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Will Bear Market End with Disgust for Capitalism?


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

The last words on equities go to Jeff Saut, investment strategist of Raymond James, who said:

"'Breakout or fake out?' is the question du jour. Yet as market maven Arthur Zeikel wrote decades ago, 'Despite what theoreticians tell us, investing -- particularly at the margin -- is not the product of rational and objective analysis, but an emotional relative analysis -- anxiety about the future.' My colleague Bob Ferrell put it this way: 'Emotions are simply stronger than reason; people do not change and people make markets!' Indeed, fear, hope and greed are only loosely connected to the business cycle. And, at session 30 in the 'buying stampede,' we are clearly in the 'greed phase.' We continue to invest, and trade accordingly."


The latest Survey of Business Confidence of the World by Moody's said:

"Global business confidence remained positive last week for the third straight week. The last time confidence was consistently positive was nearly a year ago. Businesses are responding most positively to broad assessments of the current economic environment and the outlook into early 2010; they are as strong as they have been since the financial crisis first hit in the summer of 2007."

The Survey results suggest that the global recession is coming to an end, but isn't quite over yet.

The German economy expanded in the second quarter of 2009 with real GDP rising by 0.3% on a seasonally adjusted basis from the previous quarter. Also, the Ifo Business Survey reported that German business confidence improved to an 11-month high in August, indicating a further improvement in GDP in the second half of 2009.

Heading home from Jackson Hole a week ago, the world's central bankers seemed in no hurry to start increasing interest rates -- intent on not repeating the monetary policy tightening mistakes of the Great Depression. As reported by the Financial Times, Martin Feldstein, a Harvard professor, thought it would be possible to have "two years or more of very low interest rates" without risk of excess inflation, given the labor and factory capacity in the economy.

Meanwhile, after keeping the interest rate at a record low of 0.5% from April to July 2009, the Bank of Israel (BoI) became the first central bank to raise interest rates in this cycle, increasing the benchmark rate to 0.75%. Analysts believe Australia and Norway will tighten first among the G-10 central banks in 2010, as reported by RGE Monitor.

A snapshot of the week's US economic reports is provided below.

August 28

Cash for Clunkers lifts consumer spending in July

August 27

Jobless claims decline, but continuing claims including special programs advance

Second-quarter real GDP unchanged at -1.0%

August 26

Sales of new homes advanced, inventories are shrinking

Defense and aircraft orders lift durable goods in July

August 25

Case-Shiller Home Price Index and FHFA House Price Index -- noteworthy recovery

Gain in consumer confidence during August nearly erases losses of prior two months

August 24

Chicago Fed National Activity Index -- confirms positive signals of other report

No positions in stocks mentioned.
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