Politics impacts financial markets, in particular impacting the confidence that consumers and business leaders have in the future. Without confidence, people do not spend, businesses do not expand, and ergo, the economy and markets suffer. So where do we stand today?

We learned this week that U.S. Factory Orders rose 2.5 percent in August, according to the Commerce Department. Minimizing the importance of New Orleans, they mentioned it only accounted for 1.85 percent of total U.S. manufacturing. The Institute for Supply Management announced their Manufacturing Index rose to 59.4 in September from 53.6 in August. The Commerce Department reported that Construction Spending was up 0.4 percent in August.

However, the Institute for Supply Management's Services Index plunged from 65 in August to 53.3 in September. It must remain above 50.0 for growth. The service sector accounts for 80 percent of the economy. We also learned that 108 oil rigs in the Gulf of Mexico were wiped out by Katrina and Rita, according to the Minerals Management Service, as reported by Reuters on www.cnnmoney.com on Wednesday. And the Mortgage Bankers Association announced that U.S. Mortgage Applications fell 1.1 percent last week, the lowest level since May, 2005. Here's what subscriber Scott emailed to me this week: "Just a note from a Credit Union in the Upper Midwest: Loan business is slowing considerably (even with seasonal adjustments). Right now we're running about 20% lower in loan volume than this time last year - we started the year strong, but as of late, it's flat-lining. It's this way all around us. The reason I can tell is we are getting fewer payoffs. In other words, money is not moving around nearly as quickly."

The Labor Department reported Friday that their count of Non-Farm Payrolls totaled 35,000 net job losses in the economy in September. This was their first actual admitted monthly decrease in jobs since May 2003. They bumped the July and August numbers higher to convince the flock that all is well with the world despite Katrina (must've discovered a mystifying error, probably when the sharpest people counters were recharging at the beach). Truth is, the 32,000 net job drop in September was understated by at least 54,000 - meaning the September net Job loss was at least 86,000 - as the Labor Department fudged the number by a "let's pretend" 54,000 jobs, miraculously created from new businesses Labor assumes started up and hired people. It's called the birth/death adjustment, started back in April 2004 to mask the seriousness of the jobs situation. Part of the assumption here is that more businesses started than closed up shop in September. That really is hard to imagine when an entire major city was swept into the ocean. They bumped the unemployment rate to 5.1 percent (probably felt they had to since Katrina couldn't be kept a secret - thank you CNN) and announced that Jobless Claims last week came in at 390,000.

A survey of CEOs by the Business Council and the Conference Board, released Thursday, found that only 15 percent expected business conditions to improve over the next six months, down from 40 percent back in February 2005. 76.5 percent were disgusted with the Sarbanes-Oxley Act, requiring CEO certification of their financials and tighter corporate governance.

We learned this week that Prudential Equity Group dumped its Technical Research department, along with Ralph Acampora. They spun the move as a cost cutting measure. Prudential followed Citigroup's Smith Barney's axing of its U.S. Technical Analysis department. The truth? The technicals stink and a sales firm cannot have one of its own warning folks not to buy. They'll be back in ten years, once the Bear is finished. I cut my teeth in T/A, reading stuff from the Prudential guys (remember J.R. Stevenson? - great technician) back in the 70s and 80s. Here's wishing you the best, my friends.

Is Bush losing popular support? If so, this is negative with a capital "N" for the markets. Markets plummeted after Nixon took the grand popularity dive. Here's what an AOL survey found this week: When they asked the question, Is Harriet Miers the best choice Bush could've made for the opening on the Supreme Court?, 67% voted no. 54 percent rated her choice as "poor." 51% rated Bush's choice of Cheney as "poor," with another 11% voting "fair." Rumsie drew a 57% "poor" rating, plus another 12% as fair, with Condo generating a 35% "poor" rating, with another 19% assessing her as "fair." Ashcroft got big ratings, 61% rating him a "poor" choice, but the clear winner was ex-FEMA Director Michael Brown, garnering a 71% "poor" choice award. Colin Powell actually earned a solid 57% "excellent" rating, but of course he's gone from this administration. Yes, I'd say there's a problem. So why did Dubya pick Harriet Miers, his personal lawyer with no judicial experience, as a Supreme Court nominee? Well, it makes perfect sense if she's a throwaway, so that once the Senate dutifully rejects her, his real first choice, also controversial, would stand a spending bill's chance near an Oval Office pen of confirmation. Or, if the Senate can be counted on to do anything he so desires, then her nomination makes perfect sense as Dubya preps for a third term. Or, maybe he simply lost a bet? Or, perhaps she's got the pictures? Dunno. A real head-scratcher, but any way you cut it, an unpopular President means a bad market to come.

Makes this coming Federal Reserve Chairman selection a little iffy, doesn't it? Let's try a few guesses. The Bush family accountant? Maybe "Brownie, your doing a heckuva job"? Labor Secretary Chao? Tom Delay?

Associated Press writer Will Lester reported Friday that an AP-Ipsos poll showed 66 percent of respondents feel the country is headed in the wrong direction, that opinion including evangelicals, Republican women, and southerners - a huge block that formerly supported Bush (see story at www.ap-ipsosresults.com).

