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CGTS FOR MONDAY, 4 OCTOBER 2010. WHEN DOES THE SELLING START? WHY SELL WHEN THE FED IS GUARANTEEING PROFITS?



CLARK'S GATE TIMING SYSTEM
FOR: 4 OCTOBER 2010, FRIDAY  

CGTS VIEW:



Why aren't stocks going down?  Everything is in place for an orderly selloff (perhaps more, perhaps a bit disorderly); but stocks are stubbornly refusing the sell-off.  Why?  It's the nature of the war between the Bull and the Bear, you say.

I am a fan of Ambrose Evans-Pritchard who writes for The Telegraph in London.  On the 27th September 2010, after having surprisingly (to me) defended QEI and Ben Bernanke's attempt to avoid debilitating deflation through mindless liquidation, penned a blog entitied "Shut Down the Fed, Part II".  In this blog, AEP apologizes to his readers -- singling out even those 'hillsmen of Idaho with their Colt 45's and boxes full of Krugerrands' who abused him day after day with emails for his support of the Fed and his opposition to sound money, and, therefore, sound politics.

AEP is now 'back in touch with reason', he writes.
I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America.

We now learn from last week’s minutes that the Fed is willing “to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate.”

NO, NO, NO, this cannot possibly be true. Ben Bernanke has not only refused to abandon his idee fixe of an “inflation target”, a key cause of the global central banking catastrophe of the last twenty years (because it can and did allow asset booms to run amok, and let credit levels reach dangerous extremes). Worse still, he seems determined to print trillions of emergency stimulus without commensurate emergency justification to test his Princeton theories, which by the way are as old as the hills. Keynes ridiculed the “tyranny of the general price level” in the early 1930s, and quite rightly so. Bernanke is reviving a doctrine that was already shown to be bunk eighty years ago....

Fed is trying to conjure away the hangover from the last binge (which Greenspan/Bernanke caused, let us not forget), as if to vindicate its prior claim that you can always clean up painlessly after asset bubbles.

Are the Chinese right? Are the Americans and the British now so decadent that they will refuse to take their punishment, opting to default on their debts by stealth?

blogs.telegraph.co.uk/finance/ambroseeva.../

We're touching on the reason that stocks don't seem to be willing to decline.  The Fed has concluded -- and I wrote about this last week, with quotes from Alan Greenspan justifying this view -- that a serious decline in stocks would wreck the economy.  The goal of 0% interest rates and QEI and QEII is to propel money back into dangerous assets, namely housing and stocks.  The Fed understands that only by continuing to create inflation -- as AEP points out, the same inflation that destroyed the global economy the last time it was loosed -- can they continue to face themselves as the supposed saviors of the free world and creators of Day out of Night.

Stocks (and housing) are the secondary streams of income for Americans, who have seen jobs disappear, and wages contract.  If they are unable to re-ignite Inflation -- the goal of the Fed is to re-ignite inflation, be certain of that -- then America, England, Japan, Europe.....well, the global economy, is kaput.

Stocks don't want to go down because the Fed is essentially promising borrowers that they will see to it that it does not go down.  TBonds won't go down either.  The Fed's pedal is still on the metal, even though it doesn't seem to be working the way it was 2001-2006.

The GPSC is rolling over.  But it's decline is not happening yet.



The Nikke is doing what most of the Asian indexes are not: following the Western Indexes down.


HSI, Hang Seng, has made an heroic bounce back up.  But it's running out of steam on the overbought side also.



SSMI, Swiss Index: Is leading European indexes lower.



VIX clearly is trying to bottom.



The only thing missing from a terrific stock decline picture is that the US Dollar is too weak at the moment -- the result of Bernanke's continued profligacy.  He wants a weak Dollar at all costs.  He is devaluing the Dollar -- as was done during the Great Depression -- all the countries of the world attempted to drive their own currencies lower, believing this would save their export economies -- only the find that the crucifixion of their own currencies was NOT the road to economic growth and monetary stability.



Sell signal on the NDX, Nasdaq Index.



Sell signal on the SOX, Semiconductor, Index.



XCI, Amex Computer Index: sell signal.



More information on the CGTS systems can be found at:
home.mindspring.com/~mclark7/CGTS09.htm

MICHAEL J CLARK
Clark's Gate Timing System
Hanoi, Vietnam
84 4 221 92210



Disclosure: No positions to disclose.