Seven of the last nine trading days have had triple digit moves on the Dow for a total gain of +80 points.

Market Statistics

Extreme volatility came after three weeks of zero volatility. The +80 point Dow gain over the last nine trading days is almost the number of Dow points Nike (NKE) represented on Friday with its +9.75 gain. As investors we should be really thankful for short squeezes with two major squeezes in one week to offset the decline from the highs.

Economics on Friday were right in the Goldilocks zone with the GDP splitting the difference between the 4.3% estimate and 4.8% whisper numbers. The actual reading was for 4.59% growth in Q2 as the country rebounded from the -2.11% weather related decline in Q1. The 6.7% swing from the Q1 lows was the biggest quarter to quarter change since 2001. After Q1 was revised up from -2.9% to -2.11% the final +4.59% reading for Q2 now averages out to be +1.24% growth year to date. Consumption rebounded from 0.83% to 1.75% and fixed investment rose from 0.03% to 1.45% growth. Profits rose +8.4%. Gross domestic income spiked +5.2% after declining -0.8% in Q1.

Last quarter was a great quarter if you believe the numbers and Q3 is shaping up to be decent as well. The current consensus estimate is for +3.2% growth. That is not as much as Q2 but I think we all realize Q2 was a snapback from Q1 and not a normal quarter. The estimates for Q3 range from a low of 2.8% from Barclays to 3.5% from Deutsche Bank with Goldman at 3.3% and Morgan Stanley at 3.4%. The odds of those firms missing the number by a mile are pretty slim. The estimate for Q4 is running from 2.6% to 3.0% but we don't have any Q4 data yet so those estimates could change dramatically.

This was a good report and calmed a lot of fears that had lingered from the Q1 disaster. It was not hot enough to really put pressure on the Fed to raise rates but you can be sure they will be looking at the Q3 numbers to make sure the economy is leveling out at a sustainable pace and not spiking. A 3.2% number would be a perfect Goldilocks rate.

Naysayers pointed out that a large amount of the Q2 GDP came from Obamacare spending and inventory building and not real consumption.

The final revision of Consumer Sentiment was unchanged from the prior release at 84.6. This is the highest reading since July 2013. The present conditions component declined from 99.8 to 98.9. The expectations component rose from 71.3 to 75.4. I don't know what everyone is so excited about over the next six months unless it is the elections and I doubt that is the case. I am always surprised by the number of people I meet that either don't know there is an election in five weeks or who is running and could care less. I guess it is possible consumers are excited about the approaching holidays with only 88 shopping days until Christmas.

Next week is payroll week with ADP Employment on Wednesday and Nonfarm Payrolls on Friday. The ADP number is expected to decline slightly from 204,000 to 198,000. The Nonfarm number is expected to rise from 142,000 to 203,000. This is a long shot. Several analysts are expecting 150,000 to 165,000. A print at 165,000 or lower would push rate hike estimates out somewhat but still represent a growing economy.

The ISM Manufacturing on Wednesday is actually expected to decline slightly from 59.0 to 58.3 but that is not enough of a decline to be troubling. Anything over 50 represents expansion. The ISM Nonmanufacturing on Friday is also expected to decline slightly from 59.6 to 58.5 but not a real problem.

One report that could be market friendly is the Personal Income on Monday. All eyes will be on the personal consumption expenditures (PCE) and the core PCE, which excluded food and energy. This is the Fed's preferred inflation indicator. In July the PCE rose only +0.1% and the lowest rate in five months. There are some expectations for it to possibly come in negative as a result of the falling energy prices. This would be upsetting for the Fed since they want to see inflation rise to at least 2% and it was only +1.6% annualized in July with the core PCE at +1.5%. A negative PCE for August would definitely push Fed rate hikes farther into the future.

There were no new split announcements last week.

The bond junkies were bouncing off walls in a daze on Friday after bond king Bill Gross resigned from Pimco and moved to Janus (JNS) to manage the Janus Global Unconstrained Bond Fund beginning on Monday. Gross founded Pimco in 1971 and built it into a business with $2 trillion in assets under management. The company was recently acquired by Allianz. Among his other duties Gross was Chief Investment Officer and managed the Pimco Total Return Fund with more than $220 billion in assets. That is down -$70 billion after 14 months of continuous withdrawals as investors prepare for interest rates to rise. That has got to be tough for Gross to see billions go out the door every month and that may have been at the root of the problem.

