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This is The Carnegie Management Group Hotline for Thursday, September 9th 2010

U.S. stocks bounced back yesterday with a strong opening, but gains were pared in the afternoon after the Beige Book report, which is a survey of 12 regional Fed banks, released in the afternoon said the U.S. economy maintained its expansion while showing “widespread signs of a deceleration” in mid-July through the end of August. The S&P 500 gained 0.64 percent to 1,098, the Dow rose 0.45 percent to 10,387, and Nasdaq advanced 2,228.

Weekly jobless claims fell by 27,000 to 451,000, better than the consensus estimate of 470,000. The report is the lowest number in two months.

The S&P Futures were trading higher by about 3 points prior to the 8:30am EST weekly jobless claims report, then rallied to more than plus 8 points shortly afterward.

President Barack Obama capped a rollout of new economic policies with a combative speech Wednesday that tipped the Democratic plan for the fall campaign: attack the Republicans' policies and try to monopolize the economic message until Election Day, The Wall Street Journal reports.

Speaking at Cuyahoga Community College in Parma, Ohio, the president gave his second aggressive campaign address of the past few days—delivering a speech that was part mea culpa, part policy address but mainly red meat for a Democratic base that party officials fear will sleep through the Nov. 2 vote. He conceded that his policies have "fed the perception that Washington is still ignoring the middle class." But he castigated Republican opponents for believing, "If I fail, they win."

The speech was billed as a major policy address to kick-start a flagging economy. The president formally announced three proposals the White House had hinted were coming: $50 billion in infrastructure spending; expanding and making permanent the lapsed research tax credit for business; and a measure allowing businesses to write 100% of their investment costs off their taxes through 2011.

Republicans labeled the economic proposals a new try at a failed policy, and instead urged him to extend all of President George W. Bush's tax cuts, not just those for the middle class. "The White House is doubling down on a job-killing plan when millions of unemployed Americans are looking for relief," said Utah Sen. Orrin G. Hatch.

President Obama is great at campaigning and making promises, but he lacks an understanding of how the bills get paid, or don't get paid.

CNSNews.com reports; In the first 19 months of the Obama administration, the federal debt held by the public increased by $2.5260 trillion, which is more than the cumulative total of the national debt held by the public that was amassed by all U.S. presidents from George Washington through Ronald Reagan.

The U.S. Treasury Department divides the federal debt into two categories. One is “debt held by the public,” which includes U.S. government securities owned by individuals, corporations, state or local governments, foreign governments and other entities outside the federal government itself. The other is “intragovernmental” debt, which includes I.O.U.s the federal government gives to itself when, for example, the Treasury borrows money out of the Social Security “trust fund” to pay for expenses other than Social Security.

At the end of fiscal year 1989, which ended eight months after President Reagan left office, the total federal debt held by the public was $2.1907 trillion, according to the Congressional Budget Office. That means all U.S. presidents from George Washington through Ronald Reagan had accumulated only that much publicly held debt on behalf of American taxpayers. That is $335.3 billion less than the $2.5260 trillion that was added to the federal debt held by the public just between Jan. 20, 2009, when President Obama was inaugurated, and Aug. 20, 2010, the 19-month anniversary of Obama's inauguration.

CNSNews.com "Obama Adds More Debt Than All Presidents from Washington to Regan, Combined"

The major U.S. stock indexes pushed higher last week on light volume and optimism for job growth. Follow-through this week on increased volume would be a good sign for stocks. There are just two months until the Congressional elections and the democrats will do everything they can to support the markets with hopes to gain votes. It's likely to be a bouncy ride for stocks.

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The next morning Hotline Update will be Friday, September 10, 2010.

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Sept 2010 News

Date	Article
Sept 8 2010	Fed Banks: `Widespread Signs of a Deceleration' in Economy
Sept 8 2010	Obama Added More to National Debt in First 19 Months Than All Presidents from Washington Through Reagan Combined, Says Gov’t Data
Sept 6 2010	Obama assails GOP, promotes new job program
Sept 6 2010	Small businesses feel squeeze by Obama policies

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Forecast 1
Forecast 2
Forecast 3
Forecast 4
Forecast 5
Forecast 6

Carnegie Management Forecast 1

The Federal Reserve will temporarily win the deflationary battle by creating trillions in new money to re-inflate the economy. The most immediate result will be the reflation of the stock market, commodities prices and crude oil between now and late-2009. The Dow Industrial Average could rebound to around 12,000 by mid-2009.

Carnegie Management Forecast 2

A tsunami of new money from the Fed will produce higher rates of inflation and, hence, higher interest rates and higher mortgage rates during 2009. During this period of rising interest rates, 30-year bond prices will decline dramatically as yields rise to at least 7 percent. Mortgage rates could reach 9 percent. Stocks and commodities will return the best profits during 2008 to mid-2009.

Carnegie Management Forecast 3

Spending on housing has peaked for many years to come. Do not purchase real estate. I do not see a bottom in housing before the Great Recession and Bear Market of 2010, 2011 and 2012 unfolds. Homes-for-sale inventories continue to rise. Forty percent of home sales in many regions of the country are sales of foreclosed properties.

Carnegie Management Forecast 4

Deflation in the housing and automobile sectors will increase the economic pain during the Recession and Bear Market of 2010-2011-2012. Home foreclosures will rise during this period. The Great Depression of 2010-2012 could mirror the 1930’s Great Depression that lasted from 1930 to 1942—a period of 12 years!

Carnegie Management Forecast 5

The assets of foreign sovereign wealth funds will exceed the net capital of the U.S. banking system in less than five years. The assets of sovereign wealth funds are soaring because of exported U.S. dollars. At current rates of growth, Charles R. Morris, author of “The Trillion Dollar Meltdown,” says the assets of foreign sovereign wealth funds will exceed the net capital of the U.S. banking system in less than five years.

Carnegie Management Forecast 6

Under-funded pension plans will contribute to the economic crash during 2009-2012. THE DARK CLOUDS OF DEFLATION ARE ON THE HORIZON. The retirement of 78 million baby boomers (26 percent of our population) born after World War II, will result in a dramatic reduction of economic growth. When people retire, they instantly spend less money because their biggest fear is outliving their retirement income or nest egg.