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The Week Ahead: Napoleon Bernanke engages the siege
By Gene Inger, IngerLetter.com
Monday, March 24, 2008

(Editor's Note: A former CNBC market maven and frequent TV guest, Gene Inger is known to move markets with his comments. Gene now provides a weekly look ahead at the financial markets for Market Cap subscribers absolutely free. Sign up to receive Gene's unrivaled daily insights at: IngerLetter.com.)

Napoleon . . . is purported to have said: " never get in the way of any enemy, who is destroying himself' ". In the 'great deleveraging battle' of this post-turn-of-the-Century 'reflation' fight; the antagonists came to greater loggerheads than monetarists thought likely. Partially, because rules changed while the game was being played midstream, it became a very challenging confrontation; with (as forecast) the housing bubble bust a microcosm of bigger issues; as we analyzed that to be over two years ago. Maybe, if I may omit humility for a moment, one of the least noticed of our calls (which few of the bankers and lenders seemed to notice) was the most important: that in 2006-'07, early-on, money would first slosh over to Wall Street from Main Street's housing bust, before those boys -buoyed by far fatter wallets- would feel the pinch. But they would.

It was this concept; of rotational money seeking a place to go, that restrained caution towards the market during 2005-2006; because we thought bears seeking immediate follow-through of housing by stocks, were premature; ignoring the money rotation. At the same time; our theory held it was inevitable this would eventually come home to a roost everywhere; which is why the 'end 2006' Outlook for 2007 (published in a few independent journals who review us too) called for a massive rotational distribution.

Because that concept was thus freely circulated; but hardly anybody gave credence; instead obfuscating with belligerent proclamations of 'permanent prosperity plateaus', in a new world order, and 'free market capitalism' (which it actually wasn't; as having no policy and oversight is neither free, market-oriented, nor fair; just complacent and detached, or flat-out ignorant); I got fairly feisty about making our case; to be of help. (That can be attested to by all who know I was already then doing mostly audio; very little video; and planning to diminish text; but ramped up all of it because of believing we were facing the most challenging forthcoming distribution in my humble career.)

And that we did address. Unlike Napoleon, we tried to offer a 'force majeure' (well it is French, why should I say 'ceasefire or truce') to our adversary; to save their blood we were convinced was going to be spilled. So spilled it was; far more than the Indexes.

Quantitative analysts . . . replaced field marshals and generals; always a mistake in warfare; which trading is. The mind must control movement of troops (money), and in that regard mathematical algorithms had already (remember Long Term Capital Mgt.) been previously-discredited; because they can't fully factor-in emotion; contagion and that other aspect carefully being reassembled; which happens to be one word: 'trust'.

On the road to 'Wall Street's Waterloo', the Gilded Age elite partied like no tomorrow. They had that part right. (I can prove that too; as Ferrari waiting lists are vanishing as fast as fast as Delta and Southwest jets from the active fleets; as well as new upscale 5th Avenue shoppers, as the Dollar firms and brokers and traders are shell-shocked.

In 1814 and 1815 there were two sieges of Paris; in 2007 and 2008; two sieges now seen of New York (and now one in Chicago's commodity pits). We're more stable as we identified several days ago; because the pieces of the puzzle for stabilization if not recovery (which must by definition come later), are at least being implemented. It has been our consistent belief (unlike the whiners and moaners you may see on TV), through all of this, that the Fed was studiously studying the battlefield, not ignorant at all of the risk; and not complacent. (We proved it too; via Reg W waiver discovery.)

Bernanke is our Napoleon!

And he won't be relegated to ignominious defeat (better hope not; or the Nation will). He let the enemy of the proletariat (who thinks they are his constituents, throwing out beads to the masses from time-to-time while preaching trickle-down, as if it was sort of a permanent Mardi Gras parade) get to the gates of Paris (in this case Main Street driveways) before revealing his position. Better financial military strategy doesn't exist when the preceding commanders (Greenspan and Congress) had allowed skirmishes to proceed without being engaged (they indeed turned the other cheek probably as it was all great prosperity for them, even though brokers, bankers, and builders, knew it could not possibly be a permanently sustainable state of affairs).

