The market has been skirting the bottom for days, or even weeks.

The early morning news mentions that futures are up on some piece of ginned-up news... a government report that is supposedly not as bad as expected... a hint of profits (or more likely just more corporate cost cutting)... maybe even a rumor of a pending "plunge protection team" action...

Nothing factual, mind you. Just buzz, innuendo and more than a bit of desperate hope.

When the open comes, there is an initial surge as shares come up to match and fill futures orders. If the open is strong enough, brokers will start calling short players, asking them to either raise margin or cover by buying back shares and returning borrowed shares.

The short players have been having a party for weeks, dining on the corpses of failed dreams. What's more, they know for a fact that the party will resume soon enough.

How they know is critical, so I'll show their four secrets in just a moment. But for now, they are perfectly satisfied to close down shop, and their buying surge pumps the market up another notch.

Right about now, my lines heat up with breathless messages from friends, relatives, rivals, readers...

"I thought you said the market was crashing? Was that it? What happened to all that overhang? Are we back to a bull market?"

Deafening Noise...

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The answer is plain and simple: "No."

But sometimes the sideshow barkers are so loud, they take your attention away from the real action in the center ring. Sometimes the noise of it all can be so deafening -- the articles, the rumors, the reports, the opinions, the daily whipsawing spikes and volatility -- that many investors and traders can't sort out the critical facts from the dross and distractions.

...And Perfect Clarity

That's why I use four perfect signals -- the same four indicators many of those short players and Wall Street wise guys are using -- to filter out that noise and illuminate the market's true stance.

First, you need to be sure that you are looking in the right direction. Many investors study the Dow Industrials' every little hop and drop, hoping to find clues as to the market's true intentions.

Good general instinct -- bad execution.

This particular list was created and is maintained as one half of a century-old indicative system. If it ever were an accurate gauge of American blue chips, its limited scope and peculiar weighting now render it no longer but so useful for this purpose.

I prefer instead to chart and analyze the Standard & Poor's amalgamation of the top 100 (by market cap) publicly traded companies in America, the S&P 100 or OEX. When you look at this collection of 800 lb. gorillas, you are most certainly looking at the top echelon of the American economy.

A Sense of Scale

The next thing you must do is take a deep breath, and a step back. It takes a bit of distance to tell the difference between a shrub, a tree and a forest. Just so, it takes scale to see the difference between daily volatility and genuine trends. That is why the chart I have drawn up for you is measured off in weekly increments instead days.

Finally, you need to see both the angle of attack, distance progressed, and power of market moves. Therefore you need both the "GPS map" provided by a price chart, and properly programmed oscillators that offer a "tachometer" of inherent strength.

Now I will list for you the four critical technical signals that simply must govern your trading and investing. (Believe me when I tell you that these same four signs are being read right now in every C-suite on Wall Street.)

Four Signals That Are NEVER Wrong

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1: The Corner

This is the moment when price has hit the top or bottom boundary of a trading channel. On our OEX chart, you can see this signal cropping up three times since the long-term falling trend commenced in 2006 (yes 2006!). Each has presaged the sort of cyclic changes that are often confused with genuine decadal bull or bear markets.

You simply can't help but see that the third iteration of this signal hit at the top line of the trend in late April of this year.

2: The Cross

This signal depends on moving averages, another critical way to sort forests from trees. When price and the 50-day exponential moving average (marked in red) drop below the 200-day exponential moving average (marked in blue), you have a "Death Cross," a sure confirmation that the market has hit the top of trend and turned down into the next falling cycle.

Conversely, the inverse -- a "Golden Cross" -- is a sign that price will for the most part rise for months to come. Note how January 2008's Death Cross and June 2009's Golden Cross confirm their Corners.

Note also that in late June of this year, a Death Cross confirmed our initial cornering signal at the top of the long-term trend.

3 & 4: Oscillator Inversions

Now we move down to those "tachometers" that sit below the main chart. These are generated via mathematical formulae that convert the interplay of time and volume, and fast and slow averages into clear waveforms -- indications of power that confirm the strength our diagrammatic signal set.

Note how the switch from positive to negative momentum and the collapse of the fast average below the slow average confirmed January 2008's Death Cross. And note again how the same two signals are completing our current constellation of sell signs.

With a Corner in place, confirmed on both upper and lower charts, I am quite confident when I tell you that the current bear market cycle is not even close to over, and regardless of what they may say in public (as evidenced by the overwhelming absence of buy recommendations I spoke of earlier this week), that "confidence" is shared by most all of the wiser minds on Wall Street.

"It's pretty clear the US economy has hit a wall," said Barry Knapp, head of US equity strategy at Barclays Capital. "The macro picture is dominating and, right now, it's not clear what's going to get the market out of this spot."

Those fears took centre stage again during the final day of trading.

In New York, markets enjoyed some brief respite from the blizzard of weak data as reports on the US housing market and consumer confidence proved better than feared. The Conference Board's index of consumer confidence climbed to 53.5 last month from 51 in July, while the latest reading from the respected S&P/Case-Shiller index showed that home prices were up 4.2pc in June compared with a year ago.

The day's rally proved short-lived, however, after the minutes of the Federal Reserve's latest meeting returned investors to the summer's familiar themes. Fed chairman Ben Bernanke has spent the past few weeks facing increasing pressure from markets to publicly declare he will do more to fight the prospect of a second recession if the recovery stumbles further. According to the minutes, some members of the Fed's Open Market Committee saw "increased downside risks to the outlook for both growth and inflation".

That admission left the Dow up just 4.99 points at 10,014.72 for the day, while the S&P ended the day up 0.41 at 1,049.33.

As predicted on this page, both Martin Wolf and Paul Krugman are taking the low road. Not that we wouldn't take it too, were we in their position. They urged the Obama team to undertake massive programs of "stimulus." Now that the stimulus hasn't worked, they say it wasn't massive enough.

And thank God the administration at least took some of our advice, they add. Otherwise, things would be a lot worse!

In today's Financial Times, Wolf refers to a recent paper by Alan Blinder and Mark Zandi. The two use a "standard macro-economic model" to determine that without the feds' intervention the decline in GDP would have been three times worse and unemployment would have risen to over 16%. And, can you believe it, we would have had a federal deficit of $2.6 trillion.

Oh man, oh man...we're so grateful to Wolf, Krugman, Summers, Obama, Bernanke and all the other savants who protected us from such a dreadful fate.

But wait a minute, this "standard macro-economic model" sounds great and all...but we can't help but wonder. It can predict precise outcomes based on federal policy inputs, right? That is, if the feds were to do such and such...it tells us what will happen, right? And Wolf says it's "standard," so we imagine that you can get it at any Wal-Mart or filling station. So, the Obama team must have had it two years ago, right? We can't help wonder if this was the same model they used when they forecast that unemployment wouldn't go over 8% - if Congress agreed to the stimulus bill the administration proposed. Must have been a different one... Because Congress did pass the stimulus bill and unemployment rose over 9% anyway.

And it's still over 9% - almost 2 years after the stimulus effort got underway.

So, maybe this "standard macro-economic model" is full of... But let's imagine that it isn't. Let's allow our imaginations to take flight...to soar...to loose themselves from the gravity of worldly cares or practical reality. Let's imagine that these economists have a clue!

