We shouldn't have been surprised. I'm right now working on a book that exposes anew our corporate-owned government, which didn't change in any way when hope was reported to have prevailed a year ago. The new day in Washington when lobbyists would supposedly take backseats to citizen needs became instead The Washington Post calling last summer the Summer Of The Lobbyist. We're seeing now that insurance industry lobbyists did their work well.

Thus, I wouldn't get too excited about health care reform just yet. The word "historic" has been liberally tossed around everywhere since the House bill passed by five votes on Saturday night, but commentators in other countries noticed before the bill even made it to vote that it's ludicrously light fare compared to citizen health coverage in other countries.

For more than a year now, fundamental analysis of companies has been a waste of time. Stocks have traded as a block, first plummeting in tandem a year ago to March as banks froze up the financial system, then soaring in tandem as the Federal Reserve expanded the monetary supply and made cash worthless as an asset with near zero interest. The latter sent liquidity flooding into stocks, lifting all of them together.

We've seen evidence of this recently. Last week, Apple (AAPL) delivered a superb earnings report that announced its most profitable quarter ever. It sold 10.2 million iPods, 7.4 million iPhones, and 3.1 million Macintosh computers in the quarter. Reports just don't get any better.

Last week saw a subtle but important shift in the way economic data were interpreted. During most of the rally, any improvement in data was heralded as proof that the worst was behind us and the future a ramp upwards with only the degree of incline in question. Merely an upward bias in economic data was enough to give stocks an upward bias as well. Last week, however, more attention was paid to the strength of the data instead of its direction alone. Finally, the market may be asking if the recovery is good enough to justify high stock prices. Over the past two weeks the answer has been, "No."

What could follow on the heels of such a shift is a further backing up from debating the incline of recovery to questioning whether an upward bias is guaranteed after all. With loan defaults rising, jobs about as common as sense in Congress, and central banks eager to pare back stimulus, more people appear to be wondering if another leg down is inevitable.

It looks like the Iran nuclear stand-off as an oil price mover has been pushed out a few weeks. I wrote on Tuesday that the risk of military action against Iran by either the US, Israel, or both is growing, and that such action would cause oil prices to spike.

The Geneva talks concluded Thursday. Iran will admit inspectors from the International Atomic Energy Agency (IAEA) to look at its previously secret enrichment facility near Qom by the middle of this month. While some are pointing to that as major progress, it's not too impressive when you consider that as a signatory to the Nuclear Nonproliferation Treaty (NPT), Iran was already obligated to allow such inspections.

The International Monetary Fund updated its Global Financial Stability Report Wednesday. I received a barrage of emails from analyst cohorts telling me about the green lights provided by the report. I dove in, and came away with less an impression of green lights than a slight flickering of the red from being lit up so brightly for so long. I'll go through some highlights with you, and let you make up your own mind.

The GFSR thinks overall financial sector losses are less than it expected six months ago, but still staggering. "For both banks and other financial institutions, the GFSR calculates that actual and potential writedowns from bad assets such as loans and securities have fallen by some $600 billion over the past six months -- from about $4 trillion to $3.4 trillion, as a lessening in financial stress has narrowed spreads." When was the last time writedowns of $3.4 trillion were considered a pop-the-champagne moment in your experience? It expects US banks to lead the debtors list by incurring about $1 trillion of that sum.

The biggest risk of higher oil prices looks to be the latest storm brewing in the Middle East. Our contention has been that oil prices are destined to slip back to their pre-stock-bounce range once economic reality sets in and demand remains persistently low. To that end, we own a hedge against falling oil prices.

However, the likelihood of military action against Iran by either the US, Israel, or both is growing, and such action would cause oil prices to spike. Let's look at the situation and chance of an attack, and why it would put upward pressure on oil prices.

It's possible that stocks will not be worth their trouble for another many years. We could already be in a range that holds for so long that people simply move beyond stocks as a place they consider storing their money. The stock market could become a distant report for specialists only, much the way most people view esoteric investments like cattle futures. How much does the cattle report factor into the lives of most people you know?

It's already like that here in Japan. For the first five years of the lost decade of the 1990s, individual Japanese investors tried scooping up bargains on every minor bottom. The more nimble among them probably made a few yen in the bounces of 15% in autumn 1990, 40% from summer 1992 to summer 1993, 48% from summer 1995 to summer 1996, and so on. Each was heralded as the start of a new bull market, all proved false. The three bounces just mentioned were followed by respective drops of 45%, 21% then a spike followed by another 32%, and 43%. After eight years of fighting it out in the trenches, most stock investors saw their accounts worth less than half what they had been at the end of the initial drop.

Cash is worthless with rates near zero, and there's a lot of cash out there needing somewhere to go after the many bailouts and injections into the banking system that have not been converted into new lending. Lots of money into the banks with none coming out indicates that banks have taken their free taxpayer money and put it into stocks, creating a self-fulfilling balance sheet improvement tactic. Toxicity on the accounting ledger has come down as stocks have gone up.

That's one way of saying that liquidity is driving the current market, lots of government liquidity. Gluskin Sheff's David Rosenberg, however, wrote on Friday that such talk "is usually a catch-all phrase for 'we have no clue' but it sounds good."

