Investors 411 Blog

by Barr Jozwicki
October 30, 2008

Market Update – Amazing Rally (Part 2?)

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Politics – Polls & Ads

As predicted – polls have narrowed in the last 10 days from @Obama +8 to Obama @ +5. However Obama is holding his own in former Kerry states and in the crucial former Bush/swing states Obama has some large leads (6+ to 10 point leads). – Colorado, New Mexico, Nevada, Iowa, Ohio, & Virginia. An unexpected terrorist event could quickly change the dynamics of this narrowing race. See following LINK

Only 5 days and 4 years to go till the next election.

Obama’s latest two adds: to supporters LINK and a effective negative McCain/Palin (for the first time Palin is used) ad on the Economy LINK

Index % Change Volume

Dow -0.82% down
NASDQ +0.47% down
S&P500 -1.11% down
Russell2000 +1.73% –

Headline – Amazing Rally (part 2)?

US Market & Foreign Markets -

Technicals – Asian markets rallied big time. Japan up +10% and Korea up +12%. Japan is doing a $51 billion dollar bailout plan announced after Japan’s market closed. Forget everything Expect a major rally in US stocks today Asian markets led the 10% rally on Monday and we should see another big upside move today.LINK

Fundamentals may indicate a long term recession, but the collective feeling that collectively the world has a viable solution to the credit/long term recession problem.

Long term, does this mean we are out of the economic woods – NO – The economy is still going to suffer in 2009 but Wall Street is back and a Dow 10,000 is possible before November 4th.

USA GDP #’s show negative -0.3% GDP growth for the last quarter. Will get revised later – probably down. Big decline in consumption data – down 3%. Government spending (your rebate check) helped keep the damage minimal. The rally in Asia will should shadow this.

Exxon quarterly earnings just came in with the biggest profit margins ever for any company in the history of the world – $14.3 billion.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB moved lower -24.67% yesterday to an interest rate of +0.56% This is actually relatively good news, because the FED lowered rates -0.50% to 1.00%. and the gap between the 3MTB and the Fed rate has again narrowed considerably. (- 24.67% drop vs a -33% drop in Fed rate) The gap between the two is decreasing.

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to 3.19% this AM. Again the rate of change has diminished. We still have a long way to go. LIBOR should be a lot closer to new 1.00 % Fed rate but the trend is very clear.

NB – The LIBOR rates Updates has been tracking is London’s and the US rate has actually decreases somewhat more over the last 4 days.

Translation – The lower the gap between the 3MTB and LIBOR the more it shows credit markets returning to normal. This is all moving in the right direction

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Oil also has an inverse relation to the dollar. The dollar rises and oil goes down. (Oil is mostly traded in US dollars – So when dollar rises oil goes down in price) Yesterday, oil rocketed higher +7.60% to $67.50 a barrel. This is mostly related to the rise in the markets (stocks rise = better outlook for economy = more people will use oil) and a short term drop in the dollar.

The dollar has been on a longer term move higher.

Oil futures prices up another 1% to 2% this AM – this on a 7.6% gain yesterday is another indicator of a big rally.

Chart of oil (WTIC)

The Dollar

Dollar and Yen are rising. (More on this later)

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX is at or near its highest levels ever. This indicates a rebound is possible and that’s what happened yesterday.

Chart of VIX.

Short Term Outlook = Rally.

This market is a short term traders dream and a long term investor’s nightmare. People are trading on emotions not fundamentals. Right now the emotions favor a melt up.

Reading The Tea Leaves – Longer Term expect a market between 11,000 and 8000 for next few months. Right now it looks like investors feel the worldwide recession is not going to be as bad as feared.

Best guess- traders should lock in (sell) gains at 9764 or 10,000 and wait for a dip to buy. Longer term investors buy the dips.

CAUTION – it is impossible to gage how much forced selling hedge funds will have to do and that is the wild card in this rally.

Economically, Main Street no where near out of the woods, but the stock market is oversold and emotionally ready to rumble.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook -Cautiously Bearish

Changes to Bottom Line Section Bolded

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom. Reading tea leaves – Look for range between 8000 and 11000 for rest of year. Dow closes above 9764 = NEUTRAL Long Term Outlook.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75 60 % to 100 95 % Cash – This depends on your risk tolerance

*10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5 % Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5 % Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing

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October 28, 2008

Market Update – Dr J. and Mr. H

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Alaska Senator Guilty

Ted Steven’s, the Senates longest serving Republican senator was found guilty on all seven counts. Sevens was Sarah Palin’s mentor and she was director of a 527 for him. What is a 527? It’s a political group that can can take huge donations from fat cats and on their own bash opposition politicians. Example the Swift Boat organizations and MoveOn.Org used to be 527′s.