Money Supply: The Fed tossed another $20.3 billion at markets last week (what's $20.3 billion among friends, eh?), M-3 rising at a 10.5 percent annualized pace. Sir Alan pumped 41.3 billion the past two weeks, blew up the fiat bubble another $70.7 billion the past month, and hosed $174.3 billion all over the markets the past seven weeks as if he was the jolly green gardener. He'll get that opportunity in a few months. For those of you keeping score at home, those annualized rates of growth are 10.8 percent, 9.3 percent, and 13.2 percent. This is not Fed tightening. Somebody needs to tell the cerebrals heading up the regional reserve banks that they can proclaim their utter astonishment at inflation - gee, how did that happen? - and raise rates until the cows mosey home, but if they continue to goose markets at a doubles-every-7.1-years-pace, that nitrogen-rich dark humus we all stand in now will be choking off our oxygen supply. Might be a solution to this winter's expected heating bill shock, I suppose. Is there anyone who doubts Greenbackspan wouldn't add a trillion dollars between now and his esteemed's retirement in January to make sure he leaves with a Dow above 10,000? To hither and yonder with the consequences. Pump, man, pump. Here's what Kansas City Fed President Hoenig had to say this week in Wyoming about that insidious evil. "So there is this issue of inflation, not that we have it because 2.2 percent core inflation is a modest level, but we don't want it to get higher than that because then we start changing the inflationary psychology of the economy and we do not want to see that." Of course not, Tom. We don't want to get to the point where people are flipping condos before the builder breaks ground, now do we? Thankfully, Hoenig's on top of things. Dallas Fed President Fisher told the Dallas Chamber of Commerce this past Tuesday, "The inflation rate is near the upper end of the Fed's tolerance zone." Well that's good news, I guess - that they've noticed prices are going up. All together now, "Baaaaaaaa."

What does the Dow Industrials Average think of all this? Apparently not much. The chart that follows shows that the Dow Industrials have been forming a Rising Bearish Wedge for the past year. Rising Bearish Wedges are termination patterns and we can count on prices declining at least to the point where the Wedge began, in this case 9,708, once prices break decisively south of the bottom boundary line.

The second chart shows that the Dow Industrials have also traced out a rare but Bearish Diamond pattern. Edwards and Magee's Technical Analysis of Stock Trends, eighth edition, edited and coauthored by W.H.C. Bassetti, St. Lucie Press, on page 668 notes about Diamonds, "Usually a Reversal Pattern," ... "It could be described as a Complex Head & Shoulders Pattern with a V-shaped (bent) Neckline..." "...it is more often found at major tops." There is an interesting measurement formula for the breakout south, that being equal to the greatest width of the pattern. In this case, we are talking about 1,300 points. If we subtract 1,300 from the 10,500 breakout point, that gives us a downside target of 9,200.

The third chart shows that prices have dropped to the bottom boundary of the Rising Bearish Wedge. We can also see that they have broken decisively below both their 50 day and 200 day moving averages. Further, the 200 day moving average is starting to decline and the 50 day looks like it wants to cross decisively below the 200 day MA (both are at 10,528, looking like fishing worms on death row in a coffee can). These are all Bearish set ups.

Here's the thing. We have seen time and time again where the Greenbackspan Fed has stepped in and bought S&P Futures, and Lord knows what else, to keep markets from tumbling below the critical psychological level of 10,000. But it is hard for folks to have faith in the Greenspan put (he will do anything to support equities) when they know he is leaving in three months. There is uncertainty once he is gone. What if a free markets guy/gal follows him? What if an incompetent is picked by the Pres? It's happened before. So why get stuck holding stocks? Wouldn't it be something if markets really fall this time? They should. We have the perfect storm. Can a couple hundred billion in the hands of the PPT stop a couple trillion avalanche? What if a short-covering rally doesn't bail markets out this time. What if this time is different. One thing that is very different is that confidence in the future is shot. Both the University of Michigan and the Conference Board sentiment indexes revealed that last month. And we can now add a dismal CEO confidence survey to that sour patch.

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"Now there was a man of the Pharisees,
named Nicodemus, a ruler of the Jews;
This man came to Him by night, and said to Him,
"Rabbi, we know that You have come from God as a teacher;
for no one can do these signs that You do unless God is with him."
Jesus answered and said to him, "Truly, truly, I say to you,
unless one is born again, he cannot see the kingdom of God."
Nicodemus said to him, "How can a man be born when he is old?
He cannot enter a second time into his mother's womb and be born, can he?"
Jesus answered, "Truly, truly, I say to you, unless one is born
of water and the Spirit, he cannot enter into the kingdom of God.
That which is born of the flesh is flesh,
and that which is born of the Spirit is spirit.
Do not marvel that I said to you, 'You must be born again.'
The wind blows where it wishes and you hear the sound of it,
but do not know where it comes from and where it is going;
so is everyone who is born of the Spirit."
Nicodemus answered and said to Him, "How can these things be?"
Jesus answered and said to him, "Are you the teacher of Israel,
and do not understand these things?
Truly, truly, I say to you, we speak that which we know,
and bear witness of that which we have seen;
and you do not receive our witness.
If I told you of earthly things and you do not believe,
how shall you believe if I tell you heavenly things?
And no one has ascended into heaven,
but He who descended from heaven, even the Son of Man.
And as Moses lifted up the serpent in the wilderness,
even so must the Son of Man be lifted up;
that whoever believes may in Him have eternal life.
For God so loved the world, that He gave His only begotten Son,
that whoever believes in Him should not perish, but have eternal life.
For God did not send the Son into the world to judge the world,
but that the world should be saved through Him.
He who believes in Him is not judged;
he who does not believe has been judged already,
because he has not believed in the name of the only begotten Son of God."
John 3: 1 - 18