Imagine that the feds had done nothing - which was more or less standard policy for the nation from its founding in 1776 up until the middle of Herbert Hoover's term in 1930...and for all the years that preceded them...all the way back to the founding of Rome. Now, let's imagine that Blinder and Zandi are right. Without fed intervention, GDP would have sunk 12% - three times more than the actual loss...and half the loss of the Great Depression. Well, that would have been a disaster, right?

Well. Maybe not. It might have been a blessing. The point of a correction is to correct. The Blinder/Zandi study tells us that the economy had mistakes equal to 12% of GDP. Okay...well, maybe the correction overshoots. Who knows? But think of the crazy years of the Bubble Epoque...when lenders were giving unemployed people a mortgage for 110% of the inflated value of a house. Think about the Private Equity deals based on growth assumptions that were hallucinatory. Think about the hundreds of trillions' worth of derivatives based on complex formulae that were phony and silly? Think of all the decisions made on the assumption that consumer credit would continue to expand as it had from 1949 to 2007. Was one of every 8 of them too optimistic? Too ambitious? Too unrealistic? We'd be surprised if there weren't more errors...far more than 12% of GDP.

Now ask yourself...what good was done by failing to correct those mistakes? By failing to wash out the excess debt? Failing to allow insolvent banks to go broke? Failing to permit worn-out, uncompetitive businesses to die in peace?

We don't know how many mistakes there were. We don't know how far GDP SHOULD go down. And we don't know what would have happened if willing buyers and sellers had been allowed to sort themselves out in the age- old ways - by panic, default, bankruptcy, restructuring, and reconstruction.

We don't know. We'll never know. But there is no reason to think we'd be any worse off if we'd found out a year ago. A 12% drop in GDP might have been just what we needed. We could be on the road to prosperity now, rather than looking at another 5 to 15 years of stagnation, decline, and desperation.

And more thoughts...

But we have good news. Yes, dear reader, genuine, no-doubt-about-it good news.

Two bits of good news, actually.

First, the café across the street from our office serves a proper café au lait. A real one.

In Paris these days, if you ask for a "café au lait" they mark you as a foreigner. Parisians ask for a "café crème." Trouble is, the café crème doesn't have much milk in it. It tends to be a bit watery and bitter.

A proper café au lait, on the other hand, is served with a little pitcher of hot milk. Not many cafes in Paris still serve it that way - unless you ask them specifically. Fortunately, the one across the street still does it the right way.

Second, and perhaps more important, we discovered yesterday that tea- totallers die sooner than heavy drinkers. This comes as a great relief to your editor. He sat down last night with a bottle of Lussac St. Emilion to celebrate.

Here's the story from John Cloud (originally appearing in Time Magazine):

Why Do Heavy Drinkers Outlive Nondrinkers?

One of the most contentious issues in the vast literature about alcohol consumption has been the consistent finding that those who don't drink actually tend to die sooner than those who do. The standard Alcoholics Anonymous explanation for this finding is that many of those who show up as abstainers in such research are actually former hard-core drunks who had already incurred health problems associated with drinking.

But a new paper in the journal Alcoholism: Clinical and Experimental Research suggests that - for reasons that aren't entirely clear - abstaining from alcohol does actually tend to increase one's risk of dying even when you exclude former drinkers. The most shocking part? Abstainers' mortality rates are higher than those of heavy drinkers.

Moderate drinking, which is defined as one to three drinks per day, is associated with the lowest mortality rates in alcohol studies. Moderate alcohol use (especially when the beverage of choice is red wine) is thought to improve heart health, circulation and sociability, which can be important because people who are isolated don't have as many family members and friends who can notice and help treat health problems.

But why would abstaining from alcohol lead to a shorter life? It's true that those who abstain from alcohol tend to be from lower socioeconomic classes, since drinking can be expensive. And people of lower socioeconomic status have more life stressors - job and child-care worries that might not only keep them from the bottle but also cause stress-related illnesses over long periods. (They also don't get the stress-reducing benefits of a drink or two after work.)

But even after controlling for nearly all imaginable variables - socioeconomic status, level of physical activity, number of close friends, quality of social support and so on - the researchers (a six- member team led by psychologist Charles Holahan of the University of Texas at Austin) found that over a 20-year period, mortality rates were highest for those who had never been drinkers, second-highest for heavy drinkers and lowest for moderate drinkers.

The sample of those who were studied included individuals between ages 55 and 65 who had had any kind of outpatient care in the previous three years. The 1,824 participants were followed for 20 years. One drawback of the sample: a disproportionate number, 63%, were men. Just over 69% of the never-drinkers died during the 20 years, 60% of the heavy drinkers died and only 41% of moderate drinkers died.

These are remarkable statistics. Even though heavy drinking is associated with higher risk for cirrhosis and several types of cancer (particularly cancers in the mouth and esophagus), heavy drinkers are less likely to die than people who have never drunk. One important reason is that alcohol lubricates so many social interactions, and social interactions are vital for maintaining mental and physical health. As I pointed out last year, nondrinkers show greater signs of depression than those who allow themselves to join the party.

The authors of the new paper are careful to note that even if drinking is associated with longer life, it can be dangerous: it can impair your memory severely and it can lead to nonlethal falls and other mishaps (like, say, cheating on your spouse in a drunken haze) that can screw up your life. There's also the dependency issue: if you become addicted to alcohol, you may spend a long time trying to get off the bottle.

That said, the new study provides the strongest evidence yet that moderate drinking is not only fun but good for you. So make mine a double.

Not a lot, mind you; in fact, not even as much as it was this morning, when traders sieved through the week's ever-so-ugly facts and figures, and grabbed hold of one odd stat as an excuse to run up shares for an hour or so.

I must admit, even I -- the most bearish of bears -- was taken aback when I first read this item. I am speaking of the Institute of Supply Management's surprising notice that its factory purchasing managers index had risen to 56.3 in August, when most all had expected a decline to 52.3.

"Take That, You Bears!"

Like so many of these oscillating readouts, any reading above 50 indicates economic expansion, so this little spike flies in the face of the more sober predictions we've been reading lately. Norbert Ore, who gins up this particular report for the ISM, was quick to pounce on us bears: "Certainly there are no signs of a double-dip in manufacturing."

Manufacturers Alliance/MAPI chief economist Daniel Meckstroth was also quick to elaborate on this odd showing of strength in the industrial sector, pointing out that while real gross domestic product increased at a 1.6% annual rate in the second quarter, manufacturing production expanded by 7.9%: "Manufacturing has consistently outperformed the pace of growth in the general economy during this recovery."

You know what? They almost had me there for a moment.

The Fly in the Pudding

I was actually starting to query the very foundations of my bearish stance, when my eye caught on that gap at the end: 1.6% real growth rate vs. 7.9% industrial growth rate.

Now I am an old businessman myself, and in my day, production build-out exceeding client demand simply had to end one of two ways: either with idle capacity or excess inventory.

With this niggling doubt in the forefront of my mind, I began to dig a bit, and lo and behold, I am not the only one doubting either the sanity of our factory managers -- or the predictive value of this report.

Thank Goodness for GS!

No, not Goldman Sachs (GS:NYSE)! I wouldn't give those guys a glass of water if their pants were on fire.

I am speaking of Gluskin Sheff (GS:TSX), the modest Canadian investment house that provided a base of operations for former Bank of America-Merrill Lynch Chief North American Economist David Rosenberg.

From his new perch up north as Gluskin Sheff's chief economist and strategist, Rosenberg puts out some fairly acute assessments of the situation on the ground down here in the big 50.

