As I have said previously, there should be a retest of previous low, and it should be bought. I believe the current rally would last until next March/April. Make sure however that you’re prepared to exit the markets for the next down draft. As far as everything goes, we are on track towards an economic depression.

We won’t go there in one shot. The final low is still ahead of us, don’t get it wrong. The economic downturn won’t be caused by Bush nor Obama. I would say that more than 60% of it is just how things go up and down, due to economic cycles. Most politicians believe that they can turn things around by implementing policies. I only believe that magnitude of economic cycles can be reduced or magnified, but not flattened. The bad thing for the upcoming cycle is obviously that the economic prosperity has been way over-extended, and therefore the upcoming downturn will be likewise exacerbated.

In the 1929 depression, the unemployment rate didn’t peak until 2 years after stock market crashed. So the most bitter pills for average people probably will come in late 2009, early 2010. Hold onto your dear job. As they say, an economic recession is when your neighbor loses their job, and an economic depression is when you yourself loses the job.

I won’t be posting much until I’m back from my vacation. Annually I use up all of my vacation days just to visit my parents aboard.

In the meantime, hold onto your stock positions. It should turn up soon, I believe. It’s going to be a very difficult market, and it will get even more difficult next year.

I think we will be going into a depression, and then stay in a long recession. Job market will be terrible. Make sure you hold on to your job if you have one already, and good luck in finding your new/next job.

Regards,

Frugal

Bloomberg has filed a Freedom Of Information Act (FOIA) request against against Federal Reserve for requesting the collateral information on some two trillion dollar that Federal Reserve has accepted as collateral. Federal Reserve however refused to comply.

You can read through details here from PrudentInvestor, or from the original blogger at NakedCapitalism who revealed this, or directly from Bloomberg. One of the arguments used by Federal Reserve for not complying to FOIA request is that

The Fed staff planned to recommend that Bloomberg’s request be denied under an exemption protecting “confidential commercial information,'’ according to Alison Thro, the Fed’s FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn’t subject to the freedom of information law.

Why would a federal agency NOT subject to FOIA law? The “not-so-obvious” inference drawn by NakedCapitalism is that Federal Reserve Bank of New York is a private, non-federally owned bank, and therefore, not subject to FOIA. In the past, I’ve read articles on financialsense.com, directly accusing Federal Reserve as a non-federal agency. There are extensive articles written (here from financialsense, and another elsewhere), and when I read thru them, I always felt like I’m reading fairy tales. How can it possibly be that US Federal Reserve is a private organization, which is printing all the US dollars? I mean, how it can possibly be at all? For the first time, Federal Reserve is acknowledging directly that at the minimum, there is some suble differences between Federal Reserve Bank of New York, versus Federal Reserve Bank in Washington.

Even on day 2 after election, I already fear the bigger government that is to come as promised by Democrats. All these people who continue to think that government should take care of their people (by becoming bigger & more expensive) simply don’t understand one basic thing: government simply CANNOT take care of themselves, and there is just no way for them to take care of others. Ron Paul on the other hand understands that point perfectly.

I just read the posted messages from kaimu at BillCara.com about CONFISCATION of 401k account. Here is the link to the original news article. I don’t know who is so dare of doing such things, but by confiscating 401K accounts, and lumping everything into a “GRA” Guaranteed Retirement Account is going to a super-big disaster for US stock markets. Here are some details of the proposals:
1. Confiscating all 401K accounts and turn them into GRA.
2. Every workers will be forced to contribute 5% from their paycheck, in addition to the existing social security and medicare taxes going forward.
3. There will be a guaranteed return of 3%.

Here is the consequences that I think what will happen:
1. Before confiscation, if allowed, there will be a massive exodus from 401K/retirement accounts. That basically means that stock markets will TANK beyond imagination. The same confiscation has been done by Argentine government, and that was the consequence. I simply don’t understand what these people are thinking.
2. All the confiscation on the remaining balances will eventually be sold and the proceeds will buy safest “Treasury bonds”.
3. Economy will shrink even further due to the additional 5% of the collection on paychecks.

People, US citizens, we’d better WAKE UP! We already have a “bankrupt” social security system. The only assets that social security fund has is US treasury bonds, or in another words, debt or IOUs from the USA government. If my right hand (social security agency) owns IOUs of 2.4 trillions from my left hand (executive branch of the USA), what do I have really? NOTHING! The only way to pay for social security is to continue to ask my left hand to collect income tax, and continue to ask my right hand to collect social security tax to pay for ongoing social security payments. My right hand can have one quadrillion of IOU owed by left hand, and I will still have nothing.

Now if Democrats will add this 5% collection for GRA, which is really another form of tax, government will get bigger, and people of USA will continue to shrivel. Yeah, the 5% GRA tax will go directly into the safest investment of more IOU.

