The S&P 500 is now a thousand points above its March 2009 low at 666.79, when stocks were significantly undervalued fundamentally and extremely oversold technically, but no one wanted to buy.

I was on financial television within days of that low and the network did a poll on whether or not they agreed with my call that the S&P 500 would rally 40% to 50% from that devilish 666 level.

Only 8% of viewers agreed with my call, so I pounded the table harder. The chart below shows the ValuEngine sector valuations on March 9, 2009.

Today stocks are more overvalued fundamentally and more overbought technically than a week ago, as new highs continue for the major equity averages with the Nasdaq ending last week just 2.4% below its semiannual risky level at 3,583. Attributing to this dilemma the yield on the 30-Year U.S. Treasury bond rose to 3.17% from 3.10% a week ago. The ValuEngine Valuation Warning intensified to 71.7% of all stocks overvalued versus 68.7% a week ago, and with 33.9% of all stocks overvalued by 20% or more versus 29.7% a week ago.

Today 15 of 16 sectors are overvalued, 14 by double-digit percentages with the retail-wholesale sector 21.5% overvalued and the transportation sector overvalued by 20.0%.

The problem I have is that there are no fundamental or technical signals that the equity bubbles will pop anytime soon. When parabolic bubbles are inflating you just don’t know how high that market can go.

Over the weekend I saw a headline in an e-mail proclaiming Dow 60,000. To me this is less likely than the 1,000% rise in the price of a tulip bulb from the year 1636 into February 1637 when the price abruptly collapsed. Some estimate that the price of a tulip bulb peaked above $60,000 in terms of current dollars.

As I mentioned above, the retail-wholesale sector is the most overvalued, but 61.1% of all stocks in this sector are rated buy according to ValuEngine. There will be an important test this week as at least 18 buy rated retail-wholesale companies report their quarterly results.

Wal-Mart Stores WMT -0.26% reported its quarterly earnings last Thursday and missed EPS estimates by a penny earning $1.14. The company also gave cautious forward guidance and the stock fell from a multi-year high at $79.96 to $77.87 at Friday’s close. Wal-Mart remains buy rated, but has become 14.5% overvalued. My monthly value level is $74.08 with a quarterly pivot at $78.49 and weekly risky level at $81.50.

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The transportation sector is at the other end of the spectrum with 81.5% of all stocks in the sector rated sell or strong sell despite another new all time high for the Dow Transportation Average. The iShares Dow Jones Transportation Average (IYT) closed at an all time closing high at $116.92, which is above weekly and monthly pivots at $112.50 and $111.46. After setting a March 19 high at $112.30 this exchange-traded fund declined to $104.40 on April 5, then stabilized around my annual and semiannual pivots at $106.22 and $106.95 setting the stage for a return of market momentum.

Summarizing: The Dow remains above my monthly and semiannual value levels at 14,651 and 14,323 setting a new all time high at 15,357.40 on May 17. The S&P 500 remains above monthly and semiannual pivots at 1,587.3 and 1,566.9 setting a new all time high at 1667.47 also on May 17, a thousand points of light above its March 2009 low. Transports are above its monthly pivot at 6,284 setting its all time high at 6,549.73 on May 17. The Russell 2000 set a new all time high at 996.47 on May 17. The next semiannual risky level is 3,583 on the Nasdaq

If these bubbles pop in 2013, the downside risk is to my annual value levels at 12,696 Dow Industrials, 1,348.3 S&P 500, 2,806 Nasdaq, 5,469 Dow Transports and 809.54 Russell 2000.

Keep in mind that bubbles always pop!

Shoe shoppers at a Skechers store in San Francisco. (Justin Sullivan / Getty Images / May 13, 2013)

WASHINGTON — Consumers will help keep economic growth on track this year, as new projections of their spending indicate it will offset the hit to the recovery from the federal government’s automatic budget cuts, a panel of economists said Monday.

The National Assn. for Business Economics estimated that the nation’s economic output would grow 2.4% this year, the same as the group projected in February.

That’s up from 1.7% growth in 2012. And the organization said growth should pick up to 3% in 2014.

But in issuing a revised outlook, the panel of 49 professional forecasters said the automatic federal spending cuts known as sequestration would be a bigger drag on growth than anticipated three months ago.

At that time, before the cuts kicked in March 1, the potential impact was unclear as Washington politicians scrambled to scale them back or delay them.

The economists now project that government consumption expenditures and gross investment will decline 2.3% this year, more than double the 1% drop foreseen in February.

But consumer spending is looking stronger as the housing and labor market recovers.