Normally, I am loath to pass on long quotes of other people's work. But David's nine-point analysis of the stench coming off the ISM report is a particular gem.

The View From Up North

STRANGE ISM NUMBER... DOESN'T PASS "SNIFF TEST" Here's why:

1. Most of the regional reports were very poor in August. Either they are collectively all wrong or the ISM is.

2. The share of respondents saying the experienced "growth" was 61%, the exact same as a year ago when the ISM was sitting at 52.8.

3. The ISM gain was led by employment (58.6 to 60.4 -- best since December 1983) in the same month that ADP manufacturing fell 6,000 (second decline in a row -- it was  -11k in July when ISM employment was 58.6, so clearly the latter is proving to be, at least for now, an unreliable labour market barometer). Production also ticked up to 59.9 from 57.0 and inventories rose to 51.4 from 50.2. These are all coincident indicators, as an aside (but an important aside).

4. According to the ISM, 76% of the manufacturers surveyed said that their customer inventory levels were either "too high" or "about right." At the turn of the year, just ahead of the big inventory swing that bolstered the GDP data, this metric was sitting at 60%. As a result, it would be folly to assume that the inventory and production categories will contribute to further ISM increases in the near- and intermediate-term. Norbert Ore, who presides over the ISM survey, had this to say about inventories: "If the inventory build isn't voluntary then we have a huge issue on our hands."

5. Meanwhile, the more forward-looking components dropped, though were hardly a disaster. But orders slipped for the third month in a row, to 53.1 from 53.5 in July, 58.5 in June and 65.7 in both April and May. That is still a sharp squeeze in the growth rate of capital goods-related order books. At 53.1, ISM orders index is down to levels last seen in June 2009 (but when they were rising in "green shooty" fashion).

6. Backlogs were down as well, to 51.5 from 54.5 in July, 57.0 in June and 59.5 in May (and peaked in February at 61.0). At 51.5, order backlogs stand at their low-water mark of the year.

7. Supplier deliveries (measure of production bottlenecks) eased for the fifth month in a row -- to 56.6 from 58.3 in July and well off the March peak of 64.9.

8. Looking at five decades worth of data, the share of the time in which we see orders, backlogs and vendor deliveries all decline in tandem, and the headline ISM index rise, is the grand total of 1%. No wonder equities rallied so much -- we just witnessed a 1-in-100 event! Bring your camera.

9. Export orders dipped to 55.5 from 56.5 -- the lowest they have been since last December. If the overseas economy is rocking and rolling, then why onearth would this component be declining? Not only that, but it looks as though yet again, a good part of the inventory boost we still seem to be getting is being filled by imports -- that sub-index jumped four points in August and does not bode well for the trade deficit, which subtracted 3.4 percentage points from headline GDP growth in Q2.

5/2 Split Spells Doom

Mr. Rosenberg's report to his clients goes quite a bit further, noting that this summing ISM report is at complete odds with the regional surveys out of Philadelphia, New York, Milwaukee, Richmond and Kansas City, five out of seven of which were down.

He observes that: "In the past, when we had a 5-to-2 ratio to the downside, the share of the time ISM managed to eke out an advance was 4%." Even more important, he warns that the real nugget of truth in this report can be found in the ISM orders/inventories ratio, which has fallen from 1.441x in May to 1.033x come this August: "In the past 30 years, with eleven observations, ISM dropped to 47x in the three months after such a decline in the orders/inventory ratio to such a low level as is the case today."

The gist of both David's and my own argument? The ISM's top-line figure is either wrong, unique or doomed.

Even the Bulls Don't Buy This "1/100" Story

On the one hand, most every analyst and economist -- including most of Washington and Wall Street's in-pocket bulls -- is dead wrong about what's coming down the pike. Rather than squalid flat growth for the next two years (the most common upside story being trotted out these days) or a continuation of the worst contraction since the Great Depression, we are about to see a veritable "golden swan," a remarkable one-chance-out-of-a-hundred turnaround that will see our houses return to their pre-crash values, and our stock shares skyrocket to stellar new highs.

Or the guys at the factories are trying to kick the evidence of a massive strategic error under the rug, hoping against hope that someone in Washington will come along and patch things up before they get fired.

Both Mr. Rosenberg and I are inclined toward the latter.

The government is about to confirm what many people have felt for some time: The economy barely has a pulse.

The Commerce Department on Friday will revise its estimate for economic growth in the April-to-June period and Wall Street economists forecast it will be cut almost in half, to a 1.4 percent annual rate from 2.4 percent.

That's a sharp slowdown from the first quarter, when the economy grew at a 3.7 percent annual rate, and economists say it's a taste of the weakness to come. The current quarter isn't expected to be much better, with many economists forecasting growth of only 1.7 percent.

Such slow growth won't feel much like an economic recovery and won't lead to much hiring. The unemployment rate, now at 9.5 percent, could even rise by the end of the year.

"The economy is going to limp along for the next few months," said Gus Faucher, an economist at Moody's Analytics. There's even a one in three chance it could slip back into recession, he said.

In addition, the impact of the government's $862 billion fiscal stimulus program is lessening.

That leaves the private sector to pick up the slack. But businesses are cutting back on their spending on machines, computers and software, according to a government report earlier this week. And the housing sector is slumping again after a popular homebuyer's tax credit expired in April.

"What we're seeing is that the hand-off to the private sector is not looking as robust as we had previously hoped," said Ben Herzon, an economist at Macroeconomic Advisors.

A handoff? What an imagination!

As if the private and public sectors were running a relay...cooperating to make our lives richer and better...based on a game plan developed by the coaches at the Federal Reserve!

We have news: it doesn't work that way.

"Okay, Mr. Smarty Pants, how does it work?"

Glad you asked.

In the real world, the economy is always making mistakes...and always correcting them. Making mistakes...and correcting them.

And markets are always discovering what things are worth. They figure out what one thing is worth, conditions change...and they change their minds.

There are times when the economy makes a big mistake - especially when it is given the wrong signals from the Fed. And there are times when markets change their minds dramatically.

Investors don't like it much when the economy and the markets turn down. It makes them look like morons...which they usually are. Businessmen don't like it much either. Falling sales or failing businesses make them look incompetent and reduce their compensation. The average person doesn't like it because he loses his job...and sometimes his savings. And the politicians don't like it because they pretend to have everything under control; when things seem to go wrong, voters blame them.

So, the politicians - with their lackey bureaucrats and stooge economists - take action. They do something! Newspaper columnists and TV commentators argue about whether they do the right thing or the wrong thing...too much or too little...too soon or too late. But actually, anything they do will be wrong - unless it is merely removing some previous "improvement."

"Wait a minute... Are you saying that all these recovery programs...and raising and lowering interest rates...and providing support for key industries...and help for people who are unemployed... Are you saying all that is a waste of money?"

Oh no, we're not saying that. We're saying it is worse than a waste of money. It makes people doubly poorer - first because of the actual cost of the recovery programs themselves...and second because the programs interfere with the economy's efforts to correct its mistakes and find proper prices.

Even the most apparently benign - and some would say, humanitarian - government interference is far more harmful and costly than people realize. Take jobless benefits, for example. At least they don't do any harm, right?

Wrong! Jobless benefits rob Peter to pay Paul because Peter has a job and Paul doesn't. Why do that? Paul might take his time finding a new job.

