Why Robert Prechter Sees a Major Market Top Right Here

Spent part of my weekend reading Bob Prechter's latest newsletter, which is always thought provoking.  The folks on his team were kind enough to allow us to republish this article from the April issue of Bob's Elliott Wave Theorist.

In terms of technical and sentiment analysis, I think Prechter is second to none.  He's been bearish for some time no doubt - it looks like his previous warnings and premonitions are coming to roost now.

What Do These 8 Technical Indicators Mean for the Markets?
May 10, 2010

Editor's Note:    The following article is excerpted from Robert Prechter's April 2010 issue of the Elliott Wave Theorist. For a limited time, you can visit Elliott Wave International to download the full 10-page issue, free.

By Robert Prechter, CMT

Technical Indicators

It is rare to have technical indicators all lined up on one side of the ledger. They were lined up this way—on the bullish side—in late February-early March of 2009. Today they are just as aligned but on the bearish side. Consider this short list:

1. The latest report shows only 3.5% cash on average in mutual funds. This figure matches the all-time low, which occurred in July 2007, the month when the Dow Industrials-plus-Transports combination made its all-time high. But wait. The latest report pertains only through February. In March, the market rose virtually every day, so there is little doubt that the percentage of cash in mutual funds is now at an all-time low, lower than in 2000, lower than in 2007! We will know for sure when the next report comes out in early May. Regardless, the confidence that mutual fund managers and investors express today for a continuation of the uptrend rivals their optimism of 2000 and 2007, times of the two most extreme expressions of stock-market optimism ever.
2. The 10-day moving average of the CBOE Equity Put/Call Ratio has fallen to 0.45, which means that the volume of trading in calls has been more than twice that in puts. So, investors are interested primarily in betting on further rising prices, not falling prices, and that’s bearish. The current reading is less than half the level it was thirteen months ago and its lowest level since the all-time peak of stock market optimism from January 1999 to September 2000, the month that the NYSE Composite Index made its orthodox top. The 30-day average stands at 0.50, the lowest reading since October 2000. It took years of relentless rise following the 1987 crash for investors to get that bullish. This time, it’s taken only 13 months.
3. The VIX, a measure of volatility based on options premiums, has been sitting at its lowest level since May 2008, when wave (2) of ((1)) peaked out and led to a Dow loss of 50% over the next ten months. Low premiums indicate complacency among options writers. The quants who designed the trading systems that blew up in 2008 generally assumed that low volatility meant that the market was safe, so at such times they would advise hedge funds to raise their leverage multiples. But low volatility is actually the opposite, a warning that things are about to change. The fact that the options market gets things backward is a boon to speculators. Whenever options writers are selling options cheap, the market is likely to move in a big way. Combined with the readings on the Equity Put/Call Ratio, puts right now are a bargain.
4. In October 2008 at the bottom of wave 3 of (3) of ((1)), the Investors Intelligence poll of advisors (which has categories of bullish, bearish and neutral), reported that more than half of advisors were bearish. In December 2009, it reported only 15.6% bears. This reading was the lowest percentage since April 1987, 23 years ago! As happens going into every market top, the ratio has moderated a bit, to 18.9% bears. In 1987, the market also rallied four months past the extreme in advisor sentiment. Then it crashed. The bull/bear ratio in October 2008 was 0.4. In the past five months, it has been as high as 3.4.
5. The Daily Sentiment Index, a poll conducted by Trade-Futures.com, reports the percentage of traders who are bullish on the S&P. The reading has been registering highs in the 86-92% range ever since last September. Prior to recent months, the last time the DSI saw even a single day’s reading at 90% was June 2007. At the March 2009 bottom, only 2% of traders were bullish, so today’s readings make quite a contrast in a short period of time.
6. The Dow’s dividend yield is 2.5%. The only market tops of the past century at which this figure was lower are those of 2000 and 2007, when it was 1.4% and 2.1%, respectively. At the 1929 high, it was 2.9%.
7. The price/earnings ratio, using four-quarter trailing real earnings, has improved tremendously, from 122 to 23. But 23 is in the area of the peak levels of P/E throughout the 20th century. Ratios of 6 or 7 occurred at major stock market bottoms during that time. P/E was infinite during the final quarter of 2008, when E was negative. We will see quite a few quarters of infinite P/E from 2010 to 2017.
8. The Trading Index (TRIN) is a measure of how much volume it takes to move rising stocks vs. falling stocks on the NYSE. The 30-day moving average of daily closing TRIN readings has been sitting at 0.90, the lowest level since June 2007. This means that it has taken a lot of volume to make rising stocks go up vs. making falling stocks go down over the past 30-plus trading days. It means that buyers of rising stocks are expending more money to get the same result that sellers of declining stocks are getting. Usually long periods of low TRIN exhaust buying power.

