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

Revisionary thinking . . . did an effective job on Friday of twisting disappointing 2^nd Quarter GDP data into ‘better than expected’ results (better than estimates of even worse revisions), which combined with a Bernanke Jackson Hole speech laced with affirmations of ‘more of the same’, which the market initially rejected then embraced with gusto (almost as if a contrived rebound intended to evoke a favorable response to the absence of out-of-the-box thinking on the part of Fed officials..so that markets would rebound ‘as if’ investors desired a further doubling-down on the same strategy approach). Won’t it be interesting when this response runs into continued reality facts as well as a realization the Chairman spoke of ‘signs of growth next year’ not growth; which negates the Fed’s previous statements inferring more robust actual ’11 growth.

We’ve address much about these issues during a week devoted extensively to what’s going on; irrespective of my travels on the West Coast. Monday and Tuesday will be likely efforts to extend Friday’s gains; but beware the sobriety the ISM report might be able to elicit, and recognize that today’s HFT (high frequency traders) are essentially a modern equivalent (not that they intend being so) of the Plunge Protection Team. It nevertheless remains our view that none of these rebounds negate bearish prospects for the weeks ahead overall, and that (as noted a couple days ago) the repeated rally efforts actually are potentially the ‘bearish alternative’, but taking the ‘edge’ off a daily oversold, and perhaps by avoiding a capitulation below supports, enhancing odds for that to occur in the days and/or weeks ahead. Stay tuned for assessments of all that; and we’ll look at some of the technical aspects in the first of two videos this weekend.

Daily action . . . suspects that the market’s reaction to a transparent Fed statement it seems in regards to a ‘willingness’ to manipulate matters (initially down then run-in all the shorts big-time on Friday), potentially is a bearish alternative. It takes an ‘edge’ of course off the chorus of bearish prognostications that figured-out in late August what we have warned about since calling in April for severe contractions starting in May of this year (all as part of the secular bear indicated to commence from mid-2007 as you know), and that may actually enhance downside prospects after this rebound runs its course. That’s why my comment in the (accompanying pre-close remark) about how it may go in the new week.

Much of this has been an avoidance of recognizing underlying problems re-emerging globally, not just in the U.S. Plus, even the Fed Chairman used the expression saying he looks for ‘signs of growth’ in 2011; which actually is fairly negative with respect to how it was portrayed by the financial press, which wrongheaded (we think) provided a perspective of optimism and called it a forecast for stronger growth. He didn’t say it I’m sorry to say. And the typical nonsense about lower mortgage rates provided was reiterated, rather than realizing that Americans would rather pay higher rates than for sure not be able to get loans; or find that the ‘carry trade’ facilitated by the Fed which still goes on, enables the banks to play the spread and is a disincentive to initiate any loans in the private or corporate areas. How in the world is that other than a strategic mistake on the part of the Fed to continue such policies? The Fed is hindering rather than encouraging the banks to solicit lending business in America by enticing them to borrow low and invest with a few points assured gain via Treasuries. Why would they take any other risk as long as they can do that? Proposals to deflect that are danced around; not codified with any specificity. We are more concerned about the outcome after this kind of a market response, and we’d be less concerned if the market tanked of course because then you’d be oversold. This is an increasingly dangerous pattern.

Now a summary of several of the week’s highlights; then the weekend videos follow:

Traumatic extensions . . . within fundamental aspects of the debt-deleveraging cycle are a continuing concern; and reinforce the noted technical vulnerabilities. It’s necessary to mention the correlation, as there is much more involved than seasonal risks; technical support breakdowns; GDP revisions (not to mention how sloppy Q3 results will likely be), and so on. This must be understood as a generational issue.

And while there will be substantive trading rallies down the road a bit (Friday was in fact probably the best) even if and as the Fed gathers in Jackson Hole to defend their approaches for general consumption, while pondering why their Keynesian efforts fell short of their goals..which we knew from the start for various reasons… including that they really were not Keynesian approaches, but perceptions of what those would be in a debt ridden country before it even started…not to mention the misdirection of funding to a large part…and yes, some of it was ‘agenda-driven’, which has good and bad aspects to it, but definitely prolongs the contraction and likely exposes the U.S.A. to needless risks)… while there will likely extend trading rallies, the overall downside trend from April’s rebound high remains incomplete; possibly seriously incomplete as suspected in the weeks ahead.