There are no new jobs, you say? Don't be ridiculous. There are always things that need to be done. Jobs are like anything else; you just have to find the market clearing price. If wage rates were low enough everybody would have two jobs. But who wants to work for substantially lower wages? No one. Most people will only do so if they have to. As long as he is getting unemployment compensation, Paul doesn't have to.

"Whoa...this is radical...sounds almost subversive. You're saying government shouldn't be involved at all."

"Oh no... We don't give advice here at The Daily Reckoning. We're just saying that if people want to be poorer they should invite as much government meddling as possible.... Get government to make lots of rules and then change them often... Put everyone on the government payroll; turn them all into zombies..."

You could be collecting as much as $3,750 a month in extra income.

And you could start tomorrow.

My strategy works for any one, at any income level.

What's more, you don't need to be a hedge fund manager or any other kind of financial expert to use it.

I'll share the details of how this moneymaking strategy works in just a minute, but for now let me tell you how I came across this accounting glitch.

I Couldn't Believe They Were This Stupid...

Our government is always making mistakes, especially when it comes to technology.

It's so bad even they know it.

Like when a Senate subcommittee report into the over $170 billion worth of federal technology blunders declared, "the government is just as inept at buying computers as it is in using them for accounting."

Yet year after year, they continue to tax you to pay for their incompetence and waste.

Now, you can finally use the government's incompetence against them for a significant, personal gain.

And you can do it over and over again... to the tune of as much as $3,750 in extra income every month.

I discovered this 39-year-old glitch in the federal accounting system while working as a trader for one of the world's largest hedge funds.

I couldn't believe they were this stupid... to leave a costly error like this uncorrected.

Don't worry, I assure you it's perfectly legal... even though it's so simple to make this extra cash every month that it will feel like stealing.

There are no forms to fill out, lengthy background checks or anything like that required to claim your money.

In fact, it will only take you five minutes a week to start collecting as much as $3,750 every month. Yes, I said $3,750 every month.

(Of course, how much you make depends on how much you invest, but you could easily make this kind of money with just a small initial investment of $5,000.)

All thanks to this 39-year-old glitch in the federal accounting office.

Before I explain how it works, I have to warn you...

For a Limited Time Only?

President Obama, bogged down by sagging ratings, has recently stepped up his mission to streamline government, eliminate waste and close costly loopholes.

"We need to insist on the same sense of responsibility in Washington that so many of you strive to uphold in your own lives," President Obama said.

It makes sense. If there were a glitch in your personal bank account that was leaking money every month, you'd be sure to do something about it... and quick.

But the vast, sprawling federal government is another matter altogether. They don't even realize they have the problem, let alone know how they can fix it.

Still, even though this accounting mistake has been around for 39
years - there's always a chance it could be discovered any time - and closed, thanks to the current fervor in D.C.

I just want to warn you this "loophole" may not last forever.

A solution could come later this year. Or it might never be fixed.

Either way, you could be collecting as much as $3,750 a month - for as long as this "loophole" goes undetected. Which is why there's no time to waste.

But in order to understand how simple and financially effective this strategy is, you have to understand how the accounting glitch works.

Can You Believe It?!No One Thought to Update the Accountants...

Everyone knows our government is in the habit lately of printing money hand over fist.

But would you believe that while they're printing all that new cash...

They haven't updated their way of counting it for 39 years!

In fact, the U.S. government is still using the same method for counting money as they did when we were on the gold standard.

Except the dollar hasn't been backed by gold since 1971.

That's when Richard Nixon signed the Bretton Woods agreement. This groundbreaking restructuring of the world's financial system removed the dollar from the gold standard...

We went from a metallic-based system to a fiat money system, in which every dollar does not have anything backing it but the government who printed it.

The federal accounting office, however, has continued to use a formula, better suited to the gold standard era, to determine the supply of money out in the world.

They still use this flawed system today.

It's hard to believe but it's true.

I've spent the last 15 years perfecting a formula to more accurately calculate these numbers...

Why?

It's like playing a blindfolded opponent in a simple card game. If I know what cards you're holding and you don't... I can beat you every time.

It'd be so easy to win it wouldn't be fair.

Like in late December 2001, my radar lit up. An opportunity to make a lot of money quickly was imminent...

Sure enough, if you had acted on this indication, you could've more than doubled your money... in just three days.

That's why my $150 billion hedge fund manager friend was willing to pay any price to keep this strategy so private. It's that valuable.

If used correctly, $3,750 a month is just the tip of the iceberg of how much money you could be making.

In fact, five figures a month is certainly possible. How can you use this strategy to make that kind of money?

The Most Lucrative Market in the World

When Nixon signed the Bretton Woods agreement, little did he know he'd be opening the doors for investors and traders to make bets against our government 1-on-1... without fear of punishment... and for a large profit.

In fact, you could place a bet for or against how any country's government in the world handled their money supply.

In essence, a niche investment market was created that's become the largest trading market in the world. It's open 24 hours almost every day of the year.

This market has made some people billionaires....

Like Bruce Kovner, who started out with just $3,000 on his MasterCard account and ended up raking in $500 million in 1983 alone just from trading on this market.

As a 16-year-old in Phoenix, Arizona, Chris Weber took $650 he saved as a paperboy and invested in this market. He's a now a multimillionaire living in Monte Carlo. He's never had a regular job.

George Soros, infamous for his political activism, actually made his fortune in this market. In fact, he made almost $2 billion on one trade in 1992.

It's the same market I've been trading successfully for over 15 years.

I'm talking about the currency or Foreign Exchange market, Forex for short.

The strategy I've created accurately detects major moves in the Forex market ahead of time...

Giving you the chance to get in early, and reap the benefits.

My New "Fiat Heat Map" Accurately Predicts FOREX Moves...Weeks in Advance

You may have never traded currencies before...

Maybe it seemed too complicated. Too risky. Too hard to know when to get in and out.

That's exactly why I created my proprietary strategy I call the "Fiat Heat Map."

I call it the "Fiat Heat Map" because it uses an accounting formula better suited for a 100% fiat money economy.

Fiat money simply means printed money with nothing backing it but the full faith and credit of the issuing government.

My formula corrects the government's accounting mistake and paints a more accurate picture of the future of the Forex market.

I input the right information and then just wait for it to produce a hot - or cold - spot .

When it does, we pounce... and book our gains as quickly as possible.

Yes, the most savvy veterans can use the Fiat Heat Map to successfully guide their trades...

But I created it for the novice... the person who may not have traded currencies before, but doesn't wanna miss out on the lucrative opportunities that are only available in the Forex market.

I'm talking about five-figure gain potential every month. The sky's really the limit when you have the Fiat Heat Map.

Movements in the Forex market happen every day. And even the slightest moves can make you thousands of dollars - if you knew they were going to happen ahead of time.

In the Land of the Blind,the One-Eyed Man Is King

It's not just the U.S. government using this outdated accounting formula...

Every government in the world uses the same faulty system. Same with the so-called currency experts. All of their numbers are skewed.

Those faulty numbers are what helped lead to the massive credit bubble of 2008. And they still haven't learned their lesson. They don't even realize they have the wrong numbers.

But not me. My numbers are pure.

You see, it's very simple.

The Fiat Heat Map is the rare currency trading strategy that's armed with the correct supply and demand numbers, allowing it to accurately predict where the market's going... before it goes there.

As a result, you can make a ton of money... and avoid following the herd to painful losses.

