq).

Sure, it is an important psychological tick mark on the chart, but what is the difference between 9900 and 10 000? A mere 1 percent.This is no more significant as if it went from 9300 to 9400, or from 9800 to 9700. Simply put, Dow 10 000 does not matter to an objective observer.

Dow 10 000 does matter, of course, to an observer that is not objective, like pretty much every single trader of stocks. Dow 10 000 is providing a morale boost to the weary bulls, and may trigger, as it did with S&P 1000 and Nasdaq 2000, a temporary spike in stock prices.

The rally looks like it is losing momentum and is topping out, but this circumstance may be temporarily defrayed by the tick above 10 000. Do not be fooled by this psychological booster. Expectations will (and already are) being raised to improbable heights, for earnings, economic growth, and stock market performance, and I do not believe they will be met.

If these are not met, then expect a downturn, be it in the form of an agonizing trickle or a terrorizing crash. The pattern for the rally is suspect, and it still does not feel right to me, whether the Dow is 4 digits or 5 digits.

Also, the celebration of zero returns is misleading. If you look at prices over the past 10 and a half years, even with BLS numbers, you now have 26 percent less purchasing power with 10 000 than you had back then. If you correct for distortions in the method of calculation (which push inflation measures lower), then your return from March 29, 1999 to today would be a whopping negative 50 percent.

Hardly a cause for celebration. Meanwhile, if you had invested in gold, your return would be, even after adjusting for inflation, over 450 percent. If you had invested in oil, your return would be 350 percent (or if you had cashed out at the 2008 high, 830 percent). If you had invested in the Euro against the Dollar, your return would be around 20 percent. Compare this to negative 50 percent for stocks, and you get a picture of the bleak situation the traders face even in this euphoric atmosphere.

In conclusion, expect a spike due to a temporary euphoria about Dow 10 000, but after ice-cold seawater is thrown on the euphoria when data disappoints, expect stocks to go much lower.

Well, well. October, the month when every single major stock market crash has occured, is here. While I'm not suggesting there will be one this October, this October marks a solemn anniversary -- that of the Crash of 2008.

One year ago today, on October 11, the reality was just sinking in of the crash and associated economic depression, and the fact that the Dow was then at 8400, after plummeting earlier in the morning to 7882.51, only to rise above 8900 in the afternoon, the first such 1000+ point trading range in Dow history.

But in reality points do not matter very much. They may make good headlines, but what is behind the numbers is what is real. What was behind them then was an ongoing financial crisis along with a depression.

Why use the term depression? For one thing, the American economy is depressed, but most importantly, the losses in GDP, after accounting for BLS's underestimates of inflation (see earlier articles for more info), the total decline from Q4 2007 to Q2 2009 is 12 percent, well above the 10 percent threshold many economists use to denote a depression. But it is by no means a great depression, at least not yet. A reasonable definition of that would be a decline of >20 percent, which has only occured twice -- the Depressions of 1837 and 1929, with the 1929 one being the more severe of the two.

However, as far as the stock traders are concerned, they may as well be saying "Damn reality -- full speed ahead". They have said this with the 60 percent rally which has occured since March. Here is a chart of the S&P 500 over the past year:



It just so happens that a 6 percent drop occured just after my rather pessimistic economic report, only to rebound later near the highs. Some traders are concerned that this will be a double-top, but most just dismiss it as a downward blip, having blind and full faith that the nebulous, mystical, ambiguous "money on the sidelines" will come in and feed the irrational exuberance that is this little bull market.

Sure, there is money that is not being put to use sitting around that was pulled out in the crash time (2008-09-15 to 2009-03-09). But what matters is not its existence, what matters is the owners of the money. Still cautious, they are still putting this money to use. But it is not predominately in the stock market -- they are putting it into 2 classes of investments -- bonds and gold.

In case you had not noticed, gold has recently hit a record-high dollar price, breaking 1040 per ounce. This breaks a major resistance level, and paves the way for further gains, at least in the short-term. Keep in mind that gold may correct as part of the normal process of continuing a long-term uptrend. Below is a 5-year chart:




The unemployment report was also released by the BLS earlier in the month, and U3 unemployment rate increased to 9.8%, and payroll losses were much worse than expected. However, the U3 rate is a flawed statistic, in that it excludes those unemployed who are discouraged and those employed part-time for economic reasons, which was included in the statistics prior to the 1990's.