For more market analysis and forecasts from Robert Prechter, download the rest of this 10-page issue of the Elliott Wave Theorist free from Elliott Wave International. Learn more here.

Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

How to Differentiate an Inflation Induced Rally From a Normal Run-of-the-Mill Retracement

Just a retracement?

Or is the bull really back?

Maybe inflation?

Deflation Camp - Anyone Left?

Outside of a few lone voices, the deflation camp sure seems to be getting lonely. This is interesting, because the US markets have only now retraced 60% of their previous losses. An impressive rally, for sure, but still within the 38-62% "Fibonacci range" that is generally expected of retracements.

FWIW, the Great Depression retraced a little over 50% of its initial leg down - so we're ahead of the 1930 rally, but just by a bit.

It DOES feel like this rally has been going on forever - over 13 months old, it's sure been impressive in it's magnitude and duration. BUT, it is important to realize that nothing has been decided - at least yet - regarding whether this is a technical rally off of extremely oversold lows, or a brand new bender driven by trillions of new cash.

Viewed with 5 years of hindsight, the current rally looks a bit more "normal" than when you're living it day-to-day.

(Chart source: Yahoo Finance)

The Early Symptoms of Inflation?

What's tricky, though, is governments around the world ARE printing money as fast as they can. And the first symptoms of inflation typically show up in either asset prices, or commodity prices - or both.

Today, we've got asset prices rallying, with financial stocks leading the way - exactly the first place you'd expect to see this "new money" showing up. A lot of financial commentators I've heard recently - good ones too, not just CNBC talking heads - believe this rally is now being driven by newly printed money.

Personally I think it's too soon to tell - we've retraced 60%, not 100%, after all.

But, if we're trading short term, we...

Gotta Respect the 200-Day Moving Average

And revisiting the S&P chart once again, we are indeed still north of the 200-day moving average. Check out the last five years too - you could have done a lot worse than being long stocks when the S&P is trading above the average, and being short when it's below:

According to the 200-day SMA, you should ignore my calls for an impending decline. Instead, you'd set stops around this mark.

(Chart source: Yahoo finance)

So while I may continue to hoot and holler about the odds of a downturn far outweighing upside potential, to be honest, you should probably ignore me, and just respect your trailing stops!

And for more on the power of respecting the 200-day moving average, check out this excellent article from Steve Sjuggerud in Daily Wealth.

If Everything Tanks, What Would Hold Up?

Judging by the price action across the board last Friday - not too much...

Almost everything is getting kicked in the teeth today.

(Source: BarChart.com)

Crude oil and precious metals got taken to the woodshed along with stocks on Friday - no place to hide there.

One bright spot - actually I should say one dim but not dark spot - are the grains. They haven't rallied much this year to date, so there may not be much downside from here.

Grains, by the way, are still one of my favorite secular plays - I just think it's best to avoid them right now. If the Great Depression is a guide, then grains should lead the way out of the Greater Depression as they did last time around.

Some Deflationary Evidence: Two Revealing Charts of Consumer Credit Trends

Late last week, our good friend and fellow deflationist Carson sent over a link from Mish Shedlock's blog, reporting a sharp annualized decrease in consumer and revolving credit.

I just plotted the Fed's historical data since 1978 (which I chose because there was a single quarter anomaly in 1977 that I didn't feel like dealing with).