By the time that extraordinary phase of European history wound-down; Europe's very backbone changed; political frontiers were revised; Italy and Belgium suffered war, as baroque Vienna (where my family hails from) eyed an international Congress. Before the current phase of the housing (core issue of which even the SIV's are mercenaries fighting on behalf of the power-brokers) morass is escaped from (recovery); the face of not only real estate; but the enforcement of oversight hegemony will be seen. This type of governance will last for years; decades actually; and that's just how it goes; it doesn't matter if you like or approve of what Congressman Franks proposes (actually we concur with most of his points). A vanquishing army determines its benevolence.

Is this too complex a alliteration? Probably not. Let's make it simple; as there's much too much news to cover on a pre-holiday report: the fashion of the era (bling) is gone, thankfully; the intrigues of the court jesters (candidates?) pales by comparison with a realization that issues are skirted, the economy is what matters; and the world does return to our fold, as the Dollar firms, and circumstances normalize.

Daily action . . . has occasionally noted that most of life is not black, nor white; but shades of gray. The perspective of investors is often that like captains and majors in the field of battle; not the commanders. They see the trees, because they're groveling in them; but not the forest. And that's understandable; everybody has a role.

Napoleon Bernanke has to look at the forest; to engage the enemy at an opportune if not certain, point, with the best chance to score a decisive victory. He has done that; and almost all he can without other agencies (and he's commandeering them for the fight too) being drafted to the cause 'for the greater good'. Conditions were favorable, in this week just past (and the prior one too), for our forecast irregular rebound starts.

Cartoonists have reacted to the battlefield conditions much as the accompanying little drawing in the Journal. Much like Danish cartoons depicting the modern barbarians, it doesn't tell you the circumstances of the juxtapositioned forces, unless you've studied it. Having done so and calming (for a year) forewarned (Gene 'Paul Revere' Inger as not recognized by this Continental Congress; but that's o.k.; they can debate minutia) American investors what was coming (at least ingerletter.com members), we humbly are pleased to have saved lots of money for folks from those Laundromats eagerly or aggressively trying to wring every nickel out of their pockets during developing bears.

However; the struggle by America, Great Britain; and the French Republic; against an assortment of interlopers with moneybags filled by the largesse of faded empires; has not ended. Translation (if needed): we are at war; the battlelines are drawn; enemy is at or inside the gates (those that are in our houses literally; the outcome remains fluid for the short-term. However the building blocks of solution are increasingly visible and while the timeframe for resolution is absolutely not going to be instantaneous, at least transparent evidence is coming together (coalescing) to suggest conceptual 'gelling'.

Summary: that means there is more damage as outlined last night (brief summary is below; new members may visit the archives below for the full versions and videos) to be seen (including bank balance sheets; much of which is still suspiciously perilous); but the banks, the hedgers (next shoe to drop?), and business overall, knows what is necessary to do. That most businesses were concerned (they saw this before most of course; and this go-round were relatively cash-rich), is why we called for this mostly as 'Chinese Water Torture' or deli 'Salami Decline' rather than a crash, over the year.

Reinforcing my previous comments; the commodity markets have broken. Inflation as leads to deflation; as leads to a bottom; as leads to reform; political pendulum swings and recovery (irrespective of which Party wins; and McCain has a double-digit lead it should be noted by one of the latest polls); all of which allows the reflation to halt just inside the gates (very close call if we're lucky); with the hordes turned-back; as I note is especially important in wartime. However, as in the French Revolution; or the U.S. one for that matter (and no, I don't consider myself Paul Revere, but yes, if my views had been properly aired by those who think avoiding candor somehow helps investor classes; well, there might have been a few more people able to avoid this debacle). I realize they're all candid now (well mostly); but always so after the barn is emptied.