Therefore it gives a distorted reading of today compared to the past, and today compared to today. The U6 rate, buried in the BLS tables, shows a slight decrease to 16.1 percent, a far cry from the golden years of the bull market.

Also, if you add in those who are "not in the labor force but want a job now", at least some of whom may be actual unemployed, the rate spikes up to 19.8 percent, unchanged from last month, and showing only a 0.3 percent improvement from July. While this statistic may be a bit distorted, due to some of those people not being actual unemployed, it is nevertheless an important part of this economic puzzle.

Finally, if the seasonally-adjusted measurements from BLS are used (and I'm not vouching for the validity of the adjustments), then the employment situation actually worsened by about 0.2% since last month, putting the U6 rate at 17.0 percent, and the U6 + not in labor force but want job now rate to 20.9 percent.

If you use the U6 measurements, which were used in the 1980's recessions (the ones this labor market is constantly being compared to), then this labor situation is far worse (a good 5-10 percent), and constituted the worst employment situation since the Great Depression. Back then unemployment stood at 25 percent, which is worse than it is now regardless of what statistic you use. Now it stands at around 16 percent.

This assessment is also backed up by another statistic, the amount of job openings avaliable, which have sunk by 2.7 million, or put another way, cut in half, since their 2007 peak, making it the worst decline since the Great Depression.

The scenario that I have outlined in the last report seems to be still playing out. Remember the six points I outlined in my scenario. Let's do a checklist:

- Stock market continuing a rabid runup with no supporting facts. Check.
- Doubling of the money supply. Check.
- Gold continuing to rise. Check (record high)
- Commodities in general shooting up. Check
- Weaker dollar. Check (on verge of new low)
- Higher inflation. Check (inflation is accelerating)

The points outlined above are the points indicative of an inflationary spiral, which will eventually (<5 years) produce a downturn on its own. With the runup in the money supply, inflation accelerating (in what would ordinarily be a deflationary environment), and the gold indicator showing a red flag, as well as a stock market rally, the "cure" in this depression will be worse than what it was trying to treat in the first place (the depression).

GDP was also revised upwards for Q2 2009 to -0.7 percent. Adjusting for actual inflation that figure is more like -3.4 percent. A modest "less-bad" case, but still there is no growth, and as Robert Reich has pointed out, there is nowhere the growth will come from. Due to the Americans putting themselves in a corner with 70 percent of the economy being consumer spending, unemployment will continue to push GDP down for a long time to come. Think -- if you have no job, you don't spend much, do you?

Also consider that Q3 2009 GDP will be coming out in a few weeks. If the so-called "second-half recovery" does not materialize, I expect that the market will be in for a major downturn. Expectations are now so high for growth that it would be easy to disappoint them.

Lastly, I would like to point out that the terms and attitudes being bandied about now are eerily reminiscent of 1930. Just do a google news search for "economic depression" for 1930, and see for yourself. This concerns me significantly, especially after reading the very cautious and tentative rhetoric being used in 1932, the bottom of the downturn.

The next report, barring a traditional October crash, will be in November.

Patricius Maximus here. After a longer-than-expected 40+ day absence, I finally have the time and information for a new edition of my economic report (which has so far failed to garner a single comment (oh well...)). Over the past month I've had my own technological debacle (see Franklin County for more information), and I have been trying to figure out recent events in the economy and markets.

I now have answers and predictions for both after much contemplation and research.

Firstly, a rundown of the events in the market and economy these past 50 days:

- Gold enters into a bull run, passing 1000 USD per ounce for the first time since March 2008, and rapidly closing in on a record high. It is now at around 1020.
- The US Dollar, as measured against other major fiat currencies, takes a bearish turn, going from 78 to 76 in one month (a drop of close to 3 percent)
- The stock market continues a rabid run-up, with the Dow at 9800, closing in on 10 000, and the S&P 500 over 1050.
- Oil remains stable, holding at around 70 USD per barrel.
- Treasury bonds remain relatively stable, but continuing a sustained drop in rates after peaking in early Summer.
- Unemployment improves somewhat, despite a chilling U3 number of 9.7 percent (I measure U5, U6, and U6+not in labor force but want job now - the last two numbers are improving (see prior reports for more info))
- Retail sales show an unexpected improvement (or so it would seem)
- Inflation picks up as measured by the CPI.