The panel revised its projections for personal consumption expenditures, saying they would increase 2.3% this year, up from the 1.9% February projection.

And consumer spending will rise 2.6% in 2014, the group said. In February, it estimated 2.5% growth next year.

Consumer spending increased 1.9% in 2012.

By Satarupa Bhattacharjya and Ross Colvin

NEW DELHI (Reuters) – India’s Congress party is debating holding a general election in November, six months ahead of schedule, senior party leaders said, reflecting an internal discussion over whether to pull the plug on the shaky ruling coalition or have it serve a full term.

Officially, the Congress party says the government – which has been battered by a series of corruption scandals and now governs as a minority after two allies withdrew from the ruling coalition – will limp on until elections are due in May 2014.

But there is no consensus in the upper echelons of Congress on when to call elections, according to interviews with more than a dozen party leaders. There is a split between those who say the sluggish economy needs more time to recover and those who worry that waiting until 2014 could be a tactical mistake.

If the Congress party gets the timing wrong, it could cost it a third straight term in power and put a question mark over the future of India’s recently launched economic reform drive.

“The government has a commitment to the people,” said one senior Congress party official when asked why the coalition should continue if it was struggling to pass legislation. “A lame duck is fine if it can paddle through water.”

Other party leaders say things may get worse by next year and Congress should capitalize on a win in local elections in the southern state of Karnataka earlier this month that has brought much-needed cheer to its cadres.

Elections by year-end would also be welcomed by investors hoping a more stable government will lessen political risk. “Right now there is far too much uncertainty. Many businesses do not want to commit,” said economist Rajeev Malik of CLSA Singapore.

Early elections could be forced on the party if a fickle ally, the Samajwadi Party, suddenly withdraws support or if the minority government loses a confidence vote in parliament.

The latter is seen as a possible but unlikely scenario because the leadership of the main opposition Bharatiya Janata Party (BJP) is consumed by infighting and needs time before it can face a fresh election. It could abstain in any confidence vote, allowing the Congress coalition to stay in power.

SONIA GANDHI TO DECIDE

Speculation about the timing of an election has intensified after signs that there may already be preparations afoot.

The government this week launched an advertising blitz, placing front-page advertisements in national newspapers that lauded its achievements over the past nine years. The timing and size of the “India Story” campaign, which also includes television and Internet promotions, is unusual if elections really are a year away, said veteran Indian election watchers.

“Many of the cadres and some from the second-level leadership (regional party leaders) want early elections,” said a party general secretary, who is close to Congress party president Sonia Gandhi.

The final decision on the election date will rest with Gandhi, Congress party officials said.

An election is unlikely to be called until after the month-long monsoon session of parliament, which will probably start in the last week of July, they said. The Congress party will make one final effort to pass its populist food security bill, which aims to give cheap food to nearly 70 percent of the population.

It was to pass the bill at a session which ended early on May 8, but the plan was derailed by a furor over two ministers embroiled in corruption scandals who were forced to resign.

Another key factor in the Congress’s decision-making is the outcome of four state elections due at the end of this year. The party, which has ruled for most of India’s 65 years of independence from Britain, is not expected to do well in the states of Chhattisgarh, Rajasthan, Delhi and Madhya Pradesh.

“Congress is not in a very good position in those states. If we hold Lok Sabha (parliamentary) elections after losing some assembly elections our morale may be low. In my view, November-December Lok Sabha elections would be good for the party,” said a member of the party’s election strategy committee.

MAJOR LOGISTICAL EXERCISE

India’s former chief election commissioner, S.Y. Qurashi, told Reuters it would make sense for the government to hold the general election at the same time as the state polls to avoid duplication of effort.

Indian elections are a massive logistical exercise. Nearly 780 million people are registered to vote in the poll, which will be staggered over five weeks. The election commission generally needs between three to six months to prepare.

The optimal time to hold elections would be either in October-November or February-March because monsoon rains will lash India between June and September, and winter snows will blanket much of mountainous northern India in the months of December and January.

It gets hotter later in the year, but the last two elections were held in April-May, in 2004 and 2009.

Congress leaders who want the government to stay on until 2014 say that holding the elections on schedule will allow time for the further easing of inflation, which has been a major concern for voters. Headline inflation fell to an annual 4.89 percent in April, its lowest level in three years.

But there is a big spoiler who could upset the Congress party’s best-laid plans – Mulayam Singh Yadav, leader of the Samajwadi Party, who helps keep the government in power by providing crucial voting support in parliament.