Housing is not simply struggling along; and muddling through that area indeed has a connotation of dependency on jobs creation; and in that respect the U.S. risks being way behind in growth; which we hope isn’t to the extent of making us an ‘emerging’ or ‘comeback kid’ kind of wounded economic warrior; though that risk is fairly apparent.

I read with interest Intel’s CEO addressing the issue of lagging technological aspects, and understand his concern that goes beyond that of Microsoft’s Bill Gates efforts as were aimed some thought at lower-wage software engineer wages, rather than what is a brain drain and innovation issue, more than merely an educational matter. Intel’s saying that besides the billion bucks more it costs to establish a new plant in the U.S. there are none of the political and trade policies that encourage the establishment of the facilities. I don’t blame his comments; and noted early-on that Intel’s expansion in Arizona was not even recognized by Government last year, which makes one wonder if there is an intentional hostility, not just lack of hospitality, not by Arizona but the US. I commended Intel’s huge AZ commitment last year; not a word was heard from DC. (It was interesting that we made this comment a couple days prior to Intel’s statement about lower projections going forward, which briefly even halted its shares on Friday.)

The more Government tries to ‘paper over’ the problems, or kick cans down the road, the longer it will take, whether on the corporate or the residential property front, to be able to anticipate a real recovery that is not a stimulus mostly based on virtual faith or limited commitments in certain technologies that fit political agendas that potentially it may be is desirable (solar and energy independence); but typically inadequate funds, or impossible efforts to ‘bailout’ the short-term, at the cost of the longer term outlook.

The point is: they want you to believe we have economic equilibrium established this year, and we do not; at least not in our opinion. Rather recovery efforts are sketchy at best, and erratic in many other ways. It’s often more of a slow deterioration versus an overall ‘slow-growth’ environment, as it’s being pitched to the American people. And it has a stock market association that is obvious; as why would anyone commit surplus funds to the markets (aside special situations) pending clarity on how this will shift to a true pro-growth environment, as we do not mean that to moan about tax and spend from a political perspective; but so long as there is no official vision of an equilibrium, it seems to me that we cannot yet discount a properly-orchestrated recovery trend.

Shock treatment . .fearing the global economy may slip back into overall contraction may be what it takes for the chaos dominating the inner sanctums of the Fed and we suspect most central banks, to come-to-grips with the realities of our indebted times.

We are unconvinced this is merely hitting a ‘soft patch’ within what analysts seems to persist in describing as a ‘normal’ recovery comparable to others in the post-war era. Given that the same ‘quoted’ economists previously said it was (after-the-fact) the worst contraction in the same period of time; makes it a bit self-serving (for them or the Fed or just to instill a false sense of over-optimism perhaps) or suspicious to hear such labels. For most industries this is anything but a ‘typical’ recovery; if indeed it’s a recovery at all (has been for some exporters, but it should be noted there is evidence of renewed global not just domestic retracing now; so that makes the ‘big-cap’s safe’ investment argument suspicious for now too). Rallies here are quite dangerous really.

To an extent consumers and corporations have seen the true light and are paying off debts and living within their means. That’s why ‘sidelined liquidity’ isn’t yet interested in returning to the equity markets; and that’s part of why we suspect it will take lower multiples on ‘realistic’ S&P earnings (with some flexibility on either earnings or those multiple levels) to bring big-cap equities into attractive price range for the growth rate we will actually have, versus that imagined. Austerity has broken out across the land.

Some believe (and some financial pundits suggest) that’s a reason to presume most pressures are behind, when in reality this market has potential to roll-off another cliff. Our primary thrust since April has been that the S&P needs reach realistic valuations or levels that make sense given the growth outlook ahead. A dramatic fall could do it.