Like in 1999, when most of the experts were predicting the rise of a strong euro and the weakening of the dollar.

The Christian Science Monitor called it "euro-phoria."

Fred Bergsten, director of the Institute for International Economics, said it wasn't a matter of whether or not the dollar would be overtaken by the euro, but how long...

"Some people say three years, some say 10 years, but there is no doubt that it will happen."

But, the Fiat Heat Map wasn't backing the expert's statements.

The Fiat Heat Map signaled a strong move downward for the euro versus the U.S. dollar in April 2000.

By July the EUR/USD had dropped from 1.0470 to 0.9649. By October it was down to 0.8296.

If you had traded on the Heat Map's signal, you could've turned $5,000 into $17,392 in just six months.

The same thing happened in late 2004.

The euro was surging, reaching new highs over $1.30 against the dollar. The experts were bullish on the euro.

In Nov. 2004, Mansoor Mohi-uddin, chief currency strategist at UBS in London predicted the euro would hit $1.40 within 12 months.

Later that month, The Wall Street Journal said investing in the euro "looks like an attractive way to protect value."

But the Heat Map said something totally different. It was signaling an impending move downward in the euro.

While all the experts were making bets on the euro reaching new highs, the Heat Map was right, as usual.

In less than three months in 2005, the EUR/USD trade dropped from 1.3086 to 1.1922. You could have made an 86% gain.

Here's the thing: The Fiat Heat Map works for every major currency, around the globe.

I know because I've traded every currency in almost every market there is. And I've seen the Heat Map work in all kinds of different situations and climates.

Who am I?

Veteran International Forex Trader,Patent Pending Inventor...Creator of the Fiat Heat Map

My name is Michael Sankowski.

I've spent over 15 years trading currencies for some of the largest firms in the world.

I've traded in Chicago, New York and London. And I've successfully traded every currency... from the dollar to the euro to the yen.

But I'll never forget the first day I walked onto the floor of the Chicago futures' market as a runner for one of the largest volume traders in the Midwest.

I was fresh out of college armed with all sorts of mathematical and trading knowledge.

This was my first time on the floor though, and I'll never forget looking up and seeing all those numbers scrolling on the big boards. I thought about how many people were affected by those numbers.

And it was as a runner, learning the ropes, that I realized how even the slightest movement in those currency numbers could make someone a fortune - even the average investor.

As I rose to become the chief products manager for the Chicago Futures market, I never forgot about the amazing impact those numbers could have on the wealth of the average American - if only there was a way for them to exploit those gaps in the system. To know what I know.

I've spent my whole career trying to simplify the currency trading process...

I even have a United States' patent pending on a Futures product I invented to make trading the spot currency market easier for regular options traders.

I'm always searching for the best way to help average investors make a lot of money...

I consider myself part accountant, part economist, part inventor and all trader. It's all of these aspects that helped me create the Fiat Heat Map.

Now I'm looking to share this information with people who want to stop breaking even every month and start making five figures trading currencies.

I'm hoping that's you.

The Fiat Heat Map helped me avoid the best stock market meltdown of 2007-08. Instead, I prospered.

But I know a lot of folks weren't so lucky. The best stock market in 2010 has cost people a lot of money. And I felt guilty keeping this information to myself.

I want to help them get it back. And I truly believe using the Heat Map to trade currencies is the best way to do it.

A purely fiat economic system is naturally volatile... that means there are lots of chances every month to collect a quick profit from the Forex market.

Like in January 2006...

Just before the new year, the Heat Map signaled a move up for the euro against the U.S. dollar.

In four days, you could've made over 50%!

And if you stayed in the trade, like the Heat Map suggested, you could've turned $10,000 into $17,264 in just over four months. Where can you make a gain like that outside of the Forex market?

That's the best part about the Fiat Heat Map. You don't have to know a thing about currency trading to make this kind of money.

The Heat Map tells you everything you need to know...

• Which currencies are poised to go up or down in the next week, month, year...

• How big the move is likely to be...

• And when you should execute your no-brainer trades to collect the most money possible!

So how can you get access to the Fiat Heat Map?

I'm in the process of releasing that information to subscribers of my monthly newsletter, Currency Profits Trader, only.

To get access to this unique strategy - and the potentially moneymaking predictions it spits out - you must be a subscriber.

To make it easy, I'm currently extending a special offer just for Taipan readers...

I'll tell you how to take advantage of that offer in a minute, but first let me assure you:

The Fiat Heat Map accurately predicts the moves of all the world's major currencies, not just the dollar, giving you more opportunities to make money off small moves in the market.

Take a look at some more examples of the money you could be making using the Fiat Heat Map.

In this case, even while the euro was moving up against the dollar, the Fiat Heat Map signaled a down signal.

Trading off this information could've made you an easy 54% in just over three weeks...

In early March 2009, the Heat Map signaled a strong move up for the Australian dollar against the U.S. dollar.

The average currency trader could've made 82% in one month on this trade... A $10,000 investment would have made $41,616 once the trade ran its course in November of the same year.

The Fiat Heat Map for the EUR/USD trade lit up in February 2002. Traders could've made a quick 28% gain in nine days.

Again in September 2003, the Heat Map called for a move up in the euro. And again the euro went up, giving savvy traders a chance to book a 158% gain in just over a month.

Here's another example of a trade on the pound, Great Britain's currency. This cold spot could've made you nearly three times your money in two months!

And another opportunity to double your money in two months on the Canadian dollar:

152% in two months on the EUR/USD trade in 2001:

The Heat Map predicted another drastic move up for the euro in August 2007... The profit for you could've been a tidy 138% in 42 days...

So how can you gain access to the Fiat Heat Map - and start collecting these kinds of returns every month, over and over again?

Access to the Fiat Heat Map comes with your subscription to Currency Profits Trader.

Subscribe today and I'll send you my instruction booklet, titled "The Fiat Heat Map: Spotting Trading Opportunities," FREE of charge.

Inside, I'll explain how the Heat Map works, why it's so effective... and how to interpret the signals in the Heat Map to help you make money.

But that's not all you'll get as a subscriber...

Protect Your Currency Profits

In Currency Profits Trader, I won't just give you a recommendation and leave you hanging.

I'll explain what the Heat Map is pointing to... and I'll give you clear trading recommendations, letting you know when to get in... and when to get out.

While the Heat Map can point you in the right direction, the key to collecting those gains is knowing when to buy and when to sell for maximum profits.

Aside from being a veteran Forex trader, I'm also a CFA charterholder.

As a CFA charterholder, I'm a member of an elite club dreamed up by legendary investor Benjamin Graham. (CFA stands for Chartered Financial Analyst.)

The Economist called the CFA program "the gold standard among investment analysis designations."

I'm also a Chartered Alternative Investment Analyst, which seeks to provide a standard for people involved in alternative investments - like hedge funds, private equity investments... and the currency market.

The most important thing this designation represents is that I'm accredited in risk management. Knowing when to get in and get out - and how to recommend you protect your profits.

I'll also keep you informed on the market in general. Moves in the Heat Map often signal major moves in the best stock market of 2010...

You'll know a whole lot more than 99% of the experts on CNBC or Fox Business.

Like on May 1, 2007, when the Heat Map helped me save my whole personal fortune.

On that date, the best stock market was reaching new highs...

The Dow Jones was over 13,000 and climbing.