Yadav, whose party rules in the state of Uttar Pradesh, could withdraw support and force early elections if he calculates that waiting too long could cost him votes, said Yashwant Deshmukh, chief editor of the CVoter polling agency.

At the Congress party’s run-down national headquarters in New Delhi, some party workers think that, like their office, the party is in urgent need of some renovation.

“The worker on the ground is demoralized with the government,” lamented one party worker, who said early elections would give Congress a fresh mandate and make it less reliant on other parties to govern.

(Additional reporting by Nigam Prusty in New Delhi, Sharat Pradhan in Lucknow and Neha Dasgupta in Mumbai, Editing by Raju Gopalakrishnan)

(Reuters) – The Obama administration on Friday notified Congress it was prepared to take a series of steps to free up about $260 billion so it can keep paying the nation’s bills once a temporary suspension in the government’s debt ceiling lapses this weekend.

To preserve its borrowing capacity, the Treasury Department said it would employ the same measures it has used previously when Congress had failed to raise the limit, including halting investments in two different federal employee pension funds.

In a letter to congressional leaders, Treasury Secretary Jack Lew said the extraordinary actions should allow the government to meet all its obligations at least through the September 2 Labor Day holiday.

If the debt ceiling is not raised by then, he said the nation would run the risk of an economically damaging default.

“Congress should act sooner rather than later to protect America’s good credit and avoid the potentially catastrophic consequences of failing to act until it is too late,” Lew said.

Republicans in Congress want to use the need to raise the borrowing cap as leverage to seek fresh budget cuts and tax code changes. President Barack Obama has said any deal to cut the budget deficit would need to include additional revenues, an idea that is anathema to many conservatives.

In 2011, the Obama administration and Congress battled for months before raising the debt ceiling to $16.4 trillion. The fight hurt consumer confidence, shook financial markets and cost the United States its top-tier credit rating.

Earlier this year, Congress decided to side step a messy fight and put in place legislation that suspended the limit.

When that suspension expires on Sunday, the new ceiling will be set at the existing level of the nation’s debt, which is around $16.7 trillion.

It will also set the clock ticking toward another potential bitter showdown over the budget this summer.

“In order to avoid a repeat of the damaging brinkmanship that occurred in 2011, Congress should remove the threat of default by taking this action as soon as possible,” Lew said.

The Treasury took the first step to free up borrowing authority this week with a decision to suspend sales of special Treasury securities that state and local governments use to temporarily invest proceeds from sales of municipal bonds.

In addition to that step, and the possibility of putting a temporary halt to pension fund investments, the Treasury said it could dip into a seldom-used fund it taps to intervene in currency markets.

It ruled out some other measures, including halting sales of savings bonds.

Normally, these measures would buy the Treasury about two months before it would run out of cash. But unexpectedly strong tax receipts and sizable bailout payments from mortgage finance firms Fannie Mae and Freddie Mac are giving the Treasury more time.

While Lew said the measures would buy time until at least early September, many private forecasters believe the drop-dead date will not be reached until October and the non-partisan Congressional Budget Office estimates it could be as late as November.

(Reporting by Margaret Chadbourn; Editing by Neil Stempleman and Tim Ahmann)

(Reuters) – President Barack Obama, under fire for security lapses at a U.S. mission in Libya, will in a speech on Thursday lay out his wide-ranging counter-terrorism policy, from the controversial use of drones to efforts to close the U.S. military prison at Guantanamo Bay, Cuba.

Obama’s use of military drone aircraft to attack extremists has drawn fire and increased tensions in countries like Pakistan and been criticized by human rights activists in the United States.

His inability to follow through on a 2008 campaign pledge to close the Guantanamo Bay prison has been dramatized by a hunger strike among many of the terrorism suspects being held there.

And the resurgence in recent weeks of questions surrounding the deaths of U.S. ambassador to Libya Christopher Stevens and three other Americans in an attack on a U.S. facility in Benghazi, Libya, last year has put Obama on the defensive.

In his State of the Union speech early this year Obama pledged to work with Congress to make certain that the U.S. targeting, detention and prosecution of terrorism suspects was consistent with U.S. law.

A White House official said Obama would address these issues in a speech on Thursday at the National Defense University in Washington. He will say that al Qaeda has been significantly degraded but remains a threat, along with its affiliates, the official said on condition of anonymity.

“He will review the state of the threats we face, particularly as al Qaeda’s core has weakened but new dangers have emerged,” said the official.

Obama also will discuss the policy and legal framework under which the United States acts against terrorism threats, including the use of drones.