First, we see that consumer credit, as of February 2010, is decreasing at an annual rate of 5.5%:

Consumer credit, after trending positive YOY in January, is once again heading south.

Next we look at revolving credit, where the data is even uglier, both in current and historical terms. Revolving credit decreased at an annual rate of 13%:

Will this debt ever be paid off?

The sharp decline in revolving credit, which is defined as credit that does not have a fixed number of payments or payment schedule (think credit cards), would appear to support the debt deflation argument (of Robert Prechter, most notably) that much of the current debt outstanding is going to go unpaid.

So while the government has engaged in quantitative easing to "ease" the issuing of its own debt, it has not yet offered to print up some greenbacks to pay off the debt of American citizens.

Thus far, it appears Americans are still choking on their massive loads of accumulated debt, unwilling to take on more credit, no matter what the Fed does.

It will be interesting to see if the Fed is able to reverse these trends.

Though Maybe We Should Just Short American Stocks Right Now

What's the most damning future indicator for America's near term economic outlook?

How about the latest cover of Newsweek?

Uh oh!

PS: Hat tip to MarketFolly for the tip here.

PPS: If you're into contrary investment thinking, I'd HIGHLY recommend The Art of Contrary Thinking by Humphrey B. Neill, which I reviewed here (ironically the same week we interviewed MarketFolly for the blog too!)

Another Bernanke "Guru Moment" - An Instant Classic?

The man who proclaimed the subprime problem was "contained" in March 2007 (after which Jim Grant hilariously quipped "yeah, to planet earth") - is back in the news again with another "guru moment".

The Wall Street Journal reports:

The U.S. economy should continue to recover at a moderate pace this year, but it will take time to restore all the jobs lost during the recession, Federal Reserve Chairman Ben Bernanke said Wednesday.

In his latest assessment of the economy, Mr. Bernanke told a congressional committee the pace of the recovery this year will depend on if consumers spend and companies invest enough to make up for fading government support.

"On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters," the Fed chief said to the Joint Economic Committee.

Any fellow contrarians want to take the "under" on Ben's latest gem?

Jim Rogers Says Get Ready for $2,000 Gold!

Here's the latest Jim Rogers interview on Bloomberg:

http://www.youtube.com/watch?v=c-vd1-Ec2FY

A short bit with another clueless interview, so there's not too much new:

• Still likes commodities for another 5-10 years (based on the secular bull market beginning in 1999)

• Thinks gold will top $2,000 by the end of the decade, thanks to money printing

Jim notoriously sandbags his own trading acumen - always insisting he's "no good" at calling price/timing specifics - yet those who follow him closely know he's often pretty accurate with these calls as well!

You may also like:

• Why Richard Russell is very worried about the bond market

And My Current Positions - Cash, and Pass!

While it's very tempting to take a flyer short position, betting on a near-term decline, I'm going to actually respect the 200-day moving average this time. We'll see how it works out.

Other than some longer term short S&P and long US dollar positions I've got via ETF's, I'm mostly in cash, mostly waiting for the next mega leg down that I think is coming.

In retrospect I should have kept my long positions, and just kept moving up the trailing stops, until they were stopped out. Ah well, investing and trading is a lifelong learning process.

Have a great week in the markets!

No Fear, Again: Market Participants Are Opting For Extra Yield, Risk Be Damned

Last week, a buddy from college sends me an email:

"Hey, I got a little bit of cash sitting around, earning next to nothing in a savings account. Anything you'd recommend to get this cash working for me?"

"Not really - everything looks pricey right now...hey, does that mean you paid off your law school loans?" I asked.

"Actually no," he informed me.

I suggested he may want to work down the debt first, no matter how low the interest rate.

Meanwhile, California pension funds are still counting on a cool 8+% annual return to deliver on existing obligations - based on historical returns, of course, which only includes the greatest bull market of several generations.

Anyone want to take the other side of that bet?

Not to be outdone, junk bond funds are back in vogue once again. And of course, the crappiest quality bonds are the hottest!