Our basic thrust this week has been to emphasize that the structural or secular bear market hasn’t ended; irrespective of what eventually happens to the 2009 lows (there are lots of forecasts becoming more negative as the economy surrenders some and prices weaken; but nobody really knows the extent panic can take ‘professionals’ out of the market, and that’s whether or not the Fed has really exhausted their main tools to impact the economy..which by the way is not exactly the case, but there’s no doubt we need circumstances that enhance the ability of the private sector to thrive and not to merely survive. And even as that won’t negate the generational aspects I’ve noted periodically (for three years I’ve said nobody is going to be happy with ‘how long’ this will take to reconstruct); that doesn’t mean there won’t be awesome intervening sharp rallies (which for that matter the markets also experienced even in the 1930’s).

When we forecast this ‘epic debacle’, I noted that authorities better act deftly, as what prevails in this era is a ‘debt structure’ that "could make the 1930’s look like a picnic", at least in some comparative ways, if they’re not very prudent. Unimpressed so far. If you ask if the market can be cut in-half from here; that’s academic; we’ll look for sign posts of a washout or capitulation low when (or if) that occurs. Matters not what price level we’re at (900 S&P or 400 S&P; but what it won’t be is 1200 or 1300 S&P as this evolves) in a postulated speculative ‘crash’ and/or selling climax; just that we see it at the time and employ capital that has been carefully squirreled-away in preparation. At that point once again I do believe the best gains will be seen in equities. Just not yet.

As we caution against being mesmerized by any washout and relief rally on Friday (in event they massage the revised GDP to show something other than 1% or lower), as far as the ‘revised’ 2.7% gain of Q2 GDP, which we suspected might be lowered just I thought in a defensive measure so that the miserable Q3 forthcoming results won’t of course be so comparatively miserable at first-blush (most signs suggest deterioration in harmony with our suspicions for many months about this year’s back-half results).

Downside velocity . . . has been limited only by periodic (if desperate) efforts by the HFT (high-frequency trading crowd variation from their typical trading pastime in roles equivalent to that of the so-called PPT or Plunge Protection Team..though they don’t recognize they’re now cast in that light)..to attempt stemming all key support plunges.

We’ve assessed imprudent’ misdirection of stimulus funds by the Fed and Treasury, even before they began the old TARP and other implementations; because we were confident they’d stick with the outmoded interpretation of Keynesian economics, as members know so well over these three years. It’s too bad they didn’t come to the realization that what I assessed as their mediocre ways for resurrecting economic strength and stability had no chance to be particularly successful. However now I’ll share a variation that might in the future surprise folks, with respect to how to retrieve the situation from beneath the brink at this point. I’m not addressing the stock market per se; but it would impact it in the fullness of time if correct. There are many ideas of course as to how to extract the Nation from this anticipated mess; and this may just be another. Nevertheless, I’m prompted to address this, because I cringe when all of us hear analysts and economists seemed shocked anytime someone suggests that a slightly higher rate environment, or curtailing of spending, would automatically send a struggling economy into a further tailspin. It might; but when you hear arguments that suggest that, consider than QE has not been particularly effective, and there is one if not more examples when conventional wisdom was effectively proved wrong-headed.

One of the generally bemoaned approaches is an ‘elitist’ assumption that quantitative easing must be expanded as the GDP numbers put explanation points on downward revisions and adjustments not only to newly-reported data points but formerly revised ones. The broad assumption is that ‘fiscal responsibility’ (translates to ‘stop spending insanely’) advocated by a majority of citizens and even politicians (at last) from BOTH political parties will somehow drive us into a modern version of the 2^nd phase of what was a prolonger Depression in the 1930’s when the Fed and Roosevelt slapped-on a few brakes (although not widely recognized as to have occurred). They assume that if we curtail spending everything automatically simply worsens exponentially.

Au contraire; if done right. At least it might be a shot. Let me explain, as there is but one example in the 20^th Century where ‘fiscal constraint’ combined with easy money; and it helped muddle-through the darkest days of the Great Depression. It was over in Great Britain; and it helped the 1930’s become the ‘only’ decade during the entire Century in which UK growth exceeded that of the US. In fact it may be what the UK is doing right now (hence monetary laboratory experiment in a sense). Americans sure didn’t learn from Keynes, who wrote that what they did here in the 21^st Century would not work coming from the huge debtor status the U.S. was and is in (tried to warn all, but few listened); but the U.S. still has time to watch the British experiment right now and perhaps embrace it. No assurance, but more QE is not a viable prescription; so it may just be that the efficacy of a ‘fiscal conservatism combined with easy money’ will be a preferable way of wading through this morass; or at least softening the blow for the present generations, and mitigating the impossible impact on future generations.