According to reports Gross was becoming more antagonistic and hard to get along with at work. Multiple portfolio managers had complained to the board that either Gross had to go or they were going to quit. The board was planning on "accepting Bill's resignation on Friday." In English that means they were planning on firing him on Friday. Gross had threatened to resign multiple times in his repeated clashes with the executive committee.

Of course everyone made nice in their press releases saying Bill Gross was a valued member of Pimco and they thanked him for his contribution to Pimco over the last 43 years.

Here is the kicker. The fund Gross is going to manage at Janus has $13 million in assets. That is a huge step down from $220 billion. Apparently his friend at Janus, CEO Richard Weil who previously spent 15 years at Pimco before moving to Janus, gave him a place to hang his hat and wind down after 43 years at Pimco. Gross said, "I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization." Gross is not the first company founder that sold to a larger company and then was unable to fit into the new corporate structure and was eventually forced out. Allianz is super conservative and Gross was probably a lightning rod in the organization that attracted all kinds of friction. Being the boss for 43 years and then being an employee in the company you built is almost an insurmountable task.

Janus shares were up +43% on the news. The bond market was especially turbulent on Friday as traders reacted to expectations that investors will pull money out of Pimco and where they thought that money would go. Obviously some of it will follow Gross to Janus.

The clunk you heard at noon on Friday was the other shoe dropping on Yahoo's doorstep. I mentioned a couple weeks ago that Yahoo was activist bait now that it had cash in the bank and a huge windfall profit in BABA shares that they can't sell until next year. The $8 billion they got from the BABA IPO and the $36 billion in shares they still own was too much of a good thing not to attract a flock of activist shareholders. The first one has appeared. Starboard Value LP said it has acquired a "significant" stake in Yahoo and urged the company to buy AOL. Starboard said Yahoo should quickly "monetize" its Asian assets, which now exceed the value of Yahoo's market cap.

Starboard said it was planning on "engaging directly" with Yahoo to discuss how this plan could be implemented in a timely manner. Starboard said the merger would create $1 billion in "synergies" by reducing overlaps in online display advertising and other overhead costs. The Yahoo-AOL topic has been a recurring theme in the blogosphere but it never gains any traction. AOL has a $3.5 billion market cap and it continues to shrink. Analysts don't believe the AOL acquisition will occur but it does point out that Yahoo is in play. Melissa Mayer is now under the gun to produce some growth in a hurry or the activists will be picking over Yahoo's carcass a year from now.

Starboard is hostile that Mayer did not do enough to reduce the tax bite on the 140 million BABA shares they sold. The $8.5 billion sale is expected to see a $2 billion tax bite. Starboard said they don't want to see another $16 billion in taxes when Yahoo sells the rest of its BABA stake late next year. Starboard said it would share several "alternative structures" with the Yahoo board to minimize "tax leakage." Yahoo also owns 36% of Yahoo Japan.

Starboard may be the first activist to surface but you can bet there will be others. I would not be surprised to see Carl Icahn appear any day now. More than 550,000 options traded on Yahoo on Friday with calls 2:1 over puts.

Nike shares sprinted to a new record high after the company posted earnings of $1.09 compared to estimates of 88 cents. The company said the FIFA World Cup marketing campaign resulted in much stronger profits. Orders surged +14% for the delivery period of September through January. U.S. orders rose +15% compared to prior estimates for 9.8% growth. Revenue rose to $7.98 billion for the quarter that ended August 31st. That exceeded estimates by $200 million. Chinese revenue rose 18% to $679 million. Guidance was also better than expected. Shares of Nike gained $9.75 to add about 80 points to the Dow.

BlackBerry (BBRY) reported a better than expected loss of -2 cents, compared to estimates for a -16 cent loss. That compares to a loss in Q2-2013 of -$1.84. Revenue was $916 million. The company said they don't expect their cash balance, currently $3.1 billion, to fall below $2.5 billion in the next two quarters and putting the cash burn rate question behind them. They expect to be cash flow positive by the end of 2015. The company said it had already received more than 200,000 orders for the square screen Passport device. Amazon sold out in ten hours and sold out in five hours. They said availability would be "squeezed a little bit" because of the volume of orders. They said they were still experiencing strong demand for the low end Z3 handsets in emerging markets. CEO Chen said this was the first time in a long time that they actually made money on hardware.