Chart courtesy of EconomPic Data.

It's hard to believe that this time last year, we were talking about how Return OF Capital was the new Return On Capital!

So is everything rosy again, or is this "reach for extra yield" mentality exactly what a bear market bounce is supposed to engender during it's final phases? My bet is on the latter, but in any case, we should find out soon!

Why Some Key Charts Reveal the Reflation Rally May Be Tiring (Finally)

Trading From Ground Zero - We Don't Do It Enough

After going from Hero to Zero on the two S&P short positions, my March contracts expired, and I have not replaced them, instead opting to hang out in "wait and see" mode.

Contract expiration always tends to be a good exercise I find, as it forces me to ask myself "If I started over today, would I re-enter this position at current prices?" It's a question that we should ask ourselves more often - yet, we often don't, instead sitting and waiting for the market to turn our way.

Unfortunately, the market doesn't care what our positions are, it's going to go where it's going to go, whether we are long, short, or neither.

Checking in on Some Key Charts

Major indices hit new recovery highs today, with the DOW hitting it's highest mark in the last 18 months.

Trading volume remains tepid, however - as you can see from this chart of the S&P 500, this recent rally appears to lack some conviction:

Rallies have been occurring on lower volume than pullbacks.

(Chart courtesy of StockCharts.com)

Chinese shareholders have been less exuberant of late than their American counterparts, as the Shanghai Composite Index continues to flirt with a breakdown beneath its 200 day moving average:

While US markets climb everyday, China huffs and puffs.

(Chart courtesy of Yahoo Finance).

Regular readers know that China is one of our favorite leading indicators. Is China's recovery running out of steam already?

The experts at Stratfor Global Intelligence believe that China's economy will be run on lending for at least the next year (free video clip here) - the result of which remains to be seen.

Commodities, also, continue to lag the rally in equities:

Like Chinese stocks, commodities are also well off of recovery highs.

(Chart courtesy of StockCharts.com)

Bottom Line: These non-confirmations could be ominous bearish divergences, indicating the reflation rally is on it's last legs. The rally appears tired, but is not over yet.

On the other hand, if all 3 of these charts confirm new recovery highs together, we'd have to conclude that this rally still has some room to run.

Bill Gross' Take on Portugal's Downgrade and Escaping the Sovereign Debt Trap

Ever wonder what the hell takes the rating agencies so long?

Last week, leading credit agency Fitch downgraded Portugal's debtamid "growing concerns about the government's ability to service it's borrowings."

Well - duh - increased borrowings coupled with decreasing tax revenues should raise concerns. What amazes me is that the Euro traded down today on the news - this shouldn't have been news at all, everybody saw this coming from Portugal as soon as Greece got the hiccups.

If the tax revenues were coming back, there might be hope - but revenues are not coming back anytime soon, so hope is bleak, if not non-existent. Europe is an economic basketcase with declining demographics - it's completely toast.

Bond king Bill Gross of Pimco weighed in today - in his eyes, there are three factors which could, at least theoretically, allow a country to escape the sovereign debt trap:

• It must be able to print its own widely accepted currency
• Have manageable budget deficits, and
• Find investors willing to buy their bonds (Source: Forbes)

The US, for now at least, passes all 3 tests...Greece, Portugal, and the rest of the PIGS obviously do not. Much of the rest of the world does not either.

Is sovereign debt the next domino to tumble in the global financial crisis? It sure looks like things are teetering.

Why the Federal Deficit is in Even Worse Shape Than You Think

If there was any question before that the federal deficit was completely out of control and unsustainable, the successful passing of the "free healthcare for all" plan should completely seal the deal!

As you probably recall, the out-of-control debt spiral faced by our government sparked some interesting conversation at our local Casey phyle meeting about the safety, or lack thereof, of our retirement savings.