Devolution of Our Media Politics..

American media has devolved into extensions of of campaigns. FOX News, the Drudge report, and all of right wing radio have all acted as 527′s for McCain while the Democrats this year have countered with their own cable news MSNBC channel (Matthew’s, Olberman & Madow) and have their own web sites like the Huffington Post.

Major networks will still not take non political adds on solar and wind power from groups like We can solve it because some of their major add buyers would get angry.

Almost all news has to be taken with more than a grain of salt. You have to consider the source. The media has changed because bias sells and objectivity doesn’t. The media has become the campaigns and more than dwarfs campaign spending.

McCain – Dr Jekyll and Mr Hyde

Almost 40 newspapers have switched sides from 2004 from Republican to Democrat . See LINK

Collectively these and other papers all recognize the past achievements of Senator McCain, but most of those who have changed see a dramatic shift in McCain from the man he was to who he would be if chosen President.

1) Palin – In choosing a candidate who is obviously not qualified to be president he put politics in front of what was best for America.
2) Economic Crisis – Colin Powell called McCain "unsure." other’s called him "erratic" and worse. In the face of a major crisis McCain changed his position constantly and grandstanded (flew to DC and rescue plan collapsed, refused to debate – then debated, was against then for AIG bailout and so many other constantly position) This made him look weak, and inconsistent is a crisis.
3) The debates – McCain’s need for "Anger Management" as David Gergen ( a member of past Republican administrations) stated after the last debate stuck a chord . McCain obviously shares the "you’re either with us or against us" views of President Bush that has torn this country in half and hurt us throughout the world. His temper in any future crisis is a major liability.

This was not the elder statesmen and independent thinker that McCain was at the beginning of the century. In contrast, Obama has seemed more like the elder statesman – calm cool and collected. Under fire from debates (Clinton & McCain) and the economic crisis Obama has shown the leadership and maturity that you expected from McCain.

If this were the McCain of 2000 (Dr Jekyll) everything would be different. But, it is not the past but the future that matters.

Yes McCain did vote with Bush 90% of the time. But even more troubling is – choosing unqualified people to fill government positions, "unsure" behavior, and a need for "anger management" These are all characteristics of the Cheney/Bush administration that McCain has wrongly embraced .

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -2.42% down
NASDQ -2.97% down
S&P500 -3.18% down
Russell2000 -4.82% –

Headline – Asia Meltdown Intensifies

US Market & Foreign Markets -

Technicals - Another big hit in low volume. Therefore, volume did not confirm the move lower. Actually the vast majority of the losses occurred in the last 10 minutes of trading. Each day we close lower is a new closing low. We still have not reached interday lows for the year on the DOW and S&P 500.

After huge losses the Asian markets rebounded overnight. Japan up +6%. Hong Kong +12% A few smaller Asian markets were down. European markets are up. So. American markets should rebound today. This looks like a technical, oversold bounce.

Fundamentals – The Fed meets Wed. and will probably lower interest rates significantly. Major earnings week for stocks. GDP #’s come out for the quarter this week.

(Worth repeating from yesterday) Three huge storms have combined into the biggest hurricane since the Great Depression.

1) The US housing bubble has burst.
2) A $50 to 70 trillion dollar unregulated Credit Default Swaps does not have the capital to back its assets
3) The problems in the US is causing a decoupling of of global markets and a worldwide recession.

Two positive impacts -

1) Fed banks across the world have made a clear commitment to keep banks open even if it means nationalization.
2) Lower oil prices

Jim Cramer – The last 10 minutes/ 200 point Dow drop was probably due to hedge fund redemption. Cramer from CNBC describes what is happening as hedge funds selling. Since they can not borrow $ the only thing left to do is sell commodities and stocks to satisfy investors that want to liquidate holdings. All this forced selling is taking place because the government programs are not yet functioning.