Al Goldman, chief strategist for A.G. Edwards said that day, "On Wall Street, add 3 zeroes to a 13 and you have the land of milk and honey."

But, the Fiat Heat Map was screaming a signal of impending doom.

So on that very day, with the Dow trading at new highs, I sold my best stock portfolio.

Just over a year later, the best stock market plunged 36%. Whole retirement accounts, life's fortunes, were wiped out across America.

But not mine. I kept my wealth and then some... thanks to the Fiat Heat Map.

So how much will this valuable trading edge cost you?

Not as much as your average broker or mutual fund would. And those guys are using the wrong numbers.

But I will tell you this... Currency Profits Trader isn't cheap.

The information I'm selling is known to less than 1% of the population.

In order to make sure it stays that way I have to charge a high price - to keep this information in the hands of serious investors only...

People looking to make five figures or more every month.

Before you make your decision, let me tell you what the Fiat Heat Map is signaling right now...

One of the G7 countries' currency is set to make a quick run up.

You could reasonably expect to pick up an easy $3,750 by May 7 once this play has run its course.

An Effortless $3,750... In Just Over a Month?

There's only one currency in the world that tends to move up against the dollar in times of crisis.

My Fiat Heat Map is making a strong case for that currency right now.

In fact, I believe this G7 currency will make a strong run up against the dollar in the next 30 days.

There's a way to play this move to maximize your potential profits in a short period of time. "I'll tell you which currency I'm talking about in my special report: "How You Could Make an Effortless $3,750 by
May 7."

It's yours FREE when you take a risk-free trial subscription to Currency Profits Trader.

So what does risk-free mean?

Try Currency Profits Trader for 30 days. If you aren't happy with what you see, let us know and we'll give you a full refund.

You also get to keep both FREE reports, as our gift... even if you choose to cancel.

What does your risk-free subscription include?

• You'll get 12 months of Currency Profits Trader, a new email issue delivered each week straight to your inbox.

• Special Report #1: "The Fiat Heat Map: Spotting Trading Opportunities." This introduction to my proprietary Forex Heat Map walks you through how I create the Heat Map, how to read it and what those signals mean for your trades.

• Special Report #2: "How You Could Make An Effortless $3,750 by May 7." According to the Fiat Heat Map, one currency is set up to make a strong move against the dollar in the next month. If you get in now, you could easily collect as much as $3,750 in just over a month. My report will tell you exactly which currency I'm talking about and how to properly execute this recommendation to maximize your potential profits.

• Weekly Updates: Every week, I'll update you on what's happening with our model portfolio, what the Forex Heat Map is signaling and what you need to be doing to maximize your profits. I'll also update you on larger market issues and how you should be reacting to them.

• Free Subscription to Taipan Daily: Taipan Daily is our free daily e-letter read by over 230,000 people each morning. It's filled with investment research, commentary and market analysis from our panel of experts, plus topical essays and lots more moneymaking opportunities.

• Free Subscription to Taipan Insider: This exclusively circulated e-letter will keep you informed on special investment opportunities we uncover around the globe. Whether it's China, India, South America or Australia, we'll get you the inside scoop on global trends before they happen... so you can cash in.

• Access to the ALL back issues of Currency Profits Trader: You'll be able to go through all of my old issues, special reports and updates to find even more chances to make money RIGHT NOW.

So how much will all this cost you?

Normally a Forex trading service with this kind of proven accuracy would cost you $5,000, even $10,000 a year.

Right now, I'm extending a limited-time offer to Taipan readers only...

You Can Receive a One-Year Subscription to Currency Profits Trader for Just $795

And you'll have 30 days to test it out... Or your money back.

Or you can choose to enroll in our quarterly automatic renewal plan. It's simple and easy.

Here's how it works: Sign up today and pay $200. You give us your credit card (no debit cards please) and then every three months, we'll automatically charge your card $200.

If you choose to cancel at any time, just let us know and we'll remove the automatic charge from your card.

You'll still have 30 days to decide if this service is right for you.

But don't worry. Thirty days is not only enough time to try the Fiat Heat Map out... it's plenty of time to double or triple your money.

Like on the latest trade the Heat Map is signaling. Every day the signal gets stronger... the big move should start coming in the next couple of weeks.

But I have to warn you... the Heat Map's predictions move quickly. If you wait a week, you may miss out on a fantastic moneymaking opportunity.

For example, on January 23, 2008, the Heat Map signaled an immediate downward move in the Canadian dollar.

Eight days later, the move was over. If you didn't act right away, you would've missed the opportunity to pocket 47% gains... in just eight days.

Don't miss out on the Heat Map's latest signal... Try Currency Profits Trader out for yourself today. And see how you could make consistent monthly income trading currencies this year... including up to $3,750 in the next month.

In the current global cash war, many less-than-savvy investors are likely to see the true value of their hard-earned capital diminish. Unfortunately, most will never know the difference because the nominal value of their investment accounts may remain stable.

But in the end, the true value of a nest egg lies in the purchasing power of that capital. What if your investment account grows in dollars but fails to grow in value? Does your investment strategy include a plan to grow the real value of your retirement dollars even while the global cash war diminishes the purchasing power of paper currencies?

The Problem With Paper Currencies

If you've been following any of the commentary from our editors over the past several months, you know that a number of us are concerned with the prospects for paper currencies (including not only the U.S. dollar but a number of other global currencies as well).

It stands to reason that if governments can print additional currency -- and use that cash to spur short-term growth -- the temptation will be too much for most politicians to resist. Unfortunately, there are a few problems with this approach.

1. At this point it's very debatable whether the additional capital forced into the market is actually spurring any growth. Wall Street bailouts have largely been funneled into the coffers of large banks and their patron investors... Infrastructure stimulus plans have done little to make a dent in the unemployment crisis... And other programs aimed at saving homeowners and adjusting mortgages have simply delayed the inevitable rise in foreclosures.

2. Additional cash in the system is like a ticking time bomb -- with an unknown amount of time left on the clock... All of the cash that the government has shoved into the system is sitting around on the balance sheets of banks and large corporations. The money isn't being spent because executives are afraid they will need the capital for a rainy day. But if all this capital does get spent, it could spark massive inflation with little or no warning.

3. Too much printing erodes value. It's been said over and over again, but it bears repeating... When you continue to create MORE of something, its value declines. That's true with commodities, retail inventory and, yes, currency. Politicians' eagerness to spend their way out of the economic mess has the potential to destroy the value of the U.S. dollar along with many other "developed" paper currencies.

Bringing a Knife to a Gunfight

Most investors are slowly waking up to the fact that there is increasing danger in holding cash. However, too many don't really know what to do about it. Of course there are traditional tools to protect against inflation -- but they only bring so much firepower to the battle...

If you call up your trusty broker at Morgan Stanley and tell him that you are worried about the potential for a decline in the value of the U.S. dollar, he will likely respond with the party line.

"Buy TIPS -- or Treasury Inflation Protected Securities... They increase in value when inflation picks up and are guaranteed by the full faith and credit of the United States government..."

To which I might respond -- "You mean the same government that is printing money faster than a newspaper company behind schedule?"

Of course TIPS have their place, but all they will ever do is help your money keep up with reported inflation. That doesn't actually increase the value of your holdings or help you build a true stockpile of wealth. And don't forget, the government has a vested interest in keeping reported inflation at a minimum. So you can bet that if they make a mistake, it's going to be in the direction of reporting less inflation -- which means your TIPS could appreciate at a much slower rate than the fall in the value of the U.S. dollar.