BlackBerry is switching to software for the majority of its future revenue. The company said it sold 3.4 million licenses in the quarter for the BlackBerry Enterprise Service 10 (BES10) device management platform. A quarter of the signups came from rival mobile device managers. The next release BES12 will be out in November. BlackBerry now has more than 91 million monthly active users. It is possible that BlackBerry will actually come back from the dead. Shares rallied +5% on the news.

Micron (MU) posted earnings of 82 cents compared to estimates for 81 cents. Revenue rose +49% to $4.23 billion beating estimates of $4.16 billion. That is not a big earnings beat but their guidance was strong. Micron forecast a 5.2% to 11.1% increase in revenue to $4.45-$4.7 billion for the quarter ending in November. Analysts were expecting $4.36 billion. Quarterly earnings are approaching $1 per quarter or $4 to $4.50 for FY 2015 and a reasonable PE of 15 would put their share price at $60 to $67. With the close at $33.83 that represents a double in the next 12-18 months. I think the two-year rally continues.

Apple (AAPL) keeps shaking off bad news and eventually their shares will rise to new highs. I just hope they dip to $95 first. On Thursday shares declined to $98 on Bendgate. Supposedly the new iPhone 6 models will bend when carried in the pocket of your tight jeans. A YouTube video showing a bent iPhone garnered over 30 million views in the first day alone. Shares plunged on the news. However, an entire army of bloggers immediately saw something funny in the video. During the video the time on the phone kept changing but not always moving forward. Sometimes it went backwards with the phone in various states of bend. Articles said the bent phone video was a scam to target Apple. The company immediately opened up its secret testing center where each model underwent more than 15,000 tests to prove it was sturdy and practically indestructible. They said after selling more than 10 million phones the first weekend only 9 people had reported their phones had bent. Shares rebounded $3 on Friday to close just below $101.

The #Bendgate hysteria prompted hundreds of bent pictures and jokes on Twitter. Link Here

Apple had to take IOS 8 out of service temporarily to resolve some bugs but that also failed to depress the stock. The only failure that Apple has is a failure to decline!

Alibaba (BABA) shares have quit going down at least temporarily. After trading down to $86.62 they rebounded to close at $90.23 on Friday and slightly over that potentially troublesome $90 level. For BABA holders there is good news. Options on BABA will begin trading on Monday. However, buying puts to protect yourself against a decline in BABA shares is not going to be cheap. The implied volatility is going to be huge and that suggests prices will be high. For people wanting to invest in BABA but not have to buy the stock you may have to pick a higher strike in order to afford the calls. Volume in BABA has eased with only 18.3 million shares trading on Friday so maybe the opening volatility is fading.

According to Bloomberg and Markit, investors have succeeded in borrowing and shorting 12.1 million shares of BABA since the IPO. That is a minor amount but I am sure it is due to the difficulty of borrowing the shares. The initial interest rate to borrow BABA shares was 8%. As time passes the number of shares short will grow. Markit said late in the week there were 45.1 million available to borrow.


The Dow lost -166 points for the week despite a +167 point short squeeze on Friday. That was a .96% loss for the week. This compares to the Russell 2000 with a -2.4% loss. The small caps lead the market but on Friday it was Nike leading the market. The $9.75 gain in the Dow component spiked the index to the point where those short the ETF were forced to cover. With the Dow spiking the rest of the indexes caught fire as shorts were forced to cover ahead of the weekend. It requires a very bearish set of circumstances for traders to want to remain short over a weekend. Despite the geopolitical concerns there was not enough bearish sentiment to take the chance. Shorts have a recurring nightmare and that is watching the futures soar on Sunday night and realizing there will be a huge gap open on Monday. After a couple doses of that reality traders are cured for life of going short over a weekend.

Apple's $3 rebound help produce a mini squeeze on the Nasdaq.

While on the topic of geopolitical concerns the battles in Iraq and Syria are no longer news. Now that the battle has been joined and the U.S. is bombing ISIS in both countries the news is no longer news. In a couple more weeks it will be a brief mention in the papers as the headlines focus more on a tragic traffic accident, a missing college student or another NFL player caught doing something he shouldn't. The ISIS problem only became front page news when they started beheading captives on camera. On Friday they killed more than 100 in Afghanistan and beheaded 15 of those and it barely made the news.

The market moving headlines for next week will probably be the rate decision and press conference by Mario Draghi and economic reports out of China and the ECB.