“He will review our detention policy and efforts to close the detention facility at Guantanamo Bay, and he will frame the future of our efforts against al Qaeda, its affiliates and adherents,” the official said.

(Reporting By Steve Holland; Editing by Paul Simao)

(Reuters) – President Barack Obama complained on Sunday that partisan battles in Washington are holding back stronger U.S. economic growth as he tried to recover from one of the most difficult weeks of his presidency.

On a trip to Atlanta, Obama did not specifically mention the three controversies that engulfed his administration last week and raised questions as to how much of his second-term agenda he will be able to achieve.

His message was clear when he told Democratic donors that an American economic revival is being held back by a “tendency in Washington to put politics ahead of policy, to put the next election ahead of the next generation, and that mindset is what we need to change.”

Obama’s appearance in Atlanta came as he seeks to regain his footing from one of his worst weeks since taking office in early 2009.

His Internal Revenue Service was found to have targeted his political tea party opponents for special attention, new questions were raised about security lapses at a U.S. compound in Libya last year where four Americans were killed, and it was revealed that his Justice Department had obtained phone records from Associated Press reporters in a leak probe.

For now, voters seem not to be taking Obama to task. A CNN/ORC International poll released on Sunday showed 53 percent of Americans approve of the way Obama is doing his job, with 45 percent saying they disapprove.

Obama found solace in speaking to donors at an event that raised money for Democratic candidates for the U.S. Senate, and at a commencement address to hundreds of African-American graduates at all-male Morehouse College.

To the donors, Obama said Washington needs to get beyond “the kind of short-term tactical partisan thinking that has come to so dominate” the U.S. capital and start trying to get some policy items completed.

He said he remained optimistic that an immigration overhaul is possible despite the tumult.

“It doesn’t mean there’s not going to be some rough and tumble,” he said. “If you get into this business, folks are going to take their shots as you, and I’ve got the gray hair to prove it. But that kind of stuff doesn’t bother me,” he said.

At Morehouse College, thunder rumbled overhead, lightning flashed in the distance and rain fell in buckets as Obama got personal about race.

He urged the students to think about how they can serve the wider community as they move on in life and not just focus on material goods.

“Yes, go get that law degree. But ask yourself if the only option is to defend the rich and powerful, or if you can also find time to defend the powerless,” he said.

Obama often speaks of how he wishes he could have had a father figure in his life growing up. His Kenyan-born father and Kansas-born mother divorced when Obama was a child, and he was raised by his mother and grandparents.

On Sunday, he was more personal than usual, saying his wife, Michelle, “has a long list of my imperfections.”

“My whole life, I’ve tried to be for Michelle and my girls what my father wasn’t for my mother and me. I’ve tried to be a better husband, a better father, and a better man,” he said.

PERSONAL REFLECTIONS

Obama said he ultimately hopes to be remembered not for his record as president but as a family man.

“I know that when I’m on my deathbed someday, I won’t be thinking about any particular legislation I passed, or policy I promoted; I won’t be thinking about the speech I gave, or the Nobel Prize I received. I’ll be thinking about a walk I took with my daughters, a lazy afternoon with my wife, whether I did right by all of them,” he said.

Obama urged the graduates not to make excuses for hard times that may come their way. He said he made his own share of mistakes growing up.

“And I have to confess, sometimes I wrote off my own failings as just another example of the world trying to keep a black man down,” he said.

He said he has tried to use his abilities to help people less fortunate than himself.

“There but for the grace of God, I might be in their shoes,” Obama said. “I might have been in prison. I might have been unemployed. I might not have been able to support a family — and that motivates me.”

Nowadays, he said, people need to look beyond racism and discrimination in order to work together for a country that can compete around the world.

(Reporting By Steve Holland; Editing by Cynthia Osterman)

(Reuters) – Financial trading in world markets has grown so lightning-fast that effective regulation is growing tougher by the second, increasing the threat of crashes sparked by hoaxes, electronic glitches or yet-unknown causes.

The latest alarm was triggered by a fake tweet saying that the White House was bombed, prompting a U.S. market nosedive that ended minutes later when the Associated Press said its Twitter account had been hacked. In 2010 U.S. stocks plunged in a “flash crash” following aggressive sales of stock-index futures by a mutual fund.

“As technology changes, our financial system and the rules in place need to be resilient,” Commodity Futures Trading Commission Chairman Gary Gensler said after the hacked AP Twitter message in late April.

At a CFTC hearing last week, the potential dangers became even more apparent. Richard Shilts, acting director of CFTC’s division of market oversight, was asked whether the agency could monitor high-frequency trading in real-time.