And a few other points, which is not exactly economic news:

- HR 3200 gets a good roasting (as John Boehner accurately predicted¹) at town hall meetings in August. Town Hallers are called racist and astroturfed, but actual facts prove otherwise. Most are genuinely liberal-minded people² who want their rights to be respected by their government, and for that I commend them.
- Relating to the above point, a "Tea Party" protest organized by various right-wing groups is held in Washington on September 12, to protest totalitarian government policies. The tea party crowd is more right-wing than the town hallers, but still, most are genuine liberal-minded people, despite the manifestations of extremists carrying around signs saying Obama is a Musilim (which has led to wild accusations from some Democrats). Crowd estimates range from 50 000 to 1 700 000. My personal rough guess would be 1/4 to 1/5 of the inauguration crowd, which would yield a figure of 200-500 000, which I think plausable.
- Ben Bernanke says that the recession is over. I am skeptical about this statement because Bernanke has a conflict of interest -- he may say that to make himself and his policies look good in order to be reappointed. In addition, he may be trying to talk up the markets and consumers to spend and invest more in order to mask his failures. Regardless, the recession may be over, but something exponentially worse may be just beginning.

And other miscellaneous market news:

- Rumors of a big bank failure chill some traders, but do not faze many, either because they don't believe it, or they believe the government will bail them out using TARP (which speaking of that, Washington has no political will to bail out anyone)
- Other rumors circulate about the FHA, the agency which currently owns Freddie and Fannie. The rumors state that FHA will go bankrupt in the next month because of crushing toxic debt inherited from the two GSEs.
- The annoying TD Ameritrade commercial showing their pitchman in front of a then-year-to-date chart of the Dow will turn one year old this month, still running on TV networks.


And I'll start off the commentary with this chart of the Dow over the past year, for the first time showing the post-Lehman era at the beginning of it:



I'll keep it simple and concise this time. I see a disturbing trend which has emerged in the markets this year. It has these factors:

- Stock market continuing a rabid runup with no supporting facts
- Doubling of the money supply
- Gold continuing to rise
- Commodities in general shooting up
- Weaker dollar
- Higher inflation

It is my belief that these are not disparite facts being cobbled together -- taken together, they tell a story and reveal what is happening. What does a doubling of the money supply, rising commodities and stocks, a weaker dollar, and high inflation tell me? They tell me of an inflationary scenario which is playing out at this moment.

An increase in the money supply is inflation. Commodities certainly rise with inflation. Stocks rise with inflation. The dollar falls on inflation. Prices rise with inflation.

All of these factors in an inflationary scenario are here, and can be marked with a big check mark.

The only thing that doesn't really fit in my opinion is the rise in consumer spending. Ordinarily, when prices rise, consumers cut back. But I can discount this fact for now in my scenario considering that consumers have to replace products every so often (nothing lasts forever) and spending has been weak since October 2008. It can continue to be discounted if this is a 1-3 month dead cat bounce, but cannot if it is a sustained trend.

Also, let us assume for a moment that Bernanke's call that the recession is over is correct. Let us also assume that he said it a few months after it actually ended (big assumptions). Then we would be in the early stages of a recovery, and the inflated money stuffed in the bank's vaults would start trickling out in the form of loans.

If all of this is true, then the little amount of introduction of the new money into the system caused all of these market moves and inflation pickup. Imagine what would happen when all of it is out of the vaults and into circulation. I am not saying it is happening now, but it will inevitably happen at some point in the future. Let us assume that the current lending represents about a hundredth of the total of the new money (which is a reasonable approximation IMO).

If all of these points play out, which they may or may not, then the current market moves are only a small fraction of what is to come. What is to come would be double or triple digit inflation, gold at least at 5000 per ounce, oil at triple digits again, and a much higher stock market³. In other words, a hyperinflationary scenario, which I believe is likely to happen given current Fed attitudes and policies. We saw what Greenspan's inflationary policies did to the economy. Imagine what that would do to the economy multiplied by a hundred times or more, which is Bernanke.

Lastly, if the rumors of the FHA bankruptcy come true, which they very well might, then the market will go into a Lehman-type crash pattern of the same sort it did in 2008. Also consider if the large bank failure rumors come true, a crash would happen there also. And I don't believe it would be bailed out, because of a simple lack of political will. I have elaborated before on why no bailouts would be the best choice in the long-term.