We need to realize that the kind of 'wild oscillations' characterize a thrashing trying to determine if a bottom is being constructed. The odds remain unfavorable for that from any overall perspective. However, the prospects of 'worst-case outcomes' are also a bit dimmed (fortunately) by virtue of the valiant strategic thinkers at the NY Fed and in Washington (yes, when they finally got into it; even as their predecessors developed it in the first place; which solves little to emphasize other than as relates to reforms). I actually expected the bias to the upside; and ensuing churn, with crosscurrents alive and well in the final minutes of Thursday, given Expiration; long weekend and S&P rebalancing. Too many variables to draw judgments from regarding next week.

If as I suspect there is a bearish counterattack soon (in the form of mixed earnings, but the requisite downgrading of forward estimates); it will be crucial to study market behavior associated with that coming skirmish, to help ascertain what lurks ahead. I think at best, we can envision periods of further testing and battles; or months of an investment version of a 'siege', where the outcome will probably be favorable, but the duration of the struggle (though likely in months at minimum), like any ongoing battle, is subject to revision; as quick reaction 'surges' don't always set the future pace. This flanking maneuver by the Fed (who may actually make money on some of the paper they're absorbing incidentally) is like the surge it Iraq; it buys time to assess strategy.

Having argued for the better part of a year, that the false bullish bravado by analysts, or pundits, or global fanatics; was aimed at buying time for industry deleveraging; it's our view that the easy money on the downside (it's never easy; but we mean majority in the race to 'zero') is behind. By no means is the downtrend completed and tested; thus for that reason combat duration assessments remain open-ended. If that means we argue that the recent two-weeks pre-Expiration and Triple Witching upward affair, projected to be irregular but occur, has not affirmed a sustainable low; then so be it.

A summarized synopsis of last night's remarks:

During the 11th Olympiad in Berlin . . . the world's stock markets remained mired in 'The Great Depression', from which they were trying to extricate; but oh so gradually, as collections of misnomers, mistakes, myths or falsehoods of the era characterized huge optimism for Germany, and for that matter the world. But it was premature, to say the least. Then, as in Communist China this year, another myth centered around the 'public relations' image of 'perpetual prosperity' and growth. 1936 was however a year still in the Depression. The world was rearming for an approaching World War of diabolic proportions (redacted). While you could see coming economic improvements or pieces in place to form seeds for recovery; that revitalization was not yet upon us, for awhile. The analogy applies to the current 'world' situation; as includes a months-ago forecast for a 'China Syndrome' meltdown (ongoing) and after inflation the Deflation, including the breakdown of commodities called early (last) week.

Today's spectators in the Wall Street media stadiums sometimes quietly grasp reality while others mindlessly cheer every rally or jeer every purge; as if a victory or defeat hung in the balance. It does not. Much of it is noise; and who won the Gold Medals of the day was important for the day, and for National pride for grooming the performers to show they knew how to 'do well'. But the Games still played to their final overtures.

We do not expect necessarily a Wagnerian crescendo; nor a ticker-tape parade for a bear in this market (actually there's less ticker tape and less revenue for brokers and banks as this goes forward; a reason valuation bulls on this actually 'know nothing'). Adolf Hitler saw in Wagner's music the embodiment of his mythology of the genre; in a way not entirely dissimilar from today's globalists who radicalize Nietzsche's power urges, in cajoling investors and politicians into near-tyrannical stupidity by taking the kernel of validity in 'free trade', to lure the unsuspecting into unfettered unfair trade.