Consumer Confidence #’s coming out today and Fed Wednesday should lower interest rates. The later should help US equities.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB moved lower -10.98% yesterday to an interest rate of 0.73%. After 4 straight days of moving higher it does technically look like we have started a reversal of the trend. This is the forth day in a row that the 3MTB has fallen. Translation fear is returning to the markets and the major move higher after worldwide intervention and a bank rescue plan is in trouble. These rates may also be falling in front of an expected Fed cut to 1.00%. Relative to a 1.00% rate 0.73% is not such a bad figure.

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to below 3.5%. Again the rate of change has diminished. We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear. LIBOR has basically flat for the last four days. Down to 3.46% this AM.

NB – The LIBOR rates Updates has been tracking is London’s and the US rate has actually decreases somewhat more over the last 4 days.

Translation – The lower the gap between the 3MTB and LIBOR the more it shows credit markets returning to normal.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil

Chart of oil (WTIC)

The Dollar

Dollar and Yen are rising. (More on this later)

Chart of Dollar

The dollar rose sharply Friday (+1.05%). But notice the dramatic spike in oil over two and three days ago was inversely correlated with the big fall in the dollar.

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX is at or near its highest levels ever. This indicates a rebound is possible.

Chart of VIX.

Short Term Outlook = Rally.

This market is a short term traders dream and a long term investor’s nightmare.

Reading The Tea Leaves – We’ve already had a 35 to 40% stock losses. Most of rest of the world has had bigger drops. How low can it go? Certainly below the 7800 Dow interday low. . Could we loose another 30% to 6000? Its possible. I don’t think we’ll loose another 30%, but I do think the will see us at least test 7800 low and probably get below that.

However -The VIX is at an all time high = the level of fear is higher than its ever been. This usually means you get at least a short term RALLY. Asian markets have rebounded – it may be a dead cat bounce, but a rally is a rally. The question that no one can answer is how many hedge funds will be forced to sell into the rally.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Bear’s Rule

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (less than 5%) Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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October 27, 2008

Market Update – Obama’s Economic Team

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Obama’s Economic Team

Obama’s chief Economic Advisor is University of Chicago Economomist (home of Milton Friedman) Austan Goolsbee. The following is conservative columnist George Will evaluation of Goolsbee LINK

Those who surround Obama seem to be divided into two camps – The Warren Buffet and Paul Volker (former Fed Chair before Greenspan) camp. Both these guys back regulated markets. The other camp is led by two former treasury secretaries Larry Summers and Robert Reich (spelling?) This camp is the anti regulation. This is far too simple a description of their views. However, all of this diversified group of advisors have one thing in common. They are associated with a time when stocks and economics did far better than under Bush/McCain’s economic plan.

No one should be comfortable with the government moving in and taking preferred shares of companies or segments of our economy (banks insurance companies and more) but we should recognize the necessity. Tom Friedman on this LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -3,59% flat
NASDQ -3.23% down
S&P500 -3.45% ?
Russell2000 -3.84% –

Headline – Asia Meltdown Intensifies

US Market & Foreign Markets -

Technicals – There was a sigh of relief as major US markets closed only @3.5% down yesterday. Volume was above average. Sorry difficult to read volume figures from charts. The NASDQ and the Russell 2000 (small caps) reached a new lows, and the DOW and S&P 500 reached new closing lows. Therefore 2 of the 4 major US indexes have broken support levels and are continuing the BEAR’s RULE technical trading pattern of lower lows and lower highs. The DOW and S&P are close to breaking their last lines of support too.

Asian markets plummeted and closed down another 6.4% earlier today. Japan is now at 26 year low. European markets are taking a 2% to 5% hit and American Futures trading is down 1 to 2%.

The silver lining is that we are more oversold than any time in the 21st century and the VIX is at an all time high

Fundamentals – The Fed meets this week and will probably lower interest rates significantly. Major earnings week for stocks. GDP #’s come out for the quarter.

PANIC – Three huge storms have combined into the biggest hurricane since the Great Depression.

1) The US housing bubble has burst.
2) A $50 to 70 trillion dollar unregulated Credit Default Swaps does not have the capital to back its assets
3) The problems in the US is causing a decoupling of of global markets and a worldwide recession.

About the only positive is that the Fed and other countries have made a clear commitment to keep banks open even if it means nationalization.

Nouriel Roubini again popped up in the media. This time in London Times LINK This time he is predicting thing will get so bad that stock indexes in countries will have to close for a week to prevent further panic selling. Dr Doom has been right in the past in calling the steps that would lead to the Credit Crisis.