Below are charts of the US Dollar Index over the past year:



And gold recently:



¹ I do not lend any prophetic powers to John Boehner. He said it "would be a very hot August for Democrats in Congress". He was right, but only because he helped orchestrate the hot August.
² I use liberal in the generic sense, to refer to poltiical philosophies which consider personal liberty to be paramount, and have it at the center of the philosophy. This encompasses libertarians, most self-identified liberals, a few socialists, and some conservatives.
3 I say stock returns will go up because of this example from the Zimbabwe Stock Exchange, showing that shares go up with high inflation:

Well, in case you haven't gotten the news yet, the S&P 500 index has broken 1000 for the first time since November 5. Below is the first tick above 1000 since then, which occured earlier today:



It has since remained around 1000, occasionally going up to 1001 or down to 999. 1000 is an important milestone, and one that everyone that follows the stock market has been waiting to see. For months, the bulls had been vocalizing that the S&P was going to 1000, and the Dow was going to 10 000. While the Dow is not at 10 000 yet (it's now at c. 9300), the S&P 500 has broken 1000. Will this run above 1000 be enough to satisfy bullish sentiment? Or will the bulls take it on up to 1100 or 1200?

If this is enough to satisfy bullish sentiment, we may see a spike above 1000, which would probably represent the last possible buyers coming into the stock market. After this spike, there could be a correction to 900, or perhaps 750-800, which would represent a 10-25 percent downturn from current levels.

So far, these are the statistics on the current bear market:
--------
2007 Peak (1565) to 2009 Low (666):
Down by 57.4 percent

2009 Low (666) to Current Levels (1000):
+49.97 percent

2007 Peak (1565) to Current Levels (1000):
-36.1 percent
--------

Based on these statistics, the length of the rally (5 months), and the strong bullish sentiment, I believe it would be fair to call this a little bull market. Even if this is the beginning of a new cyclical bull market, it is too early to tell.

This is not unprecedented. In fact, something like this rally happened after the most infamous stock market downturn to have ever occured: the 1929 crash. Below is a chart of the 1929 peak through 1930:



That large, 6-month rally was called the Little Bull Market, which had all the bullish sentiment and rabidness with the real indicators of the economy declining regardless. During the top of the rally, things seemed to be back to normal, and it was thought that Hoover's proclamation that the crisis would be over in 60 days was correct. After the rally was over, it was straight down by 88 percent for the Dow, and 30 percent for the economy. The market would not bottom out for another 2 years, and it would take 24 more to recover fully.

The 1929 crash bottomed out at 198, and the Little Bull Market took it up to almost 300, a gain of about 50 percent. Sound familiar? It should.

Of course, there have been rallies in the past like this which have ended up as the starts of bull markets, but what convinces me that this is similar is the complete absence now, as in 1929, of a real bottoming process. Bear markets, when they turn for good, always have a double- or triple-bottom process over a period of months before moving back up.

Just to show a few... (again: the source is Yahoo! Finance)



And this market does not exhibit that pattern:



It is for this reason that we should be suspicious that this is a new bull market.

Meanwhile, the US government has reported that GDP contracted by 1.0 percent in the second quarter, better than traders (and myself) expected. Economists have raised their forecast for the "second-half recovery" to 2 to 3 percent growth. If this recovery fails to materialize (and it won't, at least not by that much), then this does not bode well for the stock market. My prediction is for the first real positive number for GDP to occur in Q4 2009 or Q1 2010, which is more in line with Nouriel Roubini than the consensus.

Also take into account my belief, based on reasons I have elaborated upon previously, that the Bureau of Labor Statistics understates inflation by 2.7 percent or so.

If true, then that would mean that real GDP would be worse than it seems. Below is a sample:

Quarter	Growth (Gov.)	Growth (adjusted)
Q3 2008	-2.7	-5.4
Q4 2008	-5.4	-8.1
Q1 2009	-6.4	-9.1
Q2 2009	-1.0	-3.7

Now, this may be true, or false, but I ask Americans to take a look in their local grocery and drug stores, and write down the prices. Then go back 3-6 months later and write them down again. This simple observation will show that contrary to what BLS puts out, there is still significant inflation in the US.

This concludes the Patrician Economic Report for August 2009. The next regular report will come in September 2009.

There is something strange and disturbing happening on Wall Street. It is Midsummer 2009. The disturbance is not a meteor, zombies, a North Korean missile attack, a rebellion, or anything that can be seen to the naked eye. It isin the stock market.

The bulls have gone rabid.

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