Who is going to pay for your retirement? GRA? Social security? Government? We’ve got a big government that collects a huge percentage from the GDP. Collecting from the young people in the form of taxes to pay for the current retirees is the same as robbing your own children in the same familiy. It will NEVER work. In the meanwhile from this process, all the big fat cats in the Washington DC and Wallstreet continue to collect a big commission in the form of benefits/salaries for politicians and bailouts to Wallstreet. Eventually, this process will impoverish everyone, because once a government collects 100% of the GDP, we effectively become a communist country, not a socialistic country.

If US government can take care of herself, she would not be in such a heavy debt. A few people in the government can never allocate economic resources as effective as in a capitalistic society where millions of people are competing against each other. More socialism simply will not work.

The faster we are on this current track to bigger governments, the sooner we will destroy all of our collective wealth thru a totally devalued US dollar. If you don’t have anything, you may think this is a great way to zero out everyone’s wealth. Everyone will have nothing, and let’s all start over?! NO, the reason that I continue to speak out is that my heart will be so broken to see so many hungry people around me without food and necessities, and I can barely help some of them. It’s just not going to be “everyone has nothing, and let’s start over”. It’s going to be millions of hungry and angry people, while the most wealthy or the smart people may have their 90% wealth wiped out. But they will have food to eat because they have allocated their wealth in other tangibles, and not you. That is the specter of hyper-inflation, and that is always the road taken by hyper-inflation. There is just no exceptions.

Be intelligent! There can never a free lunch handed out by the government. The government takes from us, and we form the government. You cannot make yourself wealthy by taking something out of your own pocket, let someone else handles it and collects a commission, and then gives it back to you for the remaining of what’s left.

When economy sours, people want changes. Both parties caught on Ron Paul’s messages of anti-war, and anti-establishment quickly, muffled out Ron Paul, and carried out the same tune and same tactics (Obama/Hilary for change, and McCain the “maverick”). Well, but will we get changes with Obama as the president?

In fact, I’m going to venture a guess here for the next election. Obama will not get re-elected (assuming that he gets nominated by Democrats again) in the next election. Why? For the same reason that he got elected through a sour economy, he may get voted out through a even worse economy that is going to come. Possibly, the first year is good. But I’m not sure about the later three years. I have nothing against Obama personally. In fact, I’m glad to see a black person gets elected as a US president. Unfortunately, presidents always get blamed for whatever misfortunes that happen during their term, whether it’s their faults or not.

Actually, I hope that I’m dead wrong in my guess for the next election. If I’m wrong, it would mean that the economy is doing better than I expect. However, my opinion is that taking the presidency for the next four years is equivalent to Bernanke taking over from Greenspan. You just can’t do a good job in a terrible state.

The greatest credit/housing bubble has burst, and it’s simply not coming back for at least another 20 years (all financial bubbles won’t reflate in the same thing for at least 20 years). There will be serious consequences for average Americans. United States is treading on the same path as Roman empire. And the political leaders still don’t understand that you can’t solve a financial problem/debt by making money even cheaper. Only fiat money drops from the sky. But whether you print one dollar or 10 trillion dollars, the real overall wealth owned by the society remains the same as before, in terms of minerals, machinery, man-power, etc. Actually, due to the globalization, USA does gain a lot by printing more money, because the net effect is shared among all countries. The only question is that will other countries be willing to continue to partake in the financial irresponsibility of US government and consumers?

My guess would be a “No”. And it should be self-evident from the international reactions to US mortgage crisis.

Let’s see when long term bonds drop, and the current assumption of 6% mortgage rates no longer hold true (but rather 10%?), then we will know where the bottom of housing is.

If there comes a pullback, or later in November, one should buy stocks I believe.

Of course, it is going to be a bear rally in my opinion, instead of a new bull market as Bill Cara claims it to be. In my opinion, there is no new bull market for the next 3 years at the minimum (if not for another decade). Only bear market rallies. The bear market rallies are usually much harder to play. Therefore, a conservative trader/investor should not bet the farm on it.

Nevertheless, I believe the intermediate rally should last until next March/April timeframe before the next phase of liquidation.

There is a very strong possibility for a very LOW long-term bottom in 2011/2012 timeframe. One should by all means sell ALL general market stocks (possibly with the exception of precious metals/mining stocks). If you don’t sell this rally, I’m almost certain that you will regret it. 2012 coincides with the 4-year cycle, Martin Armstrong’s economic confidence model, and if you dare to venture into “new age” stuffs, 2012 is the end of a long Mayan calendar.

In any case, I find it interesting that the bigger cycle of 51.6 years with 6 cycles of 8.6 years of Martin Armstrong’s model is very close to the cycle of 52-year calendar round in Mayan calendar. And the fact that the beginning of the 5125 years of the Mayan calendar is about right with the beginning of the Hindu/Chinese history makes the whole thing more interesting.