That conversation was originally inspired by a fine piece of analysis that Bud Conrad, Casey's Chief Economist, put together for The Casey Report. They've graciously given us permission to republish Bud's piece here, so read on to learn just how bad the federal deficit is:

http://commoditybullmarket.blogspot.com/2010/03/why-federal-deficit-is-in-even-worse.html

Current Positions - None

I don't really like anything long or short right now. I guess if you had to make a short term call, you'd go short, with the markets being as overbought as they are right now (20 of 24 days up).

But, that's a tough one to time. And with the markets now again hitting new highs, the bear market rally that began last March may not be over yet.

Investors Haven't Been This Bullish Since January - Uh Oh

Another up day for equities, and investors appear to be feeling pretty good about things. According to the S&P 500 Bullish Percent Index, investors haven't felt this upbeat about things since January:

Investors have been feeling on the up and up of late.

Chart courtesy of StockCharts.com

Unfortunately investor bullishness is a classic contrarian indicator - as evidenced by the recent S&P's performance - a near spitting image of the bullish index!

And what a coincidence - their rising mood has mirrored stocks!

Chart courtesy of StockCharts.com

This would indicate that a near-term pullback in the markets is likely. The breadth and depth of which could determine whether or not this bear market bounce is finally licked.

What Folks Like You Are Thinking Right Now, and the Decreasing Benefit of Additional Debt

I must have had a few too many beers this afternoon, because I swear my alma mater, Cornell, just advanced to the Sweet 16 - in convincing fashion no less.

Must have had a beer or sixteen today!

Some Ink in Casey's Daily Dispatch - Inflation/Deflation, Wiring Money to Central America, and More!

On Monday, I penned a piece for Casey's Daily Dispatch that highlighted the investment and geopolitical conclusions that our local "phyle" reached during our most recent meeting.

Last night our Sacramento Phyle got together at a local restaurant to banter about the usual talk you'd expect to overhear at such a place – like government confiscation of retirement plans, expatriation, wiring money to Central America, and our favorite shorting techniques; you know, the usual.

Our attendees are all medium to longtime Casey subscribers, ranging from Davis to the Sierra foothills, and we all enjoy getting together to break bread, have a drink, and talk about things that we quite frankly can't talk to anyone else in our lives about.

We kicked off the night chatting about the potential confiscation or lockup of retirement funds – namely 401(k)s and IRAs – by the U.S. government. Our fear is that with U.S. federal debt truly spiraling out of control (as detailed by Bud Conrad in the last Casey Report), there will come a point where the government will likely appoint itself "custodian" of all retirement accounts. Stocks are too risky, let us invest your money "safely" in government-sponsored annuities (i.e., government paper that no one else will buy!).

We've chatted before about using IRAs to purchase assets that can't easily be confiscated – such as overseas real estate – but the tenor at this meeting was more cautious than ever. Several members are seriously considering emptying their retirement accounts over the next few tax years and taking whatever penalties and taxes will be assessed.

But then where do you put the money? "Not in your local Citibank account!" someone joked. The consensus was that you'd probably be wise to get the money overseas, and possibly into physical bullion in the process.

In terms of the timing, the scary thing is that it could potentially happen real fast -- striking with lightning speed as the last downturn did. We put the odds on it happening after 2012, as we didn't believe it'd be politically feasible at the moment, especially with an election slaughter upcoming this year. But if the next leg of the financial crisis strikes, all bets could certainly be off.

The group as a whole is still favorably inclined towards gold, but our outlook has decidedly changed since the peak of gold stocks a couple years ago. At that time, we'd talk about junior miners, looking for the next really big play. Nobody has the stomach for that now – I know I don't – not after losing our shirts when gold tanked last time! Now gold is looked at as more of a safety play – something that could decline but is likely to decline less than other assets.

One contrarian-minded member joked that this probably meant that gold stocks are still a good buy, since the Wall of Worry is still making our stomachs churn!

Our feeling on the markets, for the last 4-6 months, has been: "What's taking so long?" We're universally bearish on the stock markets. Some of us have stayed in equity positions, raising trailing stops along the way. Others bailed early in the last rally. But on the whole, our picks for an S&P finish were around 800 or lower – decidedly more bearish than your average CNBC analyst!

