The Enterprise Departs Libya

Something big must be going down around Afghanistan, perhaps Pakistan is seeing signs of demonstrations? In any case, the Enterprise is wondering from east to west, just recently near Libya, it's headed back to the area of the Carl Vinson. This is an interesting development as action is underway in Libya, obviously the US feels there's a bigger threat to the east.

Portugal and Canada to Form New Governments, Meanwhile Outside of MENA, Protests Are Becoming All the Rage in the Western Worl

MENA is a big mess and we expect that, however, the FALL OF THE WEST is surprising in the speed in which events are now unfolding.

In Portugal this week, Prime Minister, Socrates has stepped down due to austerity measures meant to help keep Portugal from going belly up very shot down which caused Socrates to resign. Canada had a vote of no confidence a few days later and a new government will be set up there.

Now we have anarchy in the U.K., while the black-hooded brigades grab the attention for their anarchist actions, you can't ignore the fact that 500,000+ protesters turned out in London in a bid to voice their anger at budget cuts as the UK is already over 4% inflation.

Meanwhile in the U.S, I received this email this week:

A Former SEIU Commissioner reveals his plans to crash JP Morgan and address the inequality in the US, this plan includes crashing the stock market and taking banks down, forcing a Robin Hood-like redistribution of wealth back into the middle class.

This is NOT an isolated "kook" event, the now influential replacement of WikiLeaks, a hacker group that released damaging emails regarding  BOFA, Anonymous, has sent out two communiques calling for similar protests in the U.S., a time to stand up.

Here's the first...

Here's the second released this week...

I have been looking deeper into every cheery, hopeful manufacturing report that's come out the last several months and despite the happy headlines, the one thing that is consistently there and conveniently ignored by the financial media is the complete collapse of profit margins due to rising input costs. There's only a few ways to deal with this as a corporation/manufacturer, one is to cost cut which generally means lay-offs, the second is to absorb the hit to EPS for as long as you can, but ultimately the rising cost of finished good ha to be passed on to consumers for most corporations. NKE did it last week across the board and was slammed, showing us that they can't win, they either take the hit to earnings or they take the hit to sales. RIMM followed up this week and received similar treatment. This will continue to be an accelerating problem and consumers are feeling it and now it's being expressed in typically apathetic Western nations.

The Fed finger Trap,

Bernanke sent us down the kick the can down the road policy of quantitative Easing, partly based on the Taylor rule which he explained before the Senate, a senator disagreed with his understanding of the Taylor rule, Bernanke retorted that Taylor himself supported several variations of the rule, one in which would give the Fed cover for going down this path. It wasn't a day later that Taylor himself blogged that while there were alternatives to the Taylor rule, he never endorsed anything other then his original formulation and Bernanke did indeed MISUNDERSTAND the very rule that he uses to justify Quantitative Easing, a most embarrassing moment for a Central Banker.

Now the Fed has created a monster allowing Congress to continue to spend which necessitates that the debt ceiling be raised, or risk making payments to our creditors.

So print more and devalue the dollar further crating more inflationary pressures and further squeezing corporate profit margins? Or Perhaps raise rates and kill the economy, at least per the Fed as they take credit for green shoots with near zero interest rates. In either case, the market takes a hit. If Bernanke lets the greenback fall or rise, the market suffers in either scenario.

It must have been very important for the Fed to create this last asset bubble, because the end game will be ugly. The notion of Bernanke's "Market Wealth Effect" is crazy, people can't afford their mortgages and gas, they aren't putting money in the market and are not benefiting from the melt up that the Fed created through the POMO process with Primary Dealers who are absolutely raping the American public with virtually no risk as they act as a bond middle man, except with far less if any risk.

2011 will be an interesting year, as will 2012. Someone will win the election based on promises to protect the middles class, I think Obama is done for. Even the once enamored Europeans are now openly questioning where he's coming from and why he's so allergic to leadership.

The real question is, how fast does inflation take hold in the US and how high it goes. MIT has projected 8%, 4x the Fed's target rate, for 2011. With unemployment not making any headway and the very real prospect of needing to raise interest rates, we'll have stagflation and this is one of the reasons my long term view of the market is that we will see the first secular bear market in equities.

Here's what a secular bull market looks like, just imagine it in reverse.