That provokes self-destruction. .. to wit manipulating a society by using partial truths to distort a Nation's course of otherwise good and noble economic intentions. We've (unfortunately correctly) argued that it all led to maligned implications for the future of our normal trading culture, and with it the Nietzsche-style of tragic pessimism; which partially masked quasi-fascism, or as close as we've ever seen it (ideally won't again, thank you) in the United States. A risk is, of course, that since the global extremists are now exposed for being black-magicians in a sense (black magic hypnotizing the investment community's innate greed, not at all an allusion of race for any misreading my intent); that we run to other extremes. Anti-fascism can be a doctrine in need too, if it requires inhibition, isolation, too much self-restraint (such as against Islamists), or a feeling of guilt (as in foreign policy). If Washington's intellectual elites don't get this, I suspect the radical Moslems do get it; because it's the hallmark of their anti-western 'crusade'; as they take a tinge of errors, try to magnify it into overall policy criticisms; in their goal: to drive us to complacency; self-indulgence; and later submissiveness. I suspect that's an inherent danger lurking behind quasi-non-issue political debates.

Symptoms and Outcomes

After the liquidation, de-commoditization; capitulation; and decimation; there could be, I suspect, a demoralization. That ought to be followed by memorialization plaques both in New York and Beijing just as there was in the Olympiastadion in Berlin for an American hero of the era (as much as despot Hitler hated the Jesse Owens victory.. he could have noticed Owens wore German track shoes, and capitalized on that). Point? Herr Hitler, swept-up like bankers of this era by their own snake-oil, failed to look at the other side of the coin; instead snatching defeat from the jaws of a 'reflation' victory.

Soon America will snatch victory from short-term defeat (our depreciated repatriation forecast over some years); but not yet. As in Berlin's 1936 Olympics, rallies aren't so easily going to be sustained just because they occur. It takes a long time to emerge from a 'deleveraging'. No we won't go through a formal devaluation like Germany did at the time. Nor will China ride roughshod over the world; though it will grow well in time; as it deserves… hopefully with a more liberal governance however. Their big error is to oppose Taiwan, rather than embrace Taipei and their governing structures.

Now it is important to realize that governance was as detached as Hoover, but the response from the Bernanke Fed wasn't so slow as even when Roosevelt took over. However, enough damage was done that he knew there was no easy solution for the mortgage mess; but they're working toward it. To new ingerletter.com members; our point from two years ago: you don't compress 20 years of growth into 5 years (average real estate appreciation in the post-war era was 3% annually it is notable); and then expect it to correct in a short period of time. A collapse of the whole bubble was our 2005 call.

(Reconstruction) evidence is hinted at by the building blocks of recovery; but we're a long way off in terms of those kicking-in or being discounted by the markets, at least in my view. What it does is put me on alert that the full power of a Federal Government that previously squandered our future (mostly Congress not the Administration by the way, due to lack of adequate oversight), is finally engaged; and not just the Fed itself. That says the duration of the disaster may be envisioned (putting timeline details on it too soon beyond what I've already said; too many will focus on that.. so suffice to say it's not yet; but the pattern is in harmony with that outlined here throughout, and via our nightly videos).

(However) it is not ridiculous to say that today's youthful 'traders gone wild' (sedated or going into seclusion; when in reality these are 'great' trading markets; poor investment ones by the way) will abhor leverage when they are the CEO's and Wall Street pit bosses a few years from now; and only gradually reintroduce aggressive speculation. In the meantime, 'limits', prudence and the avoidance of leveraged insanity rule the roost.

Short-term . . . believes the housing slump will continue to swell bank losses (not to mention everything we already did); that nobody but us mentioned that Fitch expects, as noted the other day, to see defaults (not merely downgrades of ratings) move from one area to another; that educational systems are often caught-up in all of this too by virtue of where pension monies were invested (poor California; how is this possible?); the tail continues to wag the dog (as it's not people talking themselves into decline; it is actual economic dislocation and higher expenses, compelling people to disbelieve a lot of propaganda suggesting there is no recession; inane nonsense). Incidentally, remember just because one is paranoid, doesn't mean they're not out to get ya.