The S&P blew through the 50-day average at 1976 on Thursday and continued down to 1966 on Friday morning. The 100-day average was not much lower at 1955 but it remained untouched. The rebound made it back to 1986 before stalling. The 1980 support level was severely broken on Thursday and did not even cause a blip on the return trip higher on Friday. That should have been decent support.

The +17 point rebound on Friday was just over half of the loss of -27 on Thursday. That qualifies as a lower low and a lower high despite the solid gain.

If you gave me a naked chart like the one below and did not tell me who it was and without the benefit of prices I would tell you the stock was going lower. When you know the name of the stock or index you immediately attach your bias to it. When you know the prices you immediately start factoring in the "known" support and resistance levels. Taken together the details allow the human mind to rationalize its bias.

If you don't believe me put a chart on your screen and then ask one of your kids if it is going higher or lower. They have no market bias, no stock bias, no economic bias, etc. The chart is just a bunch of lines and 90% of the time they will give you the right answer.

Up or down?

Based on the naked chart above I would say the S&P is going lower. Each of the short squeezes last week recovered only about 50% of the prior declines.

On Tuesday I said:

At this point we should see at least a temporary bounce from the 1980 level because the selling has been slow and steady and not fast and furious. The fast drops are the ones that blow through support and keep going. Steady selling tends to pause at interim support levels and dip buyers on the sidelines interpret those pauses as bottoms. Sometimes that is self fulfilling if enough buyers take the bait. Sometimes the bounces from those support levels just provide a higher entry point for sellers. Also, I would tighten your stops on any bearish plays because you know there is a short squeeze lurking in our future.

Wednesday's short squeeze was text book with a gap open, pause midday and sprint into the close when the market did not roll over. In retrospect it provided the perfect entry point at a higher level for sellers.

Thursday's drop was fast and it blew through that 1980 support without even a stutter step. There was no chance for dip buyers to take the bait. The 1970 level became the price magnet and the index traded on both sides of that level for the better part of two days. Friday's squeeze actually started at 1:45 when Nike started tacking on points and the Dow moved to the high for the day.

The key for me is the 50% retracement of each dip. Buyers were reacting not buying. On Friday the volume was really light for a +167 point rally with only 5.4 billion shares. However, despite the severity of the drop on Thursday the volume was only moderate at 6.37 billion. I see that as no conviction in either direction. Thursday's decline was broad based with down volume 7:1 over advancing volume and decliners nearly 5:1 over advancers.

Without any proof in the form of heavy volume it is hard to pick a market direction. When in doubt even slightly heavier volume on down days is a clue. It is not convincing but it is a clue. The dual 50% rebounds are another clue. Add in the lower high and lower low and the odds are good we will see some lower lows in the days ahead.

Despite the BlackBerry and Nike earnings beats we don't really know how this earnings cycle is shaping up. We are entering the warning cycle next week with the initial wave or big cap earnings the following week. With the economic declines in Europe and China and the sanctions on Russia we could see a flurry of warnings soon. With the dollar at four year highs anyone that sells overseas and that is 50% of the S&P, will be hit with currency translation losses.

While the outlook has turned negative there is some good news. Volatility has returned. Why is that good? Volatility without directionality immunizes us. Despite the losses last week the numbers were not that bad. Losing -1% on the Dow is not a big deal.

On August 7th the S&P hit a low of 1904. On Sept 19th it hit 2019. That is a 115 point gain and at Friday's close of 1982 it has only given back 37 points. For a normal 50% retracement we need to lose another 20 points but if we consider the 1966 low on Friday morning we dropped to within 4 points of that 50% retracement. That is close enough for government work.

So we can look at this two ways. We have a possible 50% retracement from the last gain and traders should buy any repeat dip below 1970. OR, the trend is just getting started and we should expect lower lows. Based on the naked chart above I am going with option two.

I will leave you with one more chart. This is a weekly S&P for the last two years. The S&P has touched the uptrend line seven times in two years. Eventually that trendline is going to fail. I am not suggesting that will happen now but the last several upticks have failed to reach the top of the channel. The last one we are in now is the weakest since September 2013. In theory this suggests we should at least test the bottom of the channel. The rally looks like it is tiring.

Support should now be 1965, the 100-day at 1955 followed by 1950. Resistance is 1985 and 2000.

