Last Friday, we proffered a different point of view of the future, outlining some of the catalysts that could potentially foment a better outlook than most are expecting. And as we have said many times this year, the very fact that we have been experiencing the best economy ever for some two and a half years now, with 15 straight quarters of outstanding growth and with corporate profits and cash levels at all time highs. Surely if we can maintain even half such levels going forward we should still have a excellent economic base to work from.

One positive that potentially lies ahead, is actually in the Tech Sector, where the growing level of obsolescence continues to exponentially explode. Sooner or later this multi-billion level of inventory will have to be replaced and just as the jump from the first generation of Windows to Windows 95 and Pentium ll created the "must have" products that drove replacement upgrades right up until Y2K, became the principal driver of the next great upgrade cycle: Now, with the looming prospect of what could be termed the coming 'Triple Whammy' in Technology.

Being: Microsoft's new Vista Operating system, Intel's equivalent of the Pentium 5 Series of Chips and an Ultra-fast new Internet combined, could absolutely be the clincher to usher in another era of super-growth, but this time around, because of the economies of scale and power of computing, could be the force behind a super-boom to end all booms that'll likely synchronize with the sweet spot of HD and Digital TV's with Home Entertainment and Management Systems. And to top all this off, the multi-year hiatus in spending by corporations still smarting from overhangs of the major corporate scare following the 2000 Bubble and 911, combined with similar levels of obsolescence evident, that will categorically have to be replaced in a major new upgrade cycle could actually be the driver of a capital expenditure boom lasting years.

And in keeping with this view, economists and talking heads were once again alluding to how surprised they were at the resiliency of the economy after consumers demonstrated their defiance of the Fed rate hikes Friday, by delivering very strong retail sales numbers for July. In reaction stocks sold off some on renewed fears the Fed might raise rates further, but actually rallied late in the day to close off their lows and we now know why, the market anticipated an imminent ceasefire, which is fomenting very strong early rallying action on Sunday night.

What we were trying to communicate last week that has been somewhat endorsed by these new reports showing how strong the economy still appears to be, is  that with the pause in rate hikes now evident and the prospect of rates actually being lowered soon not to be ruled out, that with such a strong economic foundation still evident that continues to be fueled by unprecedented World growth, that our "Touch and Go Soft Landing" is still very possible and in fact, if growth can be maintained at 2% plus, that would equate to a 2 ~ 3.5% percentage slowdown that in times past might have put us in recession, but over the next year or so, such a fate could be still avoided, as we might well potentially continue in a relatively strong growth mode. In keeping with this theme. We also proffered the idea that there is actually a new bull market in the making where certain issues, most notably the Microcaps sector, is absolutely showing signs of unfolding recovery and as if to prove this very case, Friday was an extremely active day for Microcaps, allowing us to capture some very interesting upmoves, including our first near 100 percenter up-days in some time on MODAR and also noted, was the standout strength in issues like Microsoft.

When we talked about a new Bull Market in the making we weren't necessarily, absolutely expecting it to start on Friday, but interestingly enough we are definitely seeing the very earliest telltale signs of a new bull market in the making with visible pockets of strength here and there and many developing divergences starting to unfold. Our feeling is a breakout from here could be very bullish indeed, should it confirm.

As we have said before, what we say here in the morning as far as market predictions, might not be worth a hill of beans by the afternoon and in keeping with that theme, what we do with MODAR, given that MODAR being at the cutting edge of "Dynamic Real-Time Analysis" is the "Canary in the Coalmine" or the "Advanced Market Reconnaissance" of what is emanating right off of the Exchange Floors and as if to prove our point, by 093113 EDT, we were able to transmit to our subscribers around the World, three short sale ideas, all of which became 5 percent or more trading opportunities for the day and throughout the day we added aggressively to our shortsale recommendations list, wherein we were able to get off more than 30 individual shorts and a dozen or so buys in keeping with the sell-buy ratios mentioned Friday, where there has clearly been a preponderance of shorting opportunities as many Nasdaq issues have been summarily hammered of late. In spite or our early negative view, we had managed to cover more than half of all short positions by the close ending up half long, half short or pretty much hedged going into Monday morning and even though the markets may be stronger, that may not be enough to rally our shorts.

Our shorts of the week include ALLI CLZR and IESC and are just some of the examples of our largest ever short recommendations to date.