Jim Cramer from CNBC describes what is happening as hedge funds selling. Since they can not borrow $ the only thing left to do is sell commodities and stocks to satisfy investors. All this forced selling is taking place because the government programs are not yet functioning.

The fed is starting its commercial credit intervention to American companies today. Combine this with a possible rate cut Tuesday and you have some decent fundamentals that could led to a rally.

Mea Culpa – Friday I stated that there were 400 hedge funds – Wrong – there are perhaps 10,000+. A guess by a talking head on CNBC stated that 400 of these giant funds are in trouble.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB moved lower -9.89% yesterday to an interest rate of -0.82%. After 4 straight days of moving higher it does technically look like we have started a reversal of the trend. This is the third day in a row that the 3MTB has fallen. Translation fear is returning to the markets and the major move higher after worldwide intervention and a bank rescue plan is in trouble

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to below 3.5%. Again the rate of change has diminished. We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear. LIBOR has basically inched ever so slightly down for the last three days.

Translation – The gap between the 3MTB and LIBOR has been flat for the last few days . LIBOR is down this AM and that’s good news.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil.

Chart of oil (WTIC)

The Dollar

Dollar and Yen are rising. (More on this later)

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX is at an all time high 79.13. Any major move higher , technically should lead to a sharp (temporary) rally in stocks.

Chart of VIX.

Short Term Outlook = Crash and Burn?

Already the Russell 2000 and the NASDQ have reached new lows and the DOW and S&P have reached closing lows. Not Good.

Obviously worldwide we are going to have a global recession. We are just entering the realization of this phase. How long and how deep is now the concern. Global coordinated moves by central banks help, but until US housing stops declining, the credit default swaps market assets become clear, and unemployment stops rising we are going to continue to fall.

There was hope technically that we could hold onto this years lows, but already two major indexes have reached this level and it looks like the global meltdown will continue.

This market is a short term traders dream and a long term investor’s nightmare.

Reading The Tea Leaves – We’ve already had a 35 to 40% stock losses. The rest of the world more. How low can it go? Certainly below the 7800 Dow interday low. Dow currently at 8378. Could we loose another 30% to 6000? Its possible. I don’t think we’ll loose another 30%, but I do think the next two years will see us at least test 7800 low and probably get below that.

NB -The VIX is at an all time high = the level of fear is higher than its ever been. This usually means you get at least a short term RALLY. The question that no one can answer is how many hedge funds will be forced to see into the rally (see Jim Cramer’s comments above)

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Bear’s Rule

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (less than 5%) Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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October 26, 2008

Market Update – Political Tactics

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Politics -Tactics

Why you’re going to see this race tighten.

1) The Ashley Todd HOAX worked

For those of you who are not paying attention – Ashley Todd was a deeply troubled white McCain supporter who apparently "carved" a backwards B into her cheek (she was looking into a mirror) and accused a big black male Obama supporter of doing this and beating her. The McCain campaign pushed this story to the hilt last week. Their PA communications director spread unsubstantiated rumors to the press and both MCCain and Palin called the woman. The Drudge report, FOX news, as well as he entire right wing noise machine spent two days blasting out the story. It all was a self induced HOAX. LINK

Forget the fact that this was a HOAX . A rational response would be that there was obvious inconsistencies in her story and many major networks waited to air the story because of this. But the story was pushed by the right. Why? – To the folks who even have a bit of bigotry and are prone to fear mongering this event stirred up all the old negative feelings and stereotypes about race. It really juiced up the right wing base. Probably over 1/2 of them still believe the story to be true, but the real impact is the racial doubt it puts in the minds of people.

2) Labeling

McCain is using simple terms in labeling – Obama is a "socialist" " and other labels. American’s get the simple stuff and Obama is again playing defense. "Joe the plumber" line works because Obama tax plan which helps those earning under $250,000 has been lost in the noise of labeling. Obama is a good counter puncher but this puts him on the defense.

This election is about the economy and Obama has yet to close the deal with many of those earning under $250,000 a year who will receive more tax cuts under him than under McCain. This will stimulate the economy and help America grow.

3) Robo calls/negative adds work

No matter how much people say they hate negative calls or how untrue they are these calls work. McCain is launching attack after attack trying to associate Obama loose connection with negative people figures and concepts. Forget the fact that at least 5 Republican Senators have called for this to stop. It works because it forces Obama to play defense instead of focus on the economy. It also works because it is a repeated message that brings up doubts.

