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The Death of Health Care, Carbon Taxes, & Card Check

In this newsletter, I will briefly comment on the current state of the markets, discuss some very significant political implications for longer-term stock market trends, and finish up with a quick analysis of an appearance I had on CNBC last week that I got a lot a reader comment on.

BodyThe market story continues to be a short story -- literally. As faithful readers know, three weeks ago I called for the Dow to head toward 6000 and shortly after that I suggested that a next logical stop the S&P 500 is 650. The market's downward trend towards those goals remain in place for all the reasons I originally gave:
• The global economy continues to deteriorate, particularly in Europe, so export demand won't be the savior.
• The Obama administration's policies have been a failure. The fiscal stimulus doesn't adequately stimulate in the short run. The banking system bailout hasn't stopped the credit market bleeding.
To these two reasons, I now add a third -- as well as a new prediction -- in the wake of the disastrous jobs report last Friday. Now that we have had the most rapid job loss over the last six months since the end of World War II, these lost jobs will put in motion a ripple effect. Laid off workers will consume less and the economy will further contract. My prediction is that the unemployment rate in the US will reach double digits, possibly as early as this summer and may hit as high as 12% -- the modern version of the Great Depression.
Market Politics
In the last few weeks, it has become abundantly clear that the Republicans are far more effective as the minority party than the Democrats. Because this is so, the Obama Administration can likely forget about any real reform in health care and any progress on a cap and trade program and global warming. The Democrats may also be unable to deliver the biggest promise they made to the labor unions -- so-called "card check."
What these three issues have in common is an extreme vulnerability to the Republican critique that addressing these issues now would further plunge the economy deeper into a recession by increasing costs on the economy.
This is a very potent argument that has huge implications for the stock market and particularly for companies in sectors related to healthcare or which are heavy carbon emitters. Stay tuned.
CNBC’s Pardon My Interruption
I got a lot of e-mail responding to an appearance I made on a CNBC show called The Call last week. Many readers were upset at how I got abruptly cut off by one of the anchors while addressing a key issue related to the markets right now.
Specifically, on the show, I was asked whether a firming up of the oil and commodities markets was a bullish sign. My response was that, in fact, it was a bearish sign because all it reflected was the weakening of the dollar associated with market concerns about our huge fiscal stimulus and bailout.
At that point, one of the anchors jumped all over me and asserted I was dead wrong because the dollar was at a "four year high." To set the record straight, I'll end this newsletter with an excerpt from Business Day run on March 7, 2009 that factually supports my argument.  Draw your own conclusions.
 “Crude oil rose to a five-week high as the US dollar weakened against the euro, increasing the appeal of commodities as an alternative investment.  Oil climbed 4.4% and the dollar weakened versus the euro after unemployment advanced to the highest in 25 years in the US, the world's biggest energy user.”
Bottom Line: This continues to be a short-term trader’s market right now.  BUT plot your Long Strategy now for when a bottom is finally discovered.