The major indices made yet new highs yesterday after manufacturing output posted its largest two month gain in four years. Housing construction gained 1.5% in August to its highest level in nine months. The “V” shaped recovery is gaining momentum. Disappointing revenue from Oracle (ORCL -22.13) would ordinarily serve as a catalyst for some selling pressure, especially on the Nasdaq (2133.15), but the futures are showing little movement. The relentless bull market action continues. From a trading perspective we would prefer a more volatile bi-directional market, but it is what it is, and the gradual ascension to higher highs refuses to allow anything but the most modest of near term pullbacks. The Nasdaq 100 (NDX – 1723.75) is a great proxy for risk acceptance and the level of innovation and capital investment prevalent in the economy. Most of the companies on the NDX spend large percentages of their revenues on R&D. They invent the products that the world needs. Unlike the deeply cyclical and commodity oriented stocks, they often have little or no debt and have large amounts of cash on the balance sheet. They own the intellectual property that is at the heart of our economic strength. We have constantly bemoaned the lack of innovation that has characterized the “lost decade”, but feel the new political direction, if left unhindered, will see a renewed embrace of science and technology. With our manufacturing base in decline, we must rely on our ability to invent the industries of tomorrow to keep our global competitive advantage (it would certainly help if we offered tax breaks to manufacture those new innovations here in the U.S) This means that the capital markets have to fund our ingenuity and imagination. The death of venture capital is testament not only to where we have been these past years, but also to the fact that now, having only one direction left in which to go, we are most likely at a new beginning. With the qualification that Dubya inherited a lousy hand - in that we were riding so absurdly high prior to his inauguration - it is nonetheless striking that the NDX lost more than 70% of its value in the eight years under the politics of fear. It is noteworthy that the NDX has gained 52% since Obama’s inauguration. We believe we are at the beginnings of a journey to replace political power with economic power. Certain industries are marked by a commoditization of products, and in this regards, the only way to secure a profit advantage is by insuring a political one. We are seeing that now in the debate over health care with special interests attempting to secure the status quo. Health care reform is so important, not only in that rising costs have been perpetuated politically - such that we now spend over $8000 per capita (50% more than any other nation) - but that failure to pass any legislation will impede the clean energy and infrastructure mandates. That’s’ why yesterday’s Bacchus health care bill is such a disappointment. The political reality is that the GOP is committed to defeating the health care bill irrespective of what’s in it. Those on the left won’t vote for something that does not promote competition through a public option. Hence, in effect, we now have a bill that no one wants! Put down the books on Lincoln and partisanship and recognize that there is a fight out there; one that must be won. The so-called right wing “base” is a crazed bunch of loony evangelical ideologues steeped in bigotry and ignorance. They need to be banished to the dustbin of political history, never to rear their vulgarity again in mainstream discourse. John McCain felt he had to court this “base” and that’s why he made Palin his running mate; a woman who felt children should be taught “creationism” for crying out loud. When your best political bet is to promote “Joe the Plummer”, you are a party short on ideas. We can’t help but feel if the “base” was not so prevalent, then the real John McCain could have shown his true colors. Relegating the “base” to insignificance is not only in the nation’s best interest but also in the best interest of the GOP. Fortunately, angry dumb people are still in the minority. As we are increasingly aware, Dick Cheney (Dr. Strangelove) ran the past Administration, especially in the first term. What does it say, therefore, about where our political compass had veered, that Cheney recently said he would prefer “Rush Limbaugh to be president than Colin Powell”. You can’t reason with the village idiot, and the current Administration needs to realize this, and fight on the platform it was elected on. The stakes are high, but if given enough of the facts (pesty little things like the truth), and if delivered with the right conviction, the American people will come to the right conclusions. The fierce urgency of now was never so needed, so step up the fight, step up the rhetoric, and even if it means several more months, win this fight conclusively. The time to replace political power with economic power is now.


S&P 500 (1068.76) broke through the top of our channel with conviction. We are increasingly extended, and are not looking for a climatic runaway top, but a gradual ascension to play out. As such we would welcome some consolidation in coming sessions. The 10 day is at 1038, the 20 day at 1028 today. A pause in the upside juggernaut and return back to the 10/20 day pivot in coming sessions should be expected. The road to 1200 continues, but nothing goes straight up; time to take a breather.

Nasdaq (2133.15) runaway bull market action continues. The Bear Stearns low at 2155 provides resistance. We did not expect a move to that level without some consolidation first, but the upside has been relentless. We are almost 70 points above the 10 day at 2066, nearly 100 points above the 20 day at 2035, and the 7 Day RSI has been above 0.90 for five consecutive sessions. Historically this has not been a great risk reward juncture to be applying long side exposure, and we will continue to wait for a better entry level to develop in coming sessions.