Obama has taken the high road (although he too has had some questionable adds) and about as bad as you now see as a negative is the standard McCain voted with Bush 90% of the time add.

The fact that Obama is not using Keating,(see past updates)& McCain’s current ties to wealthy lobbyists more aggressively is a big mistake. He should have adds out about McCain’s 7 houses, 13 cars and Palin’s $150,000 wardrobe. The wardrobe, stuff and the $11,000 a week for Palin’s makeup (the highest paid member of McCain’s campaign)was mana from heaven. Obama should use these facts in a adds and on the stump to show how out of touch his opposition is with real Americans.

Simple stuff/symbolism works when campaigning.

4) Complacency

Too many in the press have already given this election to Obama. Obama’s once mighty revenue machine has slowed down considerably as have his complacent supporters. Obama does have an advantage when it comes to workers, but if they are complacent that advantage vanishes.

American’s love an underdog. McCain is now that underdog.

Bottom Line – McCain is playing hardball and Obama is playing softball – so the race will tighten . -

The Two downsides of Obama not going more negative.

#1 downside of Obama going more negative is the less the chance there will be to heal this country after the election.
#2 downside is that he could loose the election.

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October 23, 2008

Market Update – Obama Tested

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Alan Greenspan

After so many years as being treated almost as a God it’s amazing how fast his reputation is falling. Greenspan (aka The Jolly Green Giant) insisted that markets would self regulate and we needed NO market regulations or regulators. When historian’s look at whose to blame for the credit meltdown the person at the top of that pyramid is probably going to be Greenspan. See Monday’s Update on Credit Default Swaps. Greenspan testifies today in front of congress.

Californification

Since more than a handful of you in CA get Market Updates there are two significant ballot questions. Question’s 7 and 10. California is way ahead of the rest of the USA in alternative energy. Here’s Tom Friedman’s editorial Bailout and Buildup .  This doesn’t exactly address these ballot proposals but does stress the urgency of a stimulus package and alternative energy.

Question #7 – Required utilities to create 50% of their power from alternative sources by 2025
Question #10 – a $5 billion bond to further promote the change of cars from oil based gasoline to cleaner natural gas and a promotes a minority of other alternative energy idea.

Obama Being Tested

Several of you have sent emails about Obama being tested just like Kennedy and Reagan were tested because they were new. Six things to consider.

1) Colin Powell has his back. – Obviously Powell has been advising Obama and Biden his VP has gobs of foreign policy experience.
2) You’ve watched Obama against Clinton and McCain maintain the same calm, substantive, reasoned response vs McCain’s "unsure" unpredictable, and irrational (Palin & financial crisis) response
3) The price of oil has tanked. This puts Russia, Iran,Venezuela and the rest of the petro dictators in a far weaker position to do any challenging in the next year. They are far too worried about their own economies now.
4) Obama is wildly popular abroad (200,000 listened to him speak in Germany) and this should lead American allies returning instead of deserting as they have since Bush took office
5) Obama has correctly identified Afghan/Pakistan as the real terrorist problem and McCain is still hung up in Iraq. This and more = better judgement.
6) What if Palin becomes president. You can dress her up in $150,000 worth of high fashion clothes, but she still lacks substance. If McCain thinks she can handle the job certainly Obama can.

Aside – Interesting front page story in WaPO that the al Qaeda (from their blog) endorsed John McCain. LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -5.69% up
NASDQ -4.77% up
S&P500 -6.10% up
Russell2000 -5.40% –

Headline – World Recession

US Market & Foreign Markets -

Technicals – Yesterday’s Quote – "You can feel the bear’s breath on the back of your neck". Well it happened – another massive sell off in increased volume. Volume, the chief confirmation factor of any price move, was above average, but not too huge. A slight 150 point rebound in the Dow in the last 10 minutes of trading changed the day from a catastrophe to a disaster.

The silver lining to the cloud is the last 10 minutes. If that 150 point loss on the Dow and similar losses on other major indexes had held we would have established new closing lows. Lower lows would have reinforced the long term bear market pattern. The good news is that major support level again held. It’s now held three times. Every time it holds it gets stronger.

The benchmark S&P 500 did make a new closing low.

A major test will come today. Markets will try to rally off the support levels. This will be technical traders. Some additional long term traders probably ran for cover and got out of their mutual and hedge funds. They funds will sell into the rally.