Another approach (one that I like a lot better) is to own commodities that will increase in nominal value if the purchasing power of paper currencies declines. Gold is of course the major commodity that comes to mind because of its reputation as a safe storage of value.

In the past few weeks we have seen the price of gold begin to trade higher once again as currency concerns re-emerge. Owning gold as well as exposure to agriculture commodities can be a good way to protect the real value of your investment account.

But I still think that these approaches are a bit like bringing a knife to a gunfight. They are sharp, somewhat aggressive, and if you're lucky they can get the job done. But when I show up to a fight, I'd much rather have an anti-tank gun at my disposal.

Gold Mining Stocks -- The Howitzer

Instead of buying physical gold, or the SPDR Gold Trust (GLD:NYSE) in my investment account, I would much rather have exposure to a series of investments that have the potential to generate much larger returns. The best opportunities that I have found so far are gold mining stocks -- companies that actually own the rights to underground gold reserves, and are actively producing new ounces of gold day after day.

For the best-managed companies in this area, today's opportunity is phenomenal. Each day that the price of gold ticks higher, the value of their underground reserves increases. And since most of these companies have relatively stable production expenses, the higher price of gold flows directly to the profit line for investors.

Investing in individual gold miners takes a good bit of research and expertise. Just a few of the key issues to consider are:

• What does it cost the company to produce (or mine) each ounce of gold?
• How much debt does the company have and when are key principal payments due?
• How many ounces of proven resources are still in the ground?
• What is the potential for additional yet-to-be-proven resources?
• Has management hedged the selling price of gold?
• What geopolitical issues could cause risk to the company's assets?
• How much of the company's total value is already incorporated in the stock price?

You can see that there are a lot of moving parts to be aware of, but if you are able to identify investments that score well with these and other key issues, you should be able to generate returns well over and above the amount necessary to simply protect the purchasing power of your account.

In the upcoming issue of New Growth Investor, I have identified a particular gold miner that is able to produce ounces of gold at a cost of less than $400 per ounce while selling to the market at a current price of well over $1,200 per ounce.

The company has an incredible source of profits that could increase dramatically as the price of gold continues to work higher.

Better yet, the company has huge underground resources in both gold and silver that don't appear to be included in Wall Street's valuation of the company. This opportunity to pick up an investment at a fraction of the value of the company's resources is likely to offer a significant boost to our portfolio's value over the next several months.

While long-term investments in gold mining companies have an intriguing appeal, I'm also excited about the opportunity to actively trade these names as well. Last week, my Velocity Trader service took a turbo-charged position in a security tracking prices of gold miners and turned a 35% profit in a matter of two trading days.

These high-velocity approaches involve more risk, but can generate impressive returns in a very short amount of time. Over the next several weeks, I expect to be actively trading options on gold miners and taking advantage of major price swings as Wall Street begins to realize the value of this often neglected sector.

Whether you invest in resources like physical gold and commodities, equity investments in companies that benefit from increasing commodity prices, or actively trade options on these securities, it's important to make sure you bring enough firepower to this war.

The destruction of paper currencies has important implications on each of our lives today and well into the future. I'll be working hard to protect the value of my investment dollars, and using some heavy artillery to make sure I'm successful. I hope you're ready to bring out the big guns!

To your investment success!

In other words, they lied so that the bonds they were selling would appear more attractive. It's classic balance sheet fraud, committed by senior state officials working for both democrat and republican governors. And the state's bond underwriters - JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs - all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds.

What's the penalty for this outright fraud? Nothing.

The State of New Jersey will pay the SEC precisely zero dollars. Not one state employee will pay a fine either, or go to jail...not even lose his job. In fact, the State didn't even have to admit wrongdoing. "New Jersey agreed to settle the case without admitting or denying the SEC's findings," calmly explains the SEC press release. Come again? Essentially, the only provision of the settlement is Jersey's promise that it won't do this in the future. That's it.

And Goldman Sachs, JP Morgan and all those other mega-banks? C'mon... They weren't even mentioned in the SEC's statement.

It's worth repeating: We're talking $26 billion in bonds sold under purposely false pretenses. This isn't some small-time phony IPO. Pretend a company like McDonald's, which has a market cap of roughly $77 billion (that's about the same value of New Jersey's pension fund system) sold $26 billion in bonds under similar guise. Heads would freaking roll. They'd be lucky to not go bankrupt.

Yet, here we are. New Jersey officials were so unfazed by the SEC settlement - the status quo was so unchanged - that they proceeded with a $2.2 billion bond sale on August 19, 2010. That's less than 24 hours after the SEC announced the results of their investigation. SEC investigators did a fine job forging into uncharted territory and exposing State fraud, but they offered literally the most toothless settlement possible.

That's not to say no lessons have been learned. The smart investor should already be leery of municipal bonds, with so many states struggling to close budget gaps while honoring swollen pension agreements. Now you have all but absolute proof that State administrators are not only unable to balance their books, but they're willing to cook 'em too. Plus, there is really no incentive for States to change their ways, aside from a gentle tap on the wrist from the SEC.

And this whole mess ought to (though it likely won't) highlight fundamental unfairness in the way we regulate the $3 trillion municipal bond market. Having the SEC patrol state funds is a hot mess of conflict of interest and political gamesmanship. At the end of the day, this is government policing government...an operation likely to be as inefficient as it is ineffective.

Of course municipalities need a regulator, as they have proven unable to regulate themselves. But once the SEC discovers such a fraud, why not - at the least - order the state to hire a team of private sector auditors that will report their findings to the government every year for the next five...or as long as it takes for the State to get its act together.

How's that for a stimulus plan? Auditing state pension programs would employ thousands of accountants for years. And those are real jobs, with a real purpose... Bean-counters could get back to work and bureaucrats would have to be just as responsible and forthright as the rest of us. While they're at it, those auditors can figure out exactly how long those struggling pension funds will last before running out of money. Wouldn't that be nice to know?

We'll be on the lookout for an e-mail from Mr. Obama, asking for more details on our stimulus plan. In the meantime, know what you're getting into when you buy muni-bonds. Only one state has ever defaulted on its bonds - Arkansas back in 1934. So the odds are still in your favor. But reason is not. Now ethics aren't, either.

An economic recovery doesn't look anything like this either:

In virtually an instant, the picture that has since been burned into everyone’s brain began to unfold...

Suddenly bursting into flames, the great ship was completely destroyed.

And ever since that fateful day, the mere mention of the Hindenburg has carried with it a certain sense of the ominous, portending disaster.

That’s why, when I came across a reference to an obscure technical pattern known as The Hindenburg Omen on the blog Zero Hedge, my interest was piqued.

To top it off, I stumbled upon this particular article on Friday the 13th...

"The Hindenburg Omen" strikes again

First identified by Jim Miekka, the Omen plays on the logic that the bulls and the bears can’t possibly both be right — which, in an odd way, describes where the markets are stuck right now.

This scenario is triggered by the divergence of the number of top stocks making new highs versus those making new lows. 

In other words, the absence of uniformity in sentiment creates the condition of the Omen.

The traditional definition of a Hindenburg Omen has five criteria (per Wikipedia):

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. The smaller of these numbers must be greater than or equal to 69 (68.772 is 2.2% of 3126). This is more of a checksum than a rule. This condition is a function of the 2.2% of the total issues.