TCW Group Chief Investment Officer Jeffrey Gundlach said at a June 2007 Morningstar conference, "The subprime market is a total unmitigated disaster and it's going to get worse. The delinquency rate is still climbing. At the same time, the ability of people to refinance is also going down. It's just not a very attractive situation." The S&P 500 traded at 1,500 back then.

On Wednesday, in a conference call titled Too Good to Be True, Gundlach said of the current market that it was about to lose momentum, and advised selling on strength when the S&P 500 is over 1,000.

It was always said that come what may, you can count on U.S. consumers. Not these days. For nearly 20 years, consumer spending has outpaced income growth in America. Credit everywhere they turned, the wealth effect of the dot com stock market, and then the ATM-like appeal of rising house prices was enough to make the word "budget" foreign to most Americans. Shop 'til you drop was the rallying cry from coast to coast.

Too bad they did just that. We haven't seen this many dropped consumer corpses in the aisles since John Steinbeck was the contemporary chronicler of American culture.

I wrote here a month ago that Japanese were wondering where talk of recovery was coming from. Japan had just reported its highest unemployment rate in six years at 5.4%, and its total number of jobless at 3.5 million. Credit Suisse Japan chief economist Hiromichi Shirakawa said, "Employment conditions are taking a turn for the worse."

A month later, they still are.

From the current Kelly Letter research stream come these two points.

Doug Kass has been the man of the year as far as market forecasts go because he confidently called a generational low in early March, as most of the herd fretted slipping into the abyss. From 666 on the S&P 500, Kass said we'd see 1050 by late summer or early fall, then take another trip lower. He still thinks so, and says the time frame is right on track. From an article he wrote Wednesday at TheStreet.com:

The following is from Kelly Letter Note 55, sent to subscribers first thing in the morning on Sunday, August 16.

We've been watching US Natural Gas (UNG) as a possible buy to track what we believe will be a gradual increase in the price of natural gas when the economy gets back on an earnest growth path.

After the torrid run higher in the market, I suggest setting trailing stops to guard profits.

After Monday's 1.5% gain, the S&P 500 sports a very overbought RSI of 75. Some points to bear in mind as we poke our heads into the stratosphere of overbought:

Here in Japan, people are wondering where talk of recovery is coming from. The world's second-largest economy just reported a 5.4% unemployment rate, its worst in six years. The total number of jobless in June grew 31% from a year earlier, to 3.5 million.

Word on the street is that big companies massaged the books to make it look like things are getting better, but workers don't see it. Just ask anybody holding down a part-time, unskilled job to make up for a pay reduction or cutback in hours.

Many people have written asking why The Kelly Letter hasn't bought natural gas via UNG yet. The following June 21 article (sent to subscribers), re-displayed here in its entirety, explains why. The addendum at the bottom shows what's happened since we ran the article.

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We've been watching Market Vectors Russia (RSX) since last August, and had a buy price target of $10 on it. Since we began watching, it fell from $40 in August to $10.34 in January when it barely missed our price target, rose to $26 at the beginning of this month, and closed last Friday at $21.31.

Having witnessed that wide range, I asked myself if there was still a chance that Russia would hit newer, harder times to send the ETF down to the $10 level again. In pursuit of the answer, I dove back into our Russia folder for the latest reports. What I found was interesting, as it revealed how Russia will manage its politics and business together to control its energy economy. Remember, it's the "R" in the BRICs, the future of the world economy as defined by Goldman Sachs: Brazil, Russia, India, and China. Its economic strategy is an important one to understand.

Depletion is one of the most important subjects for anybody interested in the oil industry. Easy oil of the light, sweet crude variety is getting scarcer by the month. The steady disappearance of existing deposits forces oil companies to set their sights farther afield in search of replacing the oil volume lost to depletion. Annually, world oil supply is losing about 4 million barrels per day to depletion.

Where do you go to make up for that if you're, say, ExxonMobil (XOM)? Not to Texas or Alaska anymore, there are no more Ghawars (the world's largest oil field and source of more than half of Saudi Arabia's production), and the Canadian oil sands are a very expensive way to get more supply.

The Kelly Letter owned shares of Apple (AAPL) stock before I owned an Apple computer. Our thesis was that the internet has unleashed the freedom to work on any computer and that such freedom would lead more people to choose the elegance and power of Apple's products. My research said so and we followed the conclusion in the portfolio, but I didn't immediately follow it in my own life. My office continued using PCs and I personally continued using a PC notebook.

That all just changed when I bought a MacBook Pro 17-inch at the Apple Store in Ginza, Tokyo. Most new Mac users rave about the solidity of the product, the no-bloatware out-of-box experience, and the sheer beauty of Apple's technology. What I want to focus on today, however, is Apple's superb retail experience.

No time for an in-depth article today, but the quick comment is that I think oil is getting overstretched for the short term and is due for a pullback. In preparation for that, The Kelly Letter is shorting the commodity into this week's strength.

Notice that the long ETFs are blinking overbought signals on the charts, while the short ETFs are blinking oversold. It's time to at least get out of long positions, but I think the overstretch is enough to warrant taking short positions -- as we've done.