The Dow declined to stop almost exactly on support at 16,950. If there was going to be a perfect support test this was it. Unfortunately the rebound stopped almost exactly on prior resistance at 17,150. Dead stop in both directions and the Dow closed -37 points off its high on a strongly bullish day. It was a lower high but not quite a lower low. Another -11 point decline and it would have been a lower low.

It is hard to read the Dow chart because of the big gains in Nike. Without Nike the day could have ended much differently. Support remains 16,950 and resistance 17,150.

There is no doubt about the Nasdaq with a lower low, lower high and within 1 point of a 50% rebound. This is another one of those Rorschach charts. Which way is this chart moving? I am pretty sure if you did not know this was the Nasdaq you would say it was falling. Would you buy it? Probably not.

The Nasdaq is further complicated by the chart of the Nasdaq 100 big caps. Strong support at 4,000 has not even been touched on two occasions. We saw 4,009 on the 16th and 4,007 on Thursday. The dip buyers are alive and well in the big caps. Since the April dip the 50-day average has been support and it is now at 4,009.

The -$4 drop by Apple on Thursday accounted for about 17 of the -85 points the Nasdaq lows. This forced the QQQs to be sold and that caused a downdraft in the rest of the Nasdaq.

Even with that Apple crash the Nasdaq 100 still held above support. This leads me to name the Nasdaq 100 as the canary in the market coal mine this week. As long as the 4,000 level holds on the $NDX the broader market is not going to implode. We still have the declining chart to deal with but the 4,052 close gives us a big 50 point cushion before retesting that support. If the 4,000 level does fail it should mean we are actually headed for a correction.

The Composite broke two levels of support and the 50-day average and the rebound was lackluster. The 4,466 low is now support but it does not look promising.

The Russell 2000 is in serious decline. The 50 and 100 day averages have both moved below the 200 day. The index lost -2.4% last week and is now down -3.8% for the year. It is the only major index not showing a gain for the year. By comparison the NDX is up +13%, Nasdaq Composite +8%, S&P +7.3%, Transports +14.6%, Semiconductors +20% and the Dow +3.2%. Strange that the Dow is lagging so badly when it hit a record high of 17,350 the prior week. Even the Russell 1000 is up +7%.

Either the R2K is wrong or the rest of the indexes are wrong. If the R2K represents market sentiment what message is it giving today? If the small caps lead up and down did they take a wrong turn somewhere or did the big caps not yet get the message?

Support is 1,110 followed by 1,096. The 1,087 level represents a 10% decline from the highs. I think the odds are good we are going to at least test the 1,096 level and possibly 1,082. There is nothing positive about the R2K chart.

The S&P-400 Mid-cap is right on the verge of breaking the two-year uptrend. It bounced off the 200-day on Thursday at 1,373 but the rebound was lackluster. The mid-cap index is confirmation of the weakness in the Russell 2000.

For next week we have a tale of two markets. The small and mid-caps continue to be weak and the big caps are struggling to shrug off the weakness. The Nasdaq 100 is the canary in the market for next week with support at 4,000. As long as it stays above that level this market weakness is just noise. If it follows the Russell as the Pied Piper then the next decision point could be the 1,087 level on the Russell as a 10% drop from the highs and an official correction. The last time we had a serious dip the Russell hit correction territory on May 15th and rebounded strongly while the other indexes escaped without that severe of a drop. Nobody knows if that will happen again but the Russell is only about 33 points from that correction level.

Random Thoughts

After buying back more than $2 trillion in stock since the March 2009 market lows the buyback trend appears to be slowing. U.S. companies bought back $116.2 billion in shares in Q2 compared to the $159 billion in Q1. S&P said 295 S&P-500 companies bought back stock in Q2 and that is 5 more than Q1 and up significantly from the 223 in Q2-2013. S&P earnings analyst, Howard Silverblatt, said 23% of S&P companies bought back shares to push up their earnings per share compared to 20% in Q1 and 12% in Q2-2013. Apple purchased $5 billion in Q2 after buying $18 billion in Q1. IBM purchased $3.6 billion and Exxon bought back $3 billion. Companies routinely buy back shares to push earnings per share higher in tough quarters. IBM is the poster child for this tactic. In 1993 IBM had 2.3 billion shares outstanding. Today they have 997 million. That bought them a lot of earnings beats over the years.

If companies are slowing their buybacks this could reduce the upward pressure on the market from reducing the number of shares outstanding. Companies also slow their buybacks when markets are seen as overvalued and then increase buybacks again when corrections occur. What is this telling us about today's market? I think $116 billion is still a healthy number but should that continue to fall I would expect to see the market weaken.