Finally we still believe the big – and maybe only – question to ask right now is the inflation/deflation question. None of us are yet convinced that we've seen the last of deflation... we're still holding a wary eye to the situation, allowing the possibility that a wave of asset deflation potentially even more powerful than the last one could be on the way. And if that happens, you'd want to follow the playbook of the last bout – get long the dollar, and get out of everything else.

We generally agreed that serious inflation, and likely hyperinflation, is the most probable endgame. With the big question being, will that be prefaced by a serious, extended period of deflation first? If that happened, the dollar could rally quite a bit. And all assets would in turn get hit, probably severely, though we expect that gold would hold up better than most others. And eventually the dollar will have to be sacrificed, thanks to our fabulous deficits. So that's not a long-term play by any means.

So overall we're still in a wait-and-see mode as a group – battening down the hatches, preparing for the next wave of the storm to hit! We'll be meeting up again in early May, potentially with some new fireworks to chat about!

You can read the entire issue of Casey's Daily Dispatch here.

The Marginal Productivity of Debt

More and more economic studies seem to be indicating that the more debt we take on, the less good it's doing us - in fact, the marginal benefit may now be less than zero!

First, a piece passed along by good friend and astute reader Carson regarding the debt saturation dilemma.

This reminded me of a guest piece we published in 2009 by San Francisco School of Economics Professor Antal Fekete entitled The Marginal Productivity of Debt. Which began:

The paper mill on the Potomac is furiously spewing up new money. According to the manager of the mill, as indeed according to the Quantity Theory of Money, this should stop prices from falling and the economy from contracting.

In this article I present an argument why this conclusion is not valid. On the contrary, I shall show that new money created on the strength of a flood of new debt, is tantamount to pouring gasoline on the fire, making prices fall and the economy contract even more. The Obama administration has missed its historic opportunity to stop the deflation and depression inherited from the Bush administration because it entrusted the same people with the task of damage-control who had caused the disaster in the first place: the Keynesian and Friedmanite money doctors in the Fed and the Treasury.

You can read the rest of the piece here.

Moral of the story is that Ben Bernanke "can create all the money he wants and more, but he cannot make it flow uphill."

Since this piece was published about a year ago, whether or not Bernanke has even created quite a bit of money is up for debate. Depends who you ask/read. Either way, it's tough to make the case that the money is flowing, at least just yet.

It's starting to trickle, but that was to be expected with this bear market bounce. Where we head from here should be the real key - either the next shoe drops, or the trickle steadily increases - we shall see.

My Trading Activity - Still Short the S&P (Twice)

Nothing changed - this position is still a train wreck - markets are still rising on low volume - due to fall any day - blah blah blah.

As good friend and astute reader Carson recently pointed out, the markets can stay irrational longer than you can stay solvent. Oh, so true. Love hurts!

Still double short the S&P...though these positions used to look much sexier!

A classic bear market bounce...probably.

(Source: Yahoo finance)

Have a great rest of the week in the markets! Comments are always welcome and very much appreciated.

Portions of this article (or the whole thing if you can't get enough) may be republished for free on your website, blog, or email newsletter - all we ask for is proper attribution, and a backlink to our website!

Why Your 401K and IRA Savings Could Soon Be a Prime Government Target

Last week our local "Casey Research Phyle" got together at a local restaurant to banter about the usual talk you'd expect to overhear at such a place - like government confiscation of retirement plans, expatriation, wiring money to Central America, and our favorite shorting techniques - you know, the usual.

In these turbulent economic and social times, having a group of like-minded people to banter with is invaluable. In fact, trends forecaster Gerald Celente recommended exactly this on an interview he did Friday with Jim Puplava (link here - Celente comes on towards the end of the first hour - the guy is hysterical, and sharp too, one of my favorite guys to listen to).

Our group kicked off the night chatting about the potential confiscation or lockup of retirement funds - namely 401K's and IRA's - by the US government. Our fear is that with US federal debt truly spiraling out of control, there will come a point where the government will likely appoint itself "custodian" of all retirement accounts. Stocks are too risky, let us invest your money "safely" in government sponsored annuities (ie. government paper that no one else will buy!)