Of course we have a few multinational (last favorable old global stocks) favorable earnings reports; after which some bomb or others cluster-bomb, with lowered future expectations. Given the way I started tonight, maybe I should call it the aunschluss.

Be careful of this union between globalists turning into bears; commodity bulls in full retreat; and Olympic sprinters fleeing Chinese pollution faster than a skier escaping Austria after the aunschluss that temporarily united Austria and Germany in 1938. At this point commodity players are 'deleveraging' as fast or faster than a bobsled team in the Alps, and leaving their goggles and caps behind as they dodge 'the margins'; especially in anything leveraged, or commodity markets.

Fine; we called the Gilded Age of the preceding couple years (mostly in New York not elsewhere) comparable only with 1929; or for that matter Vienna's Golden Autumn. If I must reduce this to the pendulum swinging; it's in opposition to extremes and greed; or for that matter despair and hopelessness. A belief in reversion to the mean over at least a modicum of time. The 'breaks' are swift; like Gold and Oil etc., forecast. Bounces will be attempted. This is the watershed year following 2007; a year in which we studied the historical, political and economic ferment that ensured us the odds of a 'zero' chance of sustainability to our own forecast rally into July or beyond.

Hopefully together we'll identify 'real' accumulation when it arrives, in order to relate this to an autumn of the Habsburg empire. Both events quasi-wartime; both events with the public enjoying bread and circuses while some leaders fiddled instead of preparing for the anschluss; and both intellectually rationalized global shifts as being in their interest; when in reality, those shifts were gnawing at their very fiber, and the threads of their National existence.

The Fed doing what they are is reminiscent of 'emergency action' in the 1930's; that means that the problems all along were (and are) as serious as we proclaimed over a year-plus just past. The crowd 'shilling' for more upside beyond this week (ie: bottom of permanence) likely premature. We're not permabears; hoping dearly we're wrong.

However, it probably is not. At best it needs to be tested (that's I'll note is the 'w bottom' idea; where at best you saw the first part of that last week; but I hasten to add I have no particular confidence of such bad decisions being 'bailed', or that the second part of that 'w' will hold. What I'm fairly sure about is that we got at this point the rally we wanted; with time and price upside durations essentially limited as noted.

Summary points: they don't use the full-faith-and-power of the Federal Government with a sitting President 'said' opposed to 'bailouts' or mortgage interventions, without exerting a modicum of that fierce independence we've proclaimed the Fed has, along with real solid leadership by the Fed Chairman; who acted behind the scenes all the while; per our frequent discussions of Reg W waivers that prevented brokerage, not banking, collapses 'en masse' earlier last year (and still nobody talks about that ever).

Bottom-line: all along I've said the Fed was working to save the banks; homeowner concerns or the housing market can only benefit indirectly. If they delve into that; look out in terms of implications; but in a sense they're already moving in that direction. It's also worth mentioning our reflections about intervening stimulus (helicopter rebates in most circles) that urges consumption (crazy, but masses will buy into it who shouldn't while for the rest of us, we'd take lunch or dinner if we get anything at all, thanks). We must have been the only ones who noticed that (in Hill testimony) Bernanke stated in the long run we must retreat from outsourcing etc. Global radicals hated that fact. We want to be greedy when others are fearful; but it's not that simple. And it definitely is (if at all) an interest in technology versus Financials or commodity-based moves as were seen not only extended, but more vulnerable if push-comes-to-shove. Incidentally we correctly warned a few months back about Chinese stocks when others were in a clamor to buy them. See what happened on the way to this Olympics?

(Excerpted). Otherwise I am perfectly content to try our best at calling U.S.A. Index moves; assess economic conditions; and not be one of the animals performing in the center ring of the circus. So far they haven't tamed the lions; and because they are reactive rather than anticipatory; often bitten. Now they're starting to get loudly bullish…ahem..roar.

And then there is the 'cluster bomb' possibilities of earnings and downgrades looming here in the U.S. during upcoming earnings periods; sprinkle that in Goldie's porridge.