More on "Outlook for the Longer Term Future"
Again in proffering: "A Different Point of View" last week, we postulated that perhaps the Fed may be able to use threats of terrorism, as an excuse to begin lowering rates sooner than expected and in fact the promise of that could even see markets recover in anticipation of lower rates, within six months or so. Continuing upon that theme we stated: One thing's for sure, if and when the Fed finally begins to lower rates, expect a return back to rock bottom lows in interest rates and it is not beyond the realms of possibilities, that we could experience a secondary phase of very low interest rates for a number of years, not unlike what has happened with Japan over the past decade or so. Just as Japan's cheap money has fueled recovery in the post 911 era: The possibility of another country or major economic zone, such as the union of NAFTA's US Canada and Mexico, becoming a major economic engine, might actually see the US emerge as a major financing engine for World growth is entirely possible, given that even post a US Dollar slump a la the Yen in the 1990's, interest rates could return to extreme lows for an extended period. One recurring theme that we have observed over time, is that when the public becomes obsessed about high interest rates such as now, it is very often the signal of an impending turning point that could become a multi-year downtrend in rates. Few could have foreseen the possibility of the Fed Funds rate plummeting from from 6.5% to 1% in just three years and then soaring all the way back to 5.25%, three years later: Such is the topsy-turvy World of interest rates. But this behavior pattern has been evident, as part of the Business and Presidential Cycles for generations and understanding their implications, can lead to creation of immense wealth.

As longer term readers will know, we see many parallels between the periods of 100 years ago and 50 years ago, both times of innovative mega-growth powered by industrial and technological transformation and the 1950's in particular, also in a post war era, that could perhaps also be a parallel of sorts today post Iraq and Afghanistan, enjoyed an 18 year period of low very low interest rates, that essentially helped to power the late 1960's and early 1970's boom. Today, capacity utilization remains at very low levels, thereby allowing for lower rates soon and other parallels with the 10's and 50's were that during those periods of hypergrowth markets were setting new record highs consistently.

Japan's central bank made a big mistake raising rates too high, post their mega-bubble in 1989. They paid the price with a plummeting yen when they started lowering rates in a panic to near zero over the next 6 years and suffered a 13 year economic slump and contraction and only just really started to get out of their quagmire the past year or two. While we are not necessarily advocating the same fate for the US, the recent rate hikes could be more damaging than the Fed has counted on and why Bernanke may live to fulfill his destiny as the financier of last resort, wherein he could potentially flood the US with liquidity and create the new source of cheap money to re-power Global growth.

Remember Japan's Yen took a tremendous pounding in the late 90's prior to extreme low interest rates era there, such that even if the same fate were to befall the US Dollar, beyond that, an era of stability could be a decade long event, that could ultimately lead to a new era megagrowth and perhaps even a super-bull market, such as happened with neighbors and major trade partners Canada and Mexico. As another example of this: Mexico suffered a catastrophic currency decline a decade ago, but today its economic statistics actually exceed those of the US with even lower inflation rates, a booming economy growing at 5% plus and stockmarket gains of 1,200% in just 10 years. And other neighbor Canada whose currency was also cut in half, has also risen to become the envy of the World in economic terms today. Conclusion: A decline in the US Dollar while painful to the pocket, might have enormously salutary effects longer term for the US economy.  

    That is Why The Next Bull Market Could Be One For the Ages   This should be enormously bullish for stocks going forward, as of now we are historically at one of the lowest fundamental levels ever and part of the reason for that is that the Fed's maniacal 17 times rate hike spree, has effectively kept an artificial lid on stock prices and really as soon as this pressure on stocks is removed, it could usher in an unexpectedly super-bull market of monumental proportions, and one reason why is that with the prospect of sharply lower rates ahead, the potential for numerous indices and stocks to be making new all time record highs would be palpable and self-perpetuating. It may look like a tall order for the markets to claw their way back towards their highs for the year but stranger things have happened and one big plus is, now rate hikes are on hold, some pressure has already been removed...

Still Volatile Times Lie Ahead

Notwithstanding beyond the next rally that may eventuate from yesterday's reversal attempt against a backdrop of a weekly decline, stocks have got their work cut out for them and we're seeing an increasing preponderance of more shorting opportunities than buying at this time, in spite of the fact that the indices rallied late Friday. The pause in rates alone may not be enough to support stocks sufficiently in the time ahead between now and the fall and therein a retest of the lows or even lower lows cannot be ruled out. On a more optimistic note, small cap and microcap issues are beginning to bottom out and emerging rallies are already evident. Given this sector peaked first, it would now appear to be bottoming and this would not be the first time the so called "January Effect" for microcaps actually became evident in August.

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From the Desk of Savant