“No,” Shilts said. “Frankly, I don’t see with our current resources that’s something we would have the capability of doing in the near term.”

The CFTC staff is not up to the task of monitoring computerized trading programs that use algorithms and powerful technology and send trades in milliseconds on a real-time basis, Shilts added. “We need more people who are familiar with algos, computer programmer types.”

Proponents of high-frequency trading argue that the technology creates more efficient markets. They cite research showing improved price discovery and market liquidity, and reduced price discrepancies. Market players can manage risk more efficiently, and spreads between the bid and ask prices are narrower, they claim.

EXCHANGES CHALLENGE

With no clear verdict on how high-frequency trading should be policed, regulators and the industry remain on alert as technology continues its rapid advance.

Terry Duffy, executive chairman and president of the CME Group, said the largest U.S. futures exchange has seen no evidence of market distortions but is on the lookout.

“We can’t keep blaming something unless we have concrete reasons and show they have acted nefariously in the market,” Duffy told Reuters in an interview last week. “If they have, I will show you how I’m policing them to make sure they don’t do anything nefariously in the markets.”

A favored tool of hedge funds and other institutional traders, high-frequency trading accounted for more than 60 percent of all futures volume in 2012 on U.S. exchanges like the CME Group and IntercontinentalExchange, according to New York industry researcher The Tabb Group.

James Overdahl, an adviser to the Futures Industry Association, said the exchanges have been upgrading their systems to keep up with the surge in activity. They are tracking not just high-speed trade flow but also the frantic messaging on cancellations and reorders generated by high-speed trading, said the former economist with the U.S. Securities and Exchange Commission and CFTC.

The IntercontinentalExchange is cracking down on excessive messaging, charging fees when traders exceeded limits. By rapidly sending order messages, then quickly canceling them, traders can create an appearance of market liquidity.

“They reward good quoting behavior and penalize quoting behavior that they don’t view as beneficial to market quality,” Overdahl said.

CME’s Duffy said the exchange also has programs in place to police trading, including excessive messaging.

But HFT critics want more, demanding an end to what they consider disruptive practices. One example is “spoofing,” in which bids and offers are made with the intent to cancel them before execution.

RULES COMING?

Risks associated with high-frequency trading first drew wide attention after the stock market’s “flash crash” of 2010, when the Dow Jones Industrial Average dropped by about 700 points within minutes. A regulatory study found that a mutual fund’s large-scale selling of stock-index futures triggered the high-frequency trading behind that volatility.

The CFTC signaled its concerns on Thursday when commissioners voted unanimously to adopt a “guide” on what it will define as “disruptive” behavior in derivatives markets that violate the landmark Dodd-Frank market reform law. Dodd-Frank, passed after the 2008 collapse of the Lehman Bros. investment firm, addresses the activities of institutional investors in derivatives markets.

The CFTC has said it will produce a “concept release,” a discussion paper about possible regulatory changes as early as next month. Such releases are viewed as a prelude to new regulation.

CME Group’s Duffy said academic and industry studies have yet to prove any connection between high-frequency trading and violent market moves.

“You have to have a reason why you’re doing it other than ‘We think that they are making things go up and down in a fast way but we don’t know why or how,’” Duffy said.

The academic work so far has focused on securities markets and responses by the SEC, while issues related to oversight by the Commodity Futures Trading Commission have received far less attention.

The debate has intensified as the U.S. Senate Agricultural Committee is set to begin hearings on CFTC reauthorization next week. And while much of the concern over the distortions from high-frequency trading has focused on financial markets, the agricultural markets have felt the effect, too.

The National Grain and Feed Association, which represents more than 1,000 companies that handle and process crops, said many customers of agricultural futures markets are concerned.

“Especially immediately preceding and following release of important crop and stocks reports by the U.S. Department of Agriculture, we believe high-frequency trading has caused and magnified volatile market swings,” the group told the U.S. Senate Agricultural Committee in a statement that it shared with Reuters.

The NGFA requested that the Senate, during CFTC reauthorization hearings, look at whether high-frequency traders should be required to register with the CFTC, and whether such traders should be required to post margin payments even if no positions are held at day’s end.

Others who have studied the impact of high-frequency trading warn against any overreaction.

“It is really hard to avoid unintended consequences once policy makers start getting involved and mandating change,” said Aaron Smith, a University of California researcher who has studied the effects of high frequency trading in the futures markets.

“It’s always important to recognize that whatever you’re doing, you’ll probably be one step behind,” Smith said.

(Reporting by Christine Stebbins; Editing by David Greising and Richard Chang)