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This is The Carnegie Management Group Hotline for Friday, September 3rd 2010

U.S. stocks traded quietly and near break even for most of the day on Thursday then lifted in the final two hours to close higher. The S&P 500 gained 0.91 percent to 1,090, the Dow rose 0.49 percent to 10,320, and Nasdaq advanced 1.06 percent to 2,200.

The S&P Futures are trading higher this morning by about 10 points after a better than expected monthly employment report.

Nonfarm payrolls for the month of August fell by 54,000, less than the consensus estimate of 80,000 jobs lost. The overall unemployment rate rose from 9.5 percent to 9.6 percent as forecast.

Unemployment, which reached a 26-year high of 10.1 percent in October 2009, will average more than 9 percent through 2011, according to a Bloomberg survey.

“The painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence,” Bernanke said in a speech in Jackson Hole, Wyoming, on Aug. 27.

State and local government cutbacks in the face of mounting budget deficits are aggravating the problem. The number of workers employed by state and local agencies fell in July to the lowest levels since 2007. Miami, the seat of Florida’s most- populous county, on Aug. 31 imposed $76.9 million of salary, health-insurance and pension cuts on city employees to address a budget gap.

The major U.S. stock indexes bounced off key support levels several times in the past past and are trying to push through upward resistance. Light volume and seasonal patterns are keeping stocks in a trading range which is soon to break in September. We expect selling pressure will return next week.

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The next morning Hotline Update will be Tuesday, September 7, 2010.

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August 2010 News

Date	Article
Aug 30 2010	Ron Paul Questions whether there's Gold at Fort Knox, NY Fed
Aug 30 2010	Record number in Government anti-poverty programs
Aug 30 2010	Obama Administration Plans Loans for Jobless, Mortgage Aid, Donovan says
Aug 26 2010	Fed Policy Foggy as the Economic Picture Clouds
Aug 25 2010	Roubini Says Q3 Growth in U.S to be "Well Below" 1%
Aug 25 2010	'Jingle Mail' Developers are giving up on properties
Aug 24 2010	Dow Faces Bouncy Ride to 5,000:Strategist
Aug 23 2010	Yes folks, Hindenburg Omen Tripped Again
Aug 23 2010	California Delays $2.9 Billion School, County Payments Amid Budget Impasse
Aug 23 2010	Obama's failed stimulus program cost more than the Iraq war
Aug 23 2010	Housing Slide in U.S Threatens to Drag Economy Into Recession
Aug 20 2010	401(k) Withdrawals Spike
Aug 20 2010	Cuts in Social Security Weighed by Panel
Aug 17 2010	U.S says Bankruptcies reach nearly 5-year high
Aug 17 2010	The Future of Housing Finance
Aug 16 2010	China Reduces Holdings of Treasury Debt in June
Aug 15 2010	Another Threat to Economy: Boomers Cutting Back
Aug 11 2010	Beware the Light at the End of the Tunnel
Aug 11 2010	According to Technical Indicators, Meltdown is Possible
Aug 11 2010	Feds Rethink Policies that Encourage Home Ownership
Aug 11 2010	Pound Falls, Gilts Jump as Bank of England Cuts GDP Forecast
Aug 11 2010	China Output Growth Weakens; Inflation Accelerates
Aug 10 2010	U.S Is Bankrupt and We Don't Even Know: Lawrence Kotlikoff
Aug 9 2010	Economists Cut Forecasts and see more Fed action
Aug 6 2010	Update 1- US Postal Service loses $3.5 bln in Third Quarter
Aug 6 2010	Social Security in the Red this Year
Aug 5 2010	Food Stamps Use Hit Record 40.8m in May
Aug 4 2010	Jobless Rates no Factor for Stimulus Money
Aug 4 2010	Place your Bet, Help The Debt
Aug 3 2010	Treasury Secretary Timothy Geithner: Unemployment Could Go Up Before It Comes Down
Aug 2 2010	Americans Who Swap Passports
Aug 2 2010	Rolling Firehouse Closures Begin In The City
Aug 1 2010	Obamacare Only Looks Worse Upon Further Review: Kevin Hassett
Aug 1 2010	States Going Deeper into Debt
Aug 1 2010	Bernanke Faces US Growth Mysteries

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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.