So how is the consumer really doing? Are they lining up to buy armloads of things they don't really need? Not quite. The following retail companies have already warned for Q3 and some added Q4 as well. RH, WTSL, DLM, HOFT, BURL, PBY, CPB, BEBE, JCG warned and I am sure the list is longer but those are the only ones I can remember today. Comments were "challenging to attract consumers," "tough operating environment," "increased promotional environment is like being at war," "environment continues to be challenging and traffic continues to be a headwind."

With only 88 shopping days until Christmas have you seen the new holiday ads? Yes, retailers are always trying to extend the shopping season whenever possible and Kmart has already launched its first Christmas ad in early September. Not to be outdone Walmart, Target and Toys R Us quickly ran their versions of the seasons "Hot Toy" list for the holidays. With the retail sector a war zone you can expect to see longer store hours and shorter checkout lines. This is a self defense move by retailers to take some of the pain out of shopping so you won't give up and go shopping on Amazon. Walmart has promised to keep ALL checkout lines open during peak shopping times starting on Black Friday.

In 2008 retailers hired about 325,000 workers for the holidays. Last year the number was 786,000 and this year it could be close to one-million. Because of last year's online shopping nightmare where hundreds of thousands of packages got hung up at FedEx and UPS we will probably see online shoppers hit the buy button a little earlier this year. Pitney Bowes said a recent survey showed that 49% said they were going to start earlier. I don't believe it matters. Everyone has the best of intentions but there are a lot of procrastinators and they will still wait until the last minute.

If you are looking for that special gift for someone that needs nothing this might be an option. For the Man Who Has Everything

Bank of America said that more than half the stocks in the Russell 2000 and the Nasdaq Composite are already in a bear market with more than 20% declines from their highs. "The market is being held up by participation in the market leaders but this participation is waning and waning fast." BofA also said "the biggest concern is the new low for net free credit at $182 billion and it is a major risk should the market drop. If the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet margin calls. This would exacerbate an equity market sell-off."

Standard & Poor’s has issued an extraordinary credit alert on the eurozone, one that deserves close attention. It warns that the rise of Germany’s AfD anti-euro party calls into question the euro bail-out machinery and queries the pitch for any form of QE, stimulus that has already been pocketed and spent in advance by the markets. It will force Angela Merkel to take a tougher line on Europe, and further complicates the management of the (already dysfunctional) currency bloc. (Comments from Ambrose-Evans Pritchard at the UK Telegraph)

Part of Thursday's market crash was the news that a pro-Kremlin deputy in Russia has submitted a draft law that would allow the government to seize foreign assets in Russia in response to Western economic sanctions. The submission came after Italy seized 30 million euros of stock, assets and cash from Russian businessman Arkady Rotenberg. He had 4 villas, apartments and a hotel seized. Part of the law would also allow for oligarchs to get compensation from the state in the case of an "unjust judicial act of a foreign court."

The Russian Duma passed by a vote of 430-2 a new law that limits foreign ownership of any Russian media business to 20% or less. Foreign owners have until January 2016 to divest themselves of any excess. If the government controls the press they control the people. No Foreign Ownership Allowed

Russia's GDP grew 0.8% over the last year, the Ruble is in free fall and the economy is sure to be in recession next year as a result of the sanctions. Capital flight out of Russia is expected to hit $100 billion according to the World Bank. Yes Vladimir, there are costs as a result of foreign aggression.

Ukraine is planning on applying for EU membership in 2020 according to President Petro Poroshenko. As part of this plan called "Strategy 2020" he is going to enact a series of both economic and political reforms. They probably have a much better chance of joining the EU than they do joining NATO. None of the NATO countries want to take on any additional risk related to Russia's plan to rebuild the country by pulling neighboring countries back into the fold by any means necessary.

Josh Brown posted the following cartoon from Gary Varvel, Indianapolis Star, with the caption "You left out rising interest rates." So far these four horsemen have had little impact on the market but the fear of rising interest rates is starting to create a choke hold.

More than 5% of working age population is now enrolled in disability. This is twice the average in 1990. Nearly 10% of "near" retirees who lack savings are applying for disability as their unemployment benefits are set to expire. State governments are actively recruiting people on state programs to apply for Federal disability. That gets them off the state rolls and transfers the obligation to the Federal government. There are even ads on late night TV where lawyers claim they can get almost anyone on disability. This is not going to end well if the trend towards claiming disability as a retirement pension of sorts continues.

