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Will Bear Market End with Disgust for Capitalism?


Deficits -- and the interest on them -- could destroy America's economy.


Other news is that the Fed must, for the first time, identify the companies in its emergency lending programs -- created to address the financial crisis -- after losing a Freedom of Information Act lawsuit against Bloomberg. The Fed is likely to appeal against the order on the grounds that such disclosure would threaten the companies and the economy.

Also, the Federal Deposit Insurance Corporation (FDIC) on Thursday said (via the Financial Times) the number of "problem banks" had grown from 305 to 416 during the second quarter, representing total assets of $299.8 billion. In the meantime, the FDIC's deposit insurance fund, which insures up to $250,000 per depositor in each bank, had fallen to just $10.4 billion -- the lowest level since March 1993 -- as a result of all the bank failures, tallying 84 so far in 2009.

The key moving-average levels for the major US indices, the BRIC countries, and South Africa (from where I'm writing this post) are given in the table below. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average about two weeks ago, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines and therefore not threatening the bullish "golden crosses" established when the 50-day averages broke upwards through the 200-day averages.

The August 17 lows that represent short-term support levels for the major US markets and are as follows: Dow Jones Industrial Index (9,135), S&P 500 Index (980) and NASDAQ Composite Index (1,931).

For more on key levels and some ideas regarding the short-term direction of the S&P 500 Index, Adam Hewison's ( short technical analysis provides valuable insight. Click here to access the presentation.

The chart below, courtesy of Bespoke, shows that the average short interest as a percentage of float for stocks in the S&P 1500 is currently at 6.9% -- the lowest level since February 2007 when the average was 6.6%. "In 2008, it was the bulls who argued that high levels of short interest were a reason the market should rally. With the recent data, however, it is now the bears who will argue that low levels of short interest suggest that investors are now too bullish," remarked Bespoke.

Doug Kass (The said:

"The authorities have created a sugar high for speculation, with a Federal Reserve that has maintained interest rates so low that there is no return on savings and with an Administration that promises to provide stimulus until it manufactures economic growth. My view is that investors will shortly see through the current sugar high and the better-than-expected earnings cycle and will begin to look over the valley at the chronic and secular issues that have emerged from the past cycle and from policy decisions aimed at returning the domestic economy toward self-sustaining growth."

No positions in stocks mentioned.
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