Bottom line: macro signs as interpreted; including (updated slightly) the following bullet points:

Fed has power in 'unusual & exigent circumstances' to expand emergency lending venues;

Primary issue remains not sharp 'lending issues' or even liquidity, but of financial solvency;

Public perception becomes more skittish as their frame of mind increases awakens to this;

Raising margin requirements on 'commodity or oil futures', is having maximal impact;

The extent of commodity leverage (worse than stocks) is such that traders are evacuating;

Fed strives to alleviates 'seized' aspects of credit markets; not fundamental problems;

Fed 'lending' via mortgage debt taken as Collateral, is an important step toward stabilization;

Meaning; moving in right direction. However, this does little to alleviate underlying overall debt;

After Bear Sterns they're back to factoring-in massive cuts; more insanity & devastating risk;

Only if you stabilize the Dollar can you stop subsidizing cheap Oil & Gas overseas;

Only by doing so can you restore equilibrium and take pressure off domestic stagflation;

Derivatives or other liabilities remain inherently gargantuan; not impacted by these actions;

Don't forget: commercial property implosions still should follow drastic retailing contractions;

Impaired lenders will inherit many properties as they default ahead; this is not averted;

Detected key changes in Bernanke's last testimony; turns global extremism upside down;

Global economic decline started; inline with ongoing forecast of economic contagion;

From the start we said world wouldn't 'decouple' from globalized 'U.S. credit pandemic';

Equity markets remain strapped for capital raising; still limit serious recovery prospects;

By no means 'presume' this contraction 'merely' of an average U.S. post-war duration;

Remember our theory: 'solo-walk' '07 Dow highs masked bear-market retracement peak;

To wit: entire forecast upside 'reflation' from 2002 to 2006 was likely just a retracement;

Hence our forecast 2002-'06 rally was indeed a mid-cycle correction; in a super-cycle 'bear';

Simply put: markets won't pay-up for earnings pending actual viable growth prospects;

Deleveraging remains 'a bitch', as unpleasant (secular) scenarios rotationally evolve.

Further points: nearer-term issues to contend with beyond above; some with macro aspects:

Pyramiding mountains of compounding debt have not ended; facilitation assisted a bit;

Extreme volatility oscillations are indicative of a market at great pains of instability & risk;

Possibility commodity rallies 'blowing-off' at least temporarily (5th wave patterns) was call;

They 'blew-off', are essentially crashing; almost of historical note; likely Deflation's start;

Yen Carry Trades may start unwinding; due to declining commodities;

All along Fed actually trying to promote bank systemic stability; not underwrite all risks;

Fed's goal: not save housing; merely try to salvage 'commercial banking' from disaster;

Forewarned of February-May 2008 reset tsunami sequel for a year; others just grappling;

Real-estate bubble forecast as just a microcosm of bigger issues; clearly as not resolved;

Many major banks still have far larger leveraged derivative holdings than typically realized;

Repeatedly most 'values' get 'better'; but danger of 'surprise' insolvencies clearly remains;

As to the threat of an attack (while U.S. financially down); well we mentioned that it exists;

Overall; irrespective of interim 'finger in the dike' saves; the overall downtrend continues.

MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks continue guidelines to catch short-term swings. Forecast a multi-hundred point rally in Tuesday's market; and shorted early upside efforts on Wednesday. Thereafter chop. Rally risk diminishing in relation to overall structure; rebounds may be attempted and fail; implosion risk of course may resume as we'll outline during next week's remarks.

Basically we thought they'd nuke the shorts; get a 500-1000 point Dow rally last week and this week; then move-on to the next outlined stage. Mortgage backed securities issues notwithstanding; bank balance sheets remain a maze of intricacies that even they may not understand. Noting 'leveraged derivatives' risks reflect most (not all of a slew of) banks have not meaningfully shifted their toxic-risk matrix holdings. It is why the rescue of last resort (and it's no vacation) has been chosen as a next destination.

