In his latest weekly note, fund manager John Hussman is... bearish on the market.

This has been his stance for a couple years now, and this week he looks at a technical indicator showing signs of excessive optimism: "As of Friday, the S&P 500 was within 1% of its upper Bollinger band at virtually every horizon, including daily, weekly and monthly bands. The last time the S&P 500 reached a similar extreme was Friday April 29, 2011, when I titled the following Monday's comment Extreme Conditions and Typical Outcomes . I observed when the market has previously been overbought to this extent, coupled with more general features of an "overvalued, overbought, overbullish, rising yields syndrome", the average outcome has been particularly hostile."

This short businessinsider.com article was posted over on their website early yesterday morning...and is Roy Stephens first offering of the day. The link to this must read is here.

Reader U.D. sent me the entire Hussman weekly note...and I'd say it's worth the read as well. But it's a very long read...and the link is here.

The most important thing to understand about the Federal Reserve’s latest stress tests is what they were not intended to do. Their purpose wasn’t to test whether the nation’s biggest banks could survive a financial blowup like that of 2008 without government assistance.

Rather, the Fed designed its tests to measure the effects a hypothetical crisis would have on banks’ regulatory capital. Capital is the financial cushion a company has available to absorb future losses. While the Fed would like for us to believe that regulatory capital is the same thing, it’s quite different. And too often it bears little resemblance to reality.

That’s why the results of the Fed’s “comprehensive capital analysis” are more about public relations and manufacturing confidence than they are about disseminating reliable information on banks’ health.

Bloomberg reporter Jonathan Weil takes no prisoners in this op-ed piece from last Thursday. It was originally headlined "Stress tests pass Fed's flim-flam standard"...and that pretty much sums it up. It's certainly worth your time...and I stole it from yesterday's King Report. The link is here.

U.S. banks bought more government and related debt in the first two months of 2012 than they did in all of last year, an endorsement of Federal Reserve Chairman Ben S. Bernanke’s assessment of the economy that’s boosting demand for bonds even with yields near the lowest on record.

Commercial lenders purchased $78.2 billion of Treasuries and securities of agencies in January and February, compared with $62.6 billion in all of 2011, bringing their holdings to $1.78 trillion, Fed data show. Deposits exceeded loans by a record $1.63 trillion last month, up from $1.17 trillion in January 2011, providing scope to buy more bonds.

The Fed’s low-rate policy “has been a plan to buy time for the banks to take free money and invest it, and make some kind of spread, and work their way out of the hole they were in,” said Mark MacQueen, a partner and money manager in Austin, Texas, at Sage Advisory Services Ltd., which oversees $10 billion, in a telephone interview on March 6. “Banks are trying to clean up and improve the appearance of their balance sheets and buying Treasuries accomplishes this.”

Yep, the last paragraph pretty much says it all. Borrow from the Fed at zero percent...and buy treasuries yielding something higher than zero. The result is that the money the banks borrowed out of thin air, makes 'out of thin air' interest as well and...voilà, instant recapitalization! Too bad we can't get away with that. I thank Casey Research's own Chris Wood for passing this around yesterday...and the link to this Bloomberg story is here.

Yes, firms like Goldman have always run very profitable principal trading operations, buying stocks and bonds for their own accounts and reselling them to either other brokers or to their own clients. By definition, any time you run a principal trading operation you’re on the other side of trades with clients. These trading operations have generated huge profits for the likes of Goldman. But it needs to be recognized that these firms’ trading operations also provide the marketplace with much needed liquidity by putting huge amounts of their own capital at risk. Customers trade with these firms because they understand that providing liquidity adds value.

However, in recent years, advances in technology and regulatory changes ushered in the era of virtual stock exchanges, decimalization, and trade through rules, and the entire game changed. Just look at the floor of the New York Stock Exchange – the place is empty. These firms were forced to reinvent themselves.

So the Goldmans of the world turned to derivatives, structured products and synthetic securities. These highly illiquid securities are literally created out of thin air. At Merrill Lynch, where I worked for many years in equity sales, we were suddenly expected to sell CDO equity, the illiquid highly leveraged toxic leftovers of the Collateralized Debt Obligation creation process. We were told that if we expected to get paid, we had to sell these “high margin” products, regardless of the fact that selling CDO equity was akin to selling your accounts financial poison. We were constantly reminded that Goldman was doing it, and that was why their ROE was so much better than Merrill’s.