Asian markets fell on poor outlook for global growth from -7.5% (S. Korea) to Japan -2.3% overnight. European markets are down )but not as bad as Asia) a little over 2% this AM.

Bad News – Weekly jobless claims just came in (8:30EST) much higher than expected -15,000.

Fundamentals - The LIBOR 3MTB spread continued to close but the rare of change is slowing (see below). Real problems in global growth are intensifying across the world and it looks like US markets have not factored in just how bad the global recession will be.

Nouriel Roubini views (long term recession) seem to be emerging everywhere. Yesterday he opened on the financial channel (CNBC) and closed last night he was on PBS. But you got his views here first in Monday’s Market Updates

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB inched lower -7.76% yesterday to an interest rate of 1.01%. After 4 straight days of moving higher it does technically look like we have started a reversal of the trend. Too early to tell if this will develop into something significant or just a natural consolidation.

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to 3.53%. Again the rate of change has diminished. We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear. LIBOR has now improved 7 days in a row. This is certainly major positive and shows that worldwide intervention seems to be slowly working.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil. Oil prices have completely unwound and are now below $67. OPEC cartel meets to cut output on Friday. Demand destruction has occurred worldwide as as fears of a worldwide recession grows. A big cut OPEC cut could stabilize the price of oil- but members cheat. Therefore we have not yet reached the bottom.

Oil Prices are rebounding this AM suggesting a rally in stocks.

Chart of oil (WTIC)

The Dollar

Dollar is rising. (More on this later)

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) This is a contrarian indicator. The VIX reached 69.65%. This is right at the resistance level that has held for the last three weeks.(see chart) Translation – if you see markets start to move lower a whole bunch of technical (day) traders will move in and support stocks. Every time the VIX has moved above 70 we have rallied.

Chart of VIX.

Short Term Outlook = Holding on

The VIX has held for weeks and the area around 70 is a very strong resistance level. So for those who love high risk this looks like a point to buy. Of course if things fall apart I never said this. Wait for the VIX to reach above 75/80 then buy. 80 is the all time high. Traders should at least get a short term bounce

The only problem with this trade (not for long term investors) is that every market technician out there sees the same thing.

If you are a long term investor, not invested in the markets, and are willing to recognize things could be bad for a couple years you could nibble a little now. Please read the tea leaves below.

This market is a traders dream and a long term investor’s nightmare.

Reading The Tea Leaves – We may not have hit our lows, but we’ve already had a 35% loss. How low can it go? Certainly below the 7800 Dow interday low. Right now the Dow is at 8335. Could we loose another 30% to 6000? Its possible. I don’t think we’ll loose another 30%, but I do think the next two years will see us at least test 7800 and probably get below that.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Bear’s Rule

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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October 22, 2008

Market Update – Pop Quize

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Real Town America

This 4 minute video is by far the best of the hundreds of different video’s produced about the Election . It’s from Jon Stewart’s Daily Show visit to one small town called Wasilla and after laughing you will probably send it to all your friends.. LINK

POP QUIZE

NBC/WSJ poll yesterday did an in depth analysis of the problems voters had with the candidates. Guess what by far the biggest problem was with John McCain – his closeness to Bush? His handling of the economy? Iraq? Erratic responses, Negative campaign? Something else?

Answer a the very end of Market Updates.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -2.50% flat
NASDQ -4.14% up
S&P500 -3.08% flat
Russell2000 -2.96% –

Headline – World Recession

US Market & Foreign Markets -

Technicals – When a stock or index gives back over 1/2 the previous days gains – bulls worry. Yesterday major US and foreign indexes gave back well over 1/2 the previous days gains. You can feel the bear’s breath on the back of your neck.

Fundamentals – The LIBOR 3MTB spread continued to close but the rare of change is slowing (see below). Real problems in global growth are intensifying across the world and it looks like US markets have not factored in just how bad the global recession will be.

Nouriel Roubini (see Monday’s Updates) is guest host on on CNBC (financial channel) this AM. Psychologically his views are not going to help markets today. If this guy is right there is no reason to be invested in stocks. Listening to him while writing Updates is depressing. At least he is more optimistic than he was two weeks ago,but still calls for two years of word wide recession.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB inched higher +7.35% yesterday to an interest rate of 1.095%. Inched is a relative term, the 3 previous averaged over 50% moves.
Set up below is another new link to LIBOR 3 month chart. Here’s a link to a definition from Investopedia

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to 3.83%. Again the rate of change has diminished, like the #MTB We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear. LIBOR is again falling in trading this AM to 3.54%.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) This is a contrarian indicator. The VIX is easing back down from its record highs

Chart of VIX.