We retain our macro (forward-roll adjusted) June S&P 1599 short-sale; irrespective of interim short washouts & long-side plays; as projected and outlined these 2 weeks.

Now the latest Daily Briefing audio-video MarketCast final 'chart' comments:

Very unusual: having thoroughly forewarned of the commodity break; of inflation very shortly moving towards Deflation (as always historically is how it works; simply put); a comment last night about the (hardly reported by media) Chinese market 'crash' that I forecast months ago; with the clear expectation that the new longs (yesterday after a 400-point Dow rally that triggered absurd 'the bottom is in' comments by so many) in our view should be throwing-in-the-towel on the rebound in the hours or days ahead, not starting to buy (we thought such ideas incredulous and ignorant about the facts; leading unknowing investors to believe that just because the Fed's engaged problem issues are in the process to be resolved or will be; and its onward and upward..which is impossible yet); or so on, we need not go through the basics of comments again.

Our psychological strategy in 2007 was to be off-margin; cash-rich; debt-free; and the opposite of what most on Wall Street actually did. We wanted to have our head clear I said then, for the eventual washout, rather than be swimming crazily with masses of panicked hordes (worldwide; since we also argued 'decoupling was an impossibility').

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Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. (Individual stock comments generally are provided in the video overviews only; once in awhile I'll have some thoughts here, where something's particularly emphasized or of technical nature necessitating some discussion. Increasingly most all is via video.)

Should mention PURE Biosciences (PURE). No news yet; however, shares as we suspected, did a 'v bottom' the other day, hovered at consolidation (resistance) and in the late going broke-out. The near 42% gain on Thursday concludes a wild reversal; and I believe made (eye-opening) PURE the largest percentage gainer of any today. It is relevant to see the pattern; higher volume washout below support, and then the disbelief (lower volume) of the recovery until it accelerated. Ideally consolidates a bit and then more upside; especially should favorable news follow in a reasonable time.

Long-range WiFi

One aspect that is technical is the growth of WiFi while everyone generally 'assumes' only the newer WiMax can do what Intel has achieved. That's why we want to share a bit we gleaned from MIT, where they reporting new Intel WiFi radio devices stated to drastically increase the effective range of 'bridged' routers. Intel is claiming a range between two of the $500 routers of near 60 miles, although most implementations are expected to connect wired urban cores with wireless 'hamlets' within 30 miles range.

We have mentioned this trend before; as it relates to leapfrogging cable or wire runs in a slew of developing areas; not necessarily just impoverished emerging countries. In many areas, it simply isn’t feasible to run copper or fiber to the hinterlands; but we argued (over a year ago) that it makes no sense to build antiquated infrastructure at a time when technology exists to leap beyond it. Given the advent of terrorism, it's not MIT's opinion, but mine, that security's also enhanced by avoiding wired grids overall.

For two-way wireless communications, satellite connections are expensive. Intel has pointed out that it's impractical to wire up some villages in Asian or African countries. One Intel exec. Said: 'You can’t lay cable. It’s difficult, expensive, and someone is going to pull it up out of the ground to sell it.' Yup; scrap aluminum, copper or fiber. I emphasize that the lack of infrastructure upgrades in America has been shameful of course; but when we finally do it (better than bombing consumers with junk money for Chinese goods), we ought to leap-ahead similarly; and gradually discard old grids of all kinds (especially power; as is already done isomewhat with cellular and sat. TV).

How do they get the range out of WiFi you ask? Most wireless routers routinely wait for acknowledgment from other nodes on the network before sending additional data, drastically reducing bandwidth and range. The new Intel routers use software to set up specific times at which the devices are expected to be communicating, eliminating the need for such acknowledgments. At over 6Mbps, the new links provide adequate speed for videoconferencing, and, of course, connecting the exurban classrooms and Classmate PCs that Intel's rolling out; which are aimed at so-called poorer nations. If we were to be excessively cynical; we'd think the American school system in many of our states may qualify for this inexpensive high-speed wireless connectivity program.