For those of you scoring at home, the federal government clocked a record $220 billion deficit in the month of February - a new Griswold land speed record! If we're past the tipping point of runaway deficits, then it appears the question of government "guided" 401K and IRA plans is not a matter of "if", but "when."

Our phyle has chatted before about using IRA's to purchase assets that can't easily be confiscated - such as overseas real estate - but the tenor at this meeting was more cautious than ever. Several members are seriously considering emptying their retirement accounts over the next few tax years, and taking whatever penalties and taxes will be assessed.

But then where do you put the money? "Not in your local CitiBank account!" someone joked. The consensus was that you'd probably be wise to get the money overseas, and possibly into physical bullion in the process.

In terms of the timing, the scary thing is that it could potentially happen real fast - striking with lightning speed as the last downturn did. We put the odds on it happening after 2012, as we didn't believe it'd be politically feasible at the moment, especially with an election slaughter upcoming this year. But if the next leg of the financial crisis strikes, all bets could certainly be off.

Robert Prechter has been sounding the warning bells on this possibility for some time now. I recall reading in one of his recent newsletters where he again warned readers to be wary of these government "deals", because the temptation to engage in shenanigans would be too much for the feds to resist if a crash scenario played out.

The potential threat to retirement plans appears to be creeping into the mainstream as well. Here's an editorial penned last month - by none other than Newt Gingrich - for Investors Business Daily entitled Class Warfare's Next Target: 401(k) Savings. So the fear has already spread beyond fringe publications like this blog!

What's the historical precedent here? Argentina raided its citizens' retirement savings just 9 years ago:

Argentina to Raid Retirement Savings as Reserves Plunge

December 07, 2001|From Bloomberg News

BUENOS AIRES — Argentina, which is defaulting on its debts, said it will seize $2.3 billion of retirement savings by forcing private pension funds to transfer the money to a state bank in exchange for Treasury bills.

The government targeted savings every worker is required to set aside from their paychecks since the creation of a private pension system in 1994, after the International Monetary Fund withheld a loan.

Economy Minister Domingo Cavallo said the government, which has more than $2 billion of debt due this month, will use the money to pay state pensions and wages.

"For all intents and purposes they are confiscating funds," said Scott Grannis, who helps manage $1.5 billion of emerging-market debt at Western Asset Management in Pasadena and has sold his Argentine bonds. "They are destroying confidence."

Think this can't happen here in the US? I wouldn't want to bet on it!

While this probably won't happen tomorrow, next week, or even next month, it certainly could come into play faster than everyone expect if another "crisis" occurs - because if we've learned anything, it's that for the federal government, a "crisis is a terrible thing to waste!"

Some Ink in Casey's Daily Dispatch - Tomorrow!

If you subscribe to Casey's Daily Dispatch, keep an eye out for tomorrow's issue - our full synopsis of the phyle meeting will be in there! Of course I'll toss a link up when available.

This Week in CBM

I'm liberally borrowing "this week in" with a tip of the hat to Leo Laporte, who runs an excellent podcast media network, including "This Week in Tech", a fantastic weekly listen if you're into tech.

Anyway here are some good reads for the week ahead in the markets, if you didn't already catch them:

• Doug Casey on how you can survive the upcoming financial apocalypse

• Well I'll be damned...the S&P hits a 17-month high! Where to next?

My Trading Activity - Still Short the S&P (Twice)

Still double short, and it's still a train wreck. A good trade gone awry!

However markets don't get much more overbought than this, so if I were a betting man, I'd have to wager that this will be a down week in stocks...potentially a disastrous decline. We shall see!

Still double short the S&P...though these positions used to look much sexier!

A new breakout in the S&P, or is a double top being formed?

(Source: Yahoo finance)

Have a great rest of the week in the markets! Comments are always welcome and very much appreciated.

Portions of this article (or the whole thing if you can't get enough) may be republished for free on your website, blog, or email newsletter - all we ask for is proper attribution, and a backlink to our website!