Certainly just a thought; but amidst the pressures we’ve been forecasting overall and the ‘policy drift’ from the Administration and the Fed, it might be slightly encouraging to speculate that what they ‘think’ is a mistake (easy money but constrict spending; a bit different that tighter money that some Fedheads advocate, along with higher big-government spending, which would be hurtful) might actually be the ‘lesser of evils’, with respect to fiscal policy alternatives ahead. Again; reflect on 1930’s England.

We felt (and it was correct) that March-April was the ideal time for a money manager fortunate enough to have captured much of the preceding upside to lighten portfolios; however most are in the ‘peer-matching’ rather than heroic mode; hence it required not only the re-emergence of obvious concerns affirmed by many poor data-points or comparable results, but the penetration of support points in the S&P to commence a broader (if gradual) liquidation of at-least partial positions is likely still yet ahead of us.

That such liquidation has not triggered a capitulation is not favorable; as a majority of the pundits in the financial media suggest, but a potentially severe negative. It means they continue to ‘track’ their peers rather than protect their investors, and that usually implies that ‘event risk’ of a capitulation is still ahead, irrespective of soothing words or optimistic expressions that sometimes alternate with super-bear pronouncements.

So you arrive at both (bear types) being right on the stock market but those chasing metals after the move or played against the Deflation argument we projected, were incorrect with respect to strategies. To wit: a position short on big-cap equity indexes has worked better than chasing Gold in the 1200’s, irrespective of what eventually is likely; and that’s way ahead, as we do not believe QE (quantitative easing) will result in an inflationary situation yet; just as we believed lower mortgage rates would not be able to revitalize the housing market. Both will eventually be seen; but simply not yet.

The downside risks and Deflationary concerns actually exceed what the bears expect as conceivable. The idea of runaway inflation and a response to QE is too normal for a time like this. That’s why I wrote recently that the so-called ‘new normal’ fails, might just be ‘too optimistic’ a perception of where things stand, especially for the mass of a population that is now risk-averse; stock market shy; upside-down in home equity; as well as distrustful of political and private (often banking) institutions; understandably in many cases. While some argue that creates ‘bargains’ it does not if you anticipate (as we do) that Americans will continue to pay-down debt; become debt free and in a semi-Depression mode of cash-hoarding, which of course creates future liquidity (that is their idea as well) but limits any expectation of those funds making an appearance in the markets near-term (for reasons that were expanded upon in the full text of this).

These comments began simply to denote the re-emergence of problems noted over the last few years; which we thought would plague this year’s back half anew; call it a double-dip, or more aptly, a continuation of the ‘controlled Depression’ we forecast in the wake of calling for an ‘Epic Debacle’ back in mid-2007. That’s the bottom-line for now, as we clearly and repeatedly have warned about the ‘window’ to break markets and particularly the S&P we dutifully follow, as is ongoing in a fairly procedural style, which actually leaves-open the prospect that the worst is yet to come, rather than any phenomenon that’s behind (and here we’re talking about this Summer and Fall’s sort of ‘window’ to break the market anew; and not relative to the worst from the forecast high back in 2007). This is essentially a long-term challenging continuation pattern.

Aligning market patterns . . . to historical occurrences is an interesting endeavor; at the same time as few cycles (up or down) will precisely match (nor should they) exact overlays of a prior time. That’s especially so in an ominous debt-based scenario such as we are still living in (and don’t mistake the facts for wishful thinking: debt is the big single issue we’re dealing with globally and domestically), where you have monetary authorities across the world striving to bridge the ongoing challenges in as orderly a manner as is feasible. Given the increased sophistication of the currency and central bank armamentariums, it’s no wonder that patterns are exaggerated both on upside, and then downside, swings…as the powers-that-be can forestall coming-to-grips with a bit longer sometimes; but generally cannot offset grabbling with the inevitable when they have done so little to unwind the toxic debt (and excess structures) that exist.