3. The NYSE 10 Week moving average must be rising.

4. The McClellan Oscillator must be negative on that same day.

5. New 52 Week Highs cannot be more than twice the new 52 Week Lows (however, it's fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

Meeting these conditions, the occurrence of all five criteria on one day is often referred to as an unconfirmed Hindenburg Omen.

A confirmed Hindenburg Omen, meanwhile, occurs if a second (or more) Hindenburg Omen occurs during a 36-day period from the first signal.

According to the data, this resulted in an unconfirmed Omen last Thursday — a mere one day after nearly triggering it the day before.

On Wednesday, only 67 top stocks for 2011 hit new lows as opposed to the required 69.

Ever since then, the Street has been abuzz with references to fiery crashes.

So what does it all mean?

Probably not much on the face of it... Prior Omens have come and gone without causing much of a market stir.

But looking back at the historical data, the technical signal has indeed been present in every NYSE crash since 1985.

That being said, here’s the rest of the historical breakdown in the aftermath of a confirmed Hindenburg Omen:

• A 77% probability of 5% move to the downside;

• A 41% probability of a panic sellout, down 10-15%;

• A 24% probability of a stock market crash in 2011, down greater than 15%.

And here’s another stat that might just give you goose bumps... According to Barron’s, the Hindenburg Omen appeared in June 2008 when the Dow was trading at 11800 — a mere three months before the big September crash.

A chart pattern worse than the Omen

Whether obscure or not, this is one signal to watch — especially if Thursday’s occurrence is confirmed. After all, the gulf between the bulls and bears has never been wider.

And while I know that all of that sounds a bit crazy, it does seem to jive with the a chart that I have been watching for months now.

It’s the weekly chart of the Dow, and it's more worrisome than any Omen. Here's why...

The chart seems to be forming the final leg of the head and shoulders top we have been warning Wealth Advisory subscribers about for months now. It's one of the reasons we were selling top stocks for 2011 as the DOW revisited the 10700 level.

Take a look:

So what does a classic head and shoulders top look like?

As depicted above, the classic head and shoulders top looks like a human head with shoulders on either side of the head. It's what's known as a topping pattern.

The first point (1) — the left shoulder — occurs as the price level in a rising market hits a high and then falls back. The second point (2) — the head — happens when price levels rise to an even higher high before retreating back to support at the prior low. The third point (3) — the right shoulder — occurs when price levels rise again but the market loses steam, failing to rise above the head.

The key to the pattern, however, is the neckline formed by the previous support, since the pattern is complete when the neck line is broken.

This occurs when the price level falls from the high point of the right shoulder and moves below the neckline. Technical analysts will often say that the pattern is not confirmed until the price closes below the neckline — it is not enough for it to trade below the neckline.

Calculating the downside target then is just a simple matter of the math. To figure it out, you subtract the high of the head (roughly 11200) by its distance to the neckline of 9700.

That gives you a figure of 1500 points. You then subtract that same 1500 from the 9700 neckline to arrive at your new downside target.

Hindenburg Omen aside, what this all means is if completed, the DOW would fall as low as 8200.

Oh, the humanity!

Food for thought as we head into September and October.

1. The long-term trend back towards consumer frugality and higher savings rates remains in full force. This will dampen consumer spending.

2. A double dip in housing prices is likely, because subsidies are ending and the backlog of foreclosure resolutions is about to accelerate.

3. The impact of the Obama administration's stimulus plan is fading, and is not leading to any real "multiplier" effects because most of it went to plug holes in state government budgets.

4. European and Chinese GDP are slowing for well-publicized reasons.

5. Those who create jobs in the US fear rising tax rates in 2011, rising energy prices from cap-and-trade legislation, the pro-Wall Street "financial reform" bill, and a laundry list of other anti- business policies.

In short, if the status quo remains in place, the US economy will be lucky if it experiences a fate similar to post-bubble Japan. The US government is pursuing the same misguided strategy that has failed for twenty years to revive Japan's economy. This strategy consists of squandering taxpayer dollars on failed financial institutions, and prop up unaffordable federal and state spending programs.

One key difference: Japan's competitive export-oriented manufacturing base was strong enough to prop up the Japanese welfare state (until now, at least). The US manufacturing base is certainly powerful and efficient, but it's nowhere near profitable enough to support both itself and the ever-growing US welfare state.

What policymakers seem not to understand is that each dollar that funds so-called "stimulus" programs must be extracted from the private sector. And they wonder why the private sector is not recovering! A far more effective stimulus plan - as long as the bond market remains unworried about deficits - would have been to slash government spending and slash taxes even faster. While that would also have been fiscally irresponsible, at least we'd be seeing "multiplier" effects on GDP by now.

Big companies remain defensive for many reasons. The July 1 issue of The Economist ran a story on the growth in corporate savings. Capital spending at most big companies is running at a slower rate than depreciation, resulting in rising free cash flows (but at the expense of a deteriorating asset base):

Business investment is as low as it has ever been as a share of GDP. Firms run the risk that their top stock of capital is too depleted to meet even sluggish growth in demand. The likeliest outcome is a hesitant recovery in business spending as firms balance the risks of inadequate investment and insufficient cash.

Some businesses aren't reinvesting because they dramatically overbuilt during the boom; some aren't investing because their customers are broke; still others aren't investing due to hostile government policies. These reasons for caution are all entirely rational. But corporate austerity is a worrisome trend for an economy that is struggling mightily to produce job growth.

To judge from this extremely cautious behavior, corporate leaders seem to fear that the US economy is heading towards Friedrich Hayek's proverbial "road to serfdom."

This road is now taking the global economy down one of two paths:

1. Painful austerity plans and deflation that salvage what's left of today's currency system by promoting savings and encouraging new capital formation;

OR

2. Endless stimulus injections into economies with the promise of austerity "once the economy recovers." Unfortunately, most Western economies are now thoroughly addicted to government spending. Each fiscal and monetary injection into zombie banks will likely have to be larger in order to offset the withdrawal symptoms of losing the last stimulus plan. Entrepreneurs figure this game out and gradually withdraw from participating in the economy in a healthy, productive manner. This loss of entrepreneur confidence in the system will ultimately accelerate the demise of all paper currencies.

The second path one is more likely in my view, because it's more politically popular - especially once the European "pro-austerity" camp discovers just how addicted their economies are to the welfare state. Hopefully, a critical mass of people who value freedom over the illusion of economic security can move to wean us off today's frighteningly powerful roles for governments and central banks. But based on the decisions we've seen in recent years - decisions driven mostly by political considerations - I'm not holding out much hope at this point.

Threats from Washington, DC, include everything from raising tax rates, to bailing out cronies at zombie corporations, to debasing the dollar, to implementing an energy policy that will have the effect of dramatically raising prices and worsening the US dependence on oil imports. Case in point: The answer to the BP oil spill is to take away the right for Gulf Coast oil workers to work on statistically safe drilling projects for the next six months, and then put them on BP- funded welfare checks.

No price was too high to bail out the financial terrorists at the "too big to fail" banks. There's not much desire for the current Congress and the Fed to end embarrassingly large subsidies and guarantees for the big banks.

Bottom line: This environment is dangerous for the top stock market in 2011. When governments are spending money they don't have, while corporations are not spending money they do have, the resulting economic "growth" is usually a fraud. Sustainable bull markets require healthy risk appetites among those with capital to invest.