I could discuss Intel at length; but won't. Not trying to suggest (with the dividend hike) it as a buy here; as I'm hopeful that in a generalized market purge it may test or even penetrate the preceding lows. They upcoming Mehalen (and other) processors will be the first ones to support simultaneous instruction-sets for full-speed multitasking, and a further leap forward on already-superior computing power. These start to appear in 2009 (late this year only in Servers), and we're glad; as that gives enough time for at least the shares to remain fairly moribund, and moving with the broader tech sectors. There is little doubt that when the time arrives, Intel will be at the forefront for normal investor's interest on our part; with a reasonable outlook over the ensuing 3-5 years.

In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us more while as we also focus on Middle East and World War III avoidance.

Our 2007 view had been that we're in an ill-defined recession; finally recognized as it evolves. As to whether it descends into something akin to post-railroad debacles way back in the 1880's; is likely what the Fed worries about; never talks about; but actions affirm they're desperately engaged to stabilize fluidity of functionality. Regression to the mean or traditional affordability 'rules' likely hallmarks of home lending guidelines for years. I hasten to add, whether depressing or realistic (per 3 year forecast here of the housing break combined with 'junk debt' investment avoidance); stocks eventually get interesting. Gilded Age globalists unflaggingly failed to see the era's transition, or detect the public mood of increased populism; essential reform calls; and low taxes.

McClellan Oscillator finds NYSE 'Mac' fluctuating via intervening bull-bear shuffles on the NYSE & NASDAQ. Reflex rallies allowed 'risk off-loading' tactics; as 'Street' debt holdings aren't investment grade. Multi-month efforts evolving. In this regard, we suspect that strategy fluctuates with markets; trying to salvage attractiveness of many stocks, whose expectations remain out-of-line optimistic for the actual world situation.

Issues continue including oil, terror; China (including latest Pentagon hack spying; a type of action that if we were financially sober would provoke warranted redressing), Pakistan; certainly all the Middle East, Europe; funny money NY economics. Noted for a year: includes international dependencies, as outcroppings of a radical extremist globalism which is neither pro-American nor conservative; even as true conservatives support fair trading; constrained spending, and not squandering our US crown jewels.

Thirteen months ago I called this an 'accident waiting to happen'; commenting that it is affirmed historically that long-duration periods of free money (Gilded Age mentality) do not create permanent liquidity; but give that illusion while the opposite transpires. There will be various trading swings; through 2008. We scalp these, while retaining our (adjusted) position short from June S&P 1599 (rolled), which continues clearly to represent the belief that while rallies occur; they remain within our structural bear.

Since early 2007 we noted economic conditions more similar to post the Gilded Age ending in 1929, the panic of 1907 (hence our call for the start to be the 'panic of 2007' last year at the end of that Gilded Age, and it's NOT coming back (party over whether they like it or not, as they didn't or only now 'start' to 'concede' there's needed rehab). It is not a structure entirely resolved by rate cuts, stimulus, 'miracles', arrogance of a few who think they have influence; although all can have short-run responses at best.

Long-run: 'new' adults in charge will enable better fiscal and public policy, than what passed for prudent economic or money management in the past era. We played the upside so long as sensible (Oct. 2002 - early '07); look forward to doing so yet-again, in a macro perspective. In the case the recent cobbling-out of an evolving bottoming structure was short-term; long-term takes months not hours or days to sort out; and that means the best-case would become a 'w bottom' (I respect what the Fed's trying; so we mitigated addressing worst cases recently, but have outlined possible realistic targets to members on macro overview videos.. but such levels are only theoretical). I warned only a stronger Dollar would ease the inflation insanity (the one they distort); that's a clue to keep an eye on in the days immediately ahead. Finally kicking-in a bit.


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