Simply put: we don’t strive to forecast markets based on historic cyclical patterns; but it would be naïve to completely ignore the rough correlations that continue alarming it seems, in so many ways. In our view this is still a secular bear market dating from the forecast start in 2000; interrupted by our own bullish move of 2002-’03 through 2006, and the ensuing cyclical bear (within the secular bear) that has also been interrupted, violently or fairly persistently at times, but within harmony of an overall bear structure.

It remains to be seen whether September’s projected overall weakness will spill-over into a nasty October; but it won’t be surprising to see markets resume going lower. In a certain set of circumstances, that may set-up a buying point for another rebound as will be assessed down-the-road. However, depending how it goes, several months of base-building chop could also be in the stock market’s future after the coming decline depending on fundamental realities that we’ll finesse beyond conceptual, over time.

For example; many apologists for the politicians allege that the higher capital gains in addition to the (extremely high) increased dividend taxation will be revised before the ‘event’. Perhaps; but if not, that’s serious reason taken alone to question arguments about the stability of high-paying (relatively speaking) dividend stocks being argued it is obvious by many in the industry, as the saving-grace investment versus low yields.

While we’d like to see many of the ‘snuck-in’ tax increases backed-off (we’ll see), that in-and-of itself isn’t sufficient to become optimistic about equities in a broad sense yet in our view. Another common argument is about ‘multiples’, which we’ve addressed it should be noted a number of times (as being excessive -not cheap- for a slow-growth environment as exists and will exist for the intermediate future at least) are capable of bringing equity Index prices (S&P and Dow as examples) more into-line with realities.

While bulls argue the ‘impossibility’ of new recessions given a flattening yield curve; it might be preferable to have discussions about over-owned asset classes (Fed is now buying in the long-end, and even the Chinese are hitting the Fed’s bid; as is notable by the way); we’d tend to focus on inherent weaknesses market internals telegraphed in a fairly consistent manner, and which are dutifully inherent in oblique Fed remarks.

Much depends on the fiscal wall I felt we were hitting fundamentally; and a belief for the last 3 years plus since initially forecasting the ‘epic debacle, in which we believed the ‘controlled Depression’ would be stewarded by the Federal Reserve and others as best they could to mitigate short term impacts, but that would prolong the misery and extend the overall duration of the difficulty in America’s economic life. There has been nothing to change this view yet. (Investor sentiment comment in the full text.)

Factual fundamentals also support our outlook, even if the financial press mitigates at least some of the more dire outlooks. For example, they reported that the Philly Fed manufacturing report dropped to -7.7 last week from July’s +5.1; but generally limited noting that the ‘consensus’ was for a jump to +7.5, or a swing factor of 15 points. The extreme spread of what the analysts called for and what arrived actually signifies the continuing tempering of reality, so as to convince investors (and citizens) of optimism rather than confronting them with reality. This has resulted in premature investment in not only a lot of big-cap equities, but in real estate and other properties; which are as we noted, continuing in overall downtrends. A chart they never show is manufacturing declines in the U.S. compared to the last 30 years; and when you see that you know a concern I’ve had (even when bullish for years at a time during the false wealth time of creation) about a country that’s not manufacturing, being unable to grow over time, in terms that are very real for the Nation and for the population. This is a societal risk, as there’s no prospect to see substantive growth based solely on housing or service-based industries bringing the Nation back, as consumers are finally now responsible.

That takes us to fiscal and National policies that have to be revisited dramatically; as it is folly to simply worry about protectionist policies (that are routine in the countries we trade with and are most vocal against our efforts to get our own house ‘in order’). So whether you look at the New York Empire Index, the NAHB Housing Index or the Building Permits in most areas of the country; it all comes down to jobs, and that will come down on the side of policies and confidence for business to not be penalized in their internal efforts to innovate and grow their base. Rather we have a Fed kicking a ‘proverbial can down the road’ as we forewarned, and engaged in propping-up efforts like Quantitative Easing 2. If not for the FDIC, people might realize that ‘too big to fail’ indeed failed (certainly when you look at non-Fed sustained net capital) and that this ‘controlled Depression’ (double dip or all part of a single secular structure) continues.