Do you know why Sunni and Shia hate each other so much in some areas but intermarry and even pray together peacefully in others? Here is a link to everything you ever wanted to know about the Sunni-Shia conflict. Sunni-Shia Divide

Bloomberg reported that the 25 biggest pension systems by assets averaged a 7.45% return from 2004 to 2013. Unfortunately their liabilities tripled over the same period leaving them with a $2 trillion shortfall. Any kind of reasonable returns can't keep up with the ballooning obligations. Those top 25 funds account for 40% of the entire US public pension system. Illinois, Kentucky, Connecticut and Louisiana are at the top of the most underfunded list. Obviously if the market goes flat or declines for a period after interest rates begin to rise the problems with those funds are only going to get worse without a decent annual return. These top 25 funds manage about $5.3 trillion in U.S. public pensions. I hope you are not depending on one of those pensions for your retirement.

While October is known as the "bear killer" month because a lot of bear markets hit their lows in October, it is also the best performing month in a midterm election year. The Stock Trader's Almanac pointed out that a lot of our biggest market losses occurred in October but in eleven post WWII bear markets that ended in October, nine of them were midterm election years. Obviously you can't trade on that trend but it is always interesting to see what history has to offer. October is the month before the November elections and the politicians are out giving speech after speech about how things will be better once they are elected. Apparently some portion of the investing public believes them. However, I think October sparks a lot of rebounds because of Q3 earnings. If earnings are positive it creates some investor interest and a rebound is born.

Unbelievable but true. Did you know that a police officer can stop you on the highway and search you and your car without a warrant and seize anything they desire including cash, jewelry, guns, computers, etc and then make you prove that you obtained the items legally in order to get them back? Many times the process can take many months or even years plus having to sue the police dept to force them to turn over the goods. There were nearly 62,000 seizures since the law came into being after 9/11 with more than $2.5 billion seized. Only one-sixth of the seizures were challenged because of the cost to file suit and take it to trial. Only 4,455 cases (41% of those that filed suit) actually recovered their money and property. The appeals took more than a year and in most cases the individuals had to sign a hold harmless agreement not to sue the police departments for seizing the property. Police Stop and Seize Scam

North Korean dictator Kim Jong-un is suffering from an "uncomfortable physical condition" according to North Korean officials. He has not been seen in public since September 3rd. He is a heavy smoker, has added a lot of weight recently and was last seen walking with a limp. Analysts believe he is suffering from gout, diabetes and high blood pressure. He had recently blamed his rapidly rising weight on "a weakness for cheese." A North Korean medical team has recently visited Germany and Switzerland to consult colleagues about his health issues. Analysts are worried that a continued or worsening medical problem could trigger instability since there is no succession plan and Kim keeps replacing anyone that is seen as getting too close to the throne. Kim could stage a military exercise to show he is still in control.

The U.S. is using $50 million planes with $30,000 bombs to destroy $200,000 Humvees that they gave to the Iraqi military but were captured by ISIS. That means we will probably be building more Humvees to turnover to Iraq so they can fight ISIS. The 47 Tomahawk missiles fired into Syria last week to shutdown the Khorasan group cost $1.5 million each. The U.S. sent 48 strike aircraft on the initial Syria mission including the first time in combat for the F-22 Raptor. That plane costs $62,000 an hour to fly making it the most expensive manned aircraft to operate. The Pentagon estimated it was spending $7.5 million a day to fight ISIS but that was before the Syrian attack. That number will go up significantly.

Mario Draghi's one-trillion euro stimulus program ran into trouble last week. The LTRO program had far fewer takers than anyone expected. Apparently nobody wants the money even though it is at a record low rate. Loans for only 83 billion Euros were made and Spanish and Italian banks took 45% of that total. The common complaint was "We are not interested in borrowing money to expand. Demand is too limited to make it worth the risk." That pretty well sums up the problem with Europe. Only the firms really in trouble will take the money and the rest of the economy is going into bunker mode until a recovery appears. Expect Draghi to do something different at the meeting this week.

Enter passively and exit aggressively!

Jim Brown

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"Once war is forced upon us, there is no other alternative than to apply every available means to bring it to a swift end. War's very object is victory, not prolonged indecision."

Gen. MacArthur