This story was posted over at the businessinsider.com website on Saturday...and is Roy Stephens second offering of the day. The link is here.

Mr. Smith’s Op-Ed article — and the resounding response to it — provide yet another reminder of why it is crucial that we remake our financial markets so that they are safe for investors and taxpayers.

And yet, the snail’s-pace progress of this effort is worrisome. Financial institutions, eager to maintain their profitable status quo, have lobbied hard against change. As a result, too-big-to-fail institutions have become even bigger and more powerful.

In addition to lobbying, big financial players have another potential weapon in their battle against safety and soundness. This one is more hidden from view and comes from, of all places, the World Trade Organization in Geneva.

This story appeared in The New York Times on Saturday...and is a must read. I thank Phil Barlett for sending it along...and the link is here.

The concept of financial repression has been on the edge of investors' minds for a while. It ought to move to the centre, for it is becoming a reality.

In essence, the process involves governments using their muscle to force down the real value of their debt. It can take many forms, but they boil down to two.

As Chris Powell said in his introduction..."Maybe in another 10 or 20 years news organizations like the Financial Times will try to interview central bankers about the specific mechanisms of "financial repression," including intervention in the gold market."

This story was in the Sunday edition of the Financial Times...and is worth skimming. It's printed in the clear in this GATA release...and the link is here.

Interviewed on Sunday by financial broadcaster Ellis Martin, trader and mining entrepreneur Jim Sinclair remarked that gold recently was knocked down to distract from the Greek bond default, that he sees no significant downside risk to investing in gold at the moment, that there is a huge movement away from the U.S. dollar as a trade settlement currency, that the United States is waging economic nuclear war against Iran and threatening to do the same against India, that the United States is likely to suffer similar counterattack against its own vulnerabilities, and a lot more.

I borrowed this story from a GATA release that came out just after midnight...and I thank Chris Powell for writing the preamble. The youtube.com interview runs almost 20 minutes...and the link is here.

Economist and former banker Alasdair Macleod, writing at GoldMoney, predicts that not just the debt of the marginal European Union nations but all government debt will soon be impugned by Greece's bond default.

This is another story I borrowed from a GATA release. Macleod's commentary is headlined "Eurozone Banks and Contagion Risk" and it's posted at the GoldMoney.com website. The link is here.

Mohamed El-Erian, Pimco’s chief executive, said Portugal will need a second rescue as the original package of €78bn (£65bn) falls short, setting off a political storm over EU rescue costs.

“Unfortunately, that is how it will be. It will make the financial markets nervous because they are worried about a participation of the private sector,” he told Der Spiegel over the weekend.

German finance minister Wolfgang Schäuble insists that Greece is a “completely unique case” and that there will be no further haircuts for banks, insurers and pension funds holding eurozone sovereign bonds.

However, the EU authorities broke their pledges so many times during the Greek saga that market faith has been shattered. Even Norway’s sovereign wealth fund has expressed disgust, signaling that it will give Club Med debt a wide birth from now on. It has already sold half its Spanish bonds.

This Ambrose Evans-Pritchard offering was posted on The Telegraph's website on Sunday...and I thank Roy Stephens for sending it along. It's definitely a must read...and the link is here.

Another month, another blow for Italy.

Industrial orders fell 7.4pc in January, according to ISTAT. Domestic orders fell 7.6pc...and output fell 4.9pc. This follows the release of construction data on Friday showing a 10.9pc fall in output.

This debacle was entirely predicted by monetary data six to nine months ago. The M3 money data is at last improving very slightly (i.e., it is collapsing less fast) but M1 is falling ever faster. We’ll see how that plays out.

I wish premier Mario Monti all the best. He is one Europe’s great gentlemen. Yet I fail to see how his labour reforms can – under current macro-policies – pull the country out of its downward slide before the debt trajectory blows out of control.

This Ambrose Evans-Pritchard offering from The Telegraph yesterday is a must read as well. It's also another Roy Stephens offering...and the link is here.