Oh; that ‘Hindenburg Omen’ talk… it amazes me how many experienced technicians will try to wait for some system or ‘omen’ to give them ideas; then dispel significance of same by noting that markets often go up not down even in the face of ‘warnings’. It is true, but they drop the ‘context’ by saying that. When you have divergences and all kinds of warnings; and the underlying fundamentals are miserable (such as the global debt mess ongoing now), then the odds of such indications being valid are increased.

On a daily basis we would also add these brief thoughts: 1) don’t overly focus on the new home sales or comparable numbers; they most likely will be miserable; but even if not that changes nothing based on my personal conversation with a supervisor at Fannie Mae (to wit; we’re not out of the woods and won’t be soon irrespective of any ‘one-off’ number, though the upcoming numbers will likely not be encouraging in any event); 2) technology and financial sectors are notably weak and irresponsive to rally attempts; and you’re not going to get an enduring upside move without participation of those sectors (hence all rallies should be false and abortive for now; with overall downward price behavior prevailing); 3) profitability expectations for the S&P are off by quite a lot (as we inferred earlier in tonight’s text) for 2011, and part of that relates to the reality of slow growth combined with a diminution of benefits from productivity enhancements (ie: you can only cut operating and payroll costs so much to enhance profits, and then absent sales growth those savings impact on helping bottom lines do tend to diminish); 4) while we speak of the S&P 1050 level daily-basis; that’s only the first downside short-term goal to test and eventually break (whether swiftly or in a process); whereas the 1000 level itself will be the ensuing key point to monitor; and in the course of time we have little doubt but that the 900’s will be visited (anything that is even lower isn’t out-of-the-question particularly in a ‘free-fall’ but will be pending as to prospects); and finally, 5) besides the other fiscal and geopolitical concerns out in the category of ‘exogenous risk’, there is some evidence that a computer virus sort of malware ‘may’ have contributed to an airliner crash (as we detailed in the full text). I only mention that latter as nobody remotely thinks about this, while the other basics are sufficient certainly to warrant big-cap equity indexes failing stabilization efforts.

Rather the ‘fiscal wall’ ahead is what simply requires a re-pricing not only of risk; but of multiples to conform a little better to the growth-rate prospects of the era we’re in, and are likely to remain in for a couple years. Some believe that a repeal of the laws to eliminate the Bush tax cuts would launch the markets higher; we suspect briefly for sure you’d get a rally; but the shocker might become that slow growth exists even in the conditional case of stable taxation; but simply worsens without it, looking forward. Now; in-event there is no repeal of the repeal, that’s a quick argument for even lower levels, whereas the bullish argument for higher beyond a ‘taxing’ celebration rush hasn’t much merit, as the economy seems headed for a cul-de-sac in months ahead, irrespective of plans to get the vehicle of State back on the road righted in the future.

Bottom line: omens or no omens; the market remains in a churning series of thrusts down and up, that likely results in a potential decline that could become vicious over the weeks ahead. Even in a couple of summers where markets eventually dropped a lot; there were preceding rallies that took the edge off the oversold markets; relieving things temporarily on the surface, but in reality preparing the market for the next drop.

Conclusion: stabilization efforts notwithstanding; overall recovery and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening market rallies do occur (some fairly wild), but of limited duration, at this point. If other developments unfold that could change prospects we’ll evaluate.

Bottom line: continuing characteristics; include (consolidated a bit) the following bullet points:

MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks forecast substantive failures by markets; particularly as 2010 evolves (whether just as a correction of a worse case remains to be assessed). Remember back in early 2007 we denied the 'liquidity' momentum as a canard; believing housing only the first asset bubble to deflate. We then outlined structured investment vehicle failures; banking issues, the confluence of asset deflations, and more; continuing with interruptions per projecting long ago: 'a perfect storm'. New sets of storm clouds quietly are gathered.

As the debt bubbles continue to deflate, alternating tradable moves continue from a trading perspective. Against that backdrop retaining a macro (adjusted) Sept. S&P 1600 +/- short irrespective of interim oscillations.

Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers primary technology issues (needed for assessment of general factors in tech, 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 video overviews only; occasionally I'll have some thoughts here; however increasingly most all analysis is via video, as it should be.)