Brazil's finance minister has vowed to hold down the value of the real and enact new measures to protect domestic industries, in an attempt to revive the country's slumping economic growth.

"We don't want to lose our manufacturing sector," Guido Mantega told the Financial Times in an interview. "Brazil is not merely an exporter of commodities. We are not going to just sit by and watch while other countries devalue their currencies to give them a competitive advantage."

I get the strange feeling that I've posted a story on this very issue just recently, but I could be wrong. This Financial Times story from last Friday is posted in the clear in this GATA release...and the link is here.

India has failed to reduce its purchases of Iranian oil, and if it doesn't do so, President Barack Obama may be forced to impose sanctions on one of Asia's most important nations, Obama administration officials said yesterday.

A decision to levy penalties under a new U.S. law restricting payments for Iranian oil could come as early as June 28, according to several U.S. officials who spoke on condition of anonymity because of the sensitivity of the issue.

"Given the level of trade, and in particular oil, between Iran and India, targeting an Indian entity that facilitates Iran's access to the international financial market should be top of mind for the U.S. Treasury," Avi Jorisch, a former Treasury Department official who is now a Washington-based consultant on deterring illicit finance, said in an interview.

This Bloomberg story was posted last Thursday...and I thank Chris Powell for digging it up on our behalf. The link is here.

A Rotterdam, Netherlands, court has overturned the Dutch pensions regulator's recent demand that SPVG, the pension fund for glass manufacturers, divest more than three-quarters of its 13% gold allocation.

The regulator is now facing a claim for damages, estimated at E10 million to E11 million, the difference between the current gold price and the price when the gold was sold a year ago, according to Rob Daamen, the scheme's deputy secretary.

The court said it was not convinced the regulator had fully taken into account the scheme's specific conditions or the entirety of its investment portfolio.

It also concluded that interpretation of the so-called "prudent person" rule should be the sole prerogative of the pension fund, and that the regulator's task was simply to ascertain whether this standard had been applied correctly.

This ipe.com story was posted in the clear in this GATA release on Saturday. It's a must read as well...and the link is here.

A sharp fall in gold prices has triggered large purchases of bullion by central banks in recent weeks, according to several traders with knowledge of the transactions.

The buying activity highlights the trend among central banks in emerging economies to buy gold, even as some Western investors are losing patience with the metal. Gold prices have dropped 13.8 per cent from a nominal record high of $1,920 a troy ounce reached in September, and on Friday were trading at $1,655.60.

The Bank for International Settlements, which acts on behalf of central banks, has been buying significant quantities of gold on the international market amid falling prices, traders said.

This story showed up in the Financial Times on Friday...and is posted in the clear in this GATA release. The link is here.

The first one is from James Turk...and is entitled "Physical demand for precious metals cuts short-sellers off". The second one is headlined "Gold off-take far greater than suggested in press, London trader tells KWN". And lastly, here's a Rick Rule blog that states "Oil Super-spike will take gold and silver higher". All of them are well worth reading in my opinion.

Why should we care about the gold market in India? Well, let's face it; the nation is one of the biggest consumers of the metal, a major driver that can give us hints about demand and investment trends, along with what to perhaps eventually expect here in North America. But reading third-party reports about India is very different than getting information firsthand from a credible source in the country. I wanted to get to the bottom of what's really going on in India by talking to a reputable bullion dealer who could give me the inside scoop, an up-to-the-moment dispatch from the front lines, as it were. So I did just that.

Ashish and Rashmi Sand own Savio Jewellery (Savio means "shine" in Italian), a design studio and jewelry factory in Jaipur, India. They've received many design and manufacturing awards since starting their business six years ago, winning five awards in just the past six months. They source gold from bullion agents in Jaipur, who in turn obtain it from dealers in Hong Kong, Dubai, Mumbai, and Delhi. They have industry contacts, friends, and relatives that span the globe, from the US and UK to Asia and Australia. If anybody knows what's happening in the physical gold and silver bullion markets and the Indian jewelry market, it's them.

This excellent article was posted in yesterday's edition of Casey's Daily Dispatch...and if you're not already signed up for it, you can do it for free when you read Jeff's interview. It's a must read of course...and the link is here.