Short Term Outlook = Rally may have been derailed.

NYT head business online news is markets are having problems across the world. LINK Countries from Argentina to Japan are having huge problems

We could see a big down day and hopefully a rally into the close

Personally (for traders not long term investors) I’m now 10% back into the markets. Buying on dips. That 10% sure looks like its in trouble today.

This market is a traders dream and a long term investor’s nightmare.

Reading The Tea Leaves – We may not have hit our lows, but we’ve already had a 33% loss. How low can it go? Certainly below the 7800 interday low. Right now the Dow has recovered to 9000. Could we loose another 33% to 6000 its possible. I don’t think we’ll loose another 33%, but I do think the next two years will see us at least test 7800 and probably get below that.

Roubini arguements just make too much sense – back to BEARS RULE

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Bearish

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

Answer to POP QUIZE

His choice of Sarah Pain for Vice President was the biggest problem voters have with John McCain (37%). The Wasilla Alaska video sort of gave you a big hint. Talk about your $400 John Edward’s haircut ,Sarah Palin has had a $150,000.00 makeover.

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October 21, 2008

Market Update – Endorsements

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Endorsements

Obviously Sunday’s General Colin Powell’s endorsement of Obama is significant. Powell is a Republican, former National Security Advisor, Secretary of State, genuine hero and maximum contributor ($2300 in February) to the McCain campaign.

McCain

* "unsure" about economics as last few weeks have shown – "Every day a different approach."
* Palin "not ready to be President" and indicated a "troubling further rightward shift" – Questions McCain’s judgement in choice
* The "central focus" of the recent McCain campaign is about Obama’s "very very limited relationship with Bill Ares" goes "too far" and is not accurate
* Troubled by McCain campaign, Palin and senior Republicans trying to "polarize Americans" in the last few weeks of campaign.

Obama

*Impressed by – "steady" "intellectual curiosity" "breath of knowledge," "shows intellectual vigor."
*His campaign has become broader and has become more inclusive while McCain campaign has become narrower.
*Has both "style," " substance", and "rhetorical ability" Can "inspire" both Americans and the world
*A "transformational figure."

Newspapers are also endorsing. Last year Kerry edged out Bush by 213 to 205 newspapers. So are Obama has 112 to McCain’s 39 newspapers.  27 papers have changed their 2004 views from Republican to Democrat . Of course what matters is those papers in the "swing" states. Most of these papers are echoing the views that Powell presented.

Bottom Line – Despite all this good news for Obama the race will tighten because negative campaigning works and the next two weeks are going to get a lot worse.

Bernanke endorses second stimulus package

In front of a congressional panel Fed Chair Bernanke endorsed a second stimulus package.

This proposal has long been championed by Obama and Democrats. It was surprising to see a Republican appointed Fed chair make this statement of support two weeks before an election. The end result was the Dow up 400+ points

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +4.67% down
NASDQ +3.48% down
S&P500 +4.77% down
Russell2000 +3.88% –

Headline – Strong Rebound/Weak Volume

US Market & Foreign Markets -

Technicals – Another major move in the last hour of trading. This time stocks soared and volume did not confirmed the move higher.- Volume was both well below average Volume the chief confirmation factor did NOT confirm the rally. Again a major, this time 200 point move in the last hour of trading. Major institutions were not buying and without them the rally will not go far, but -

Every market technician is looking at 3 factors that scream rally

1) This weeks trading pattern had a "double bottom."
2) A climax big volume sell off last week
3 An oversold market

A breakout over Monday’s high would establish a short term bullish pattern.

Fundamentals – Good news in Credit Markets (see below)

Both the LIBOR (moving down) and the # Month Treasury Bond (moving up) are showing credit fears abating and giving hope to stock investors

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB exploded higher +30.77% yesterday to an interest rate of 1.02%. This is very good news fro the credit markets. o.435 is not a great number, but the improvement is. Another few days like yesterday and a whole lot of money will come off the sidelines and hopefully into stocks.

Set up below is another new link to LIBOR 3 month chart. Here’s a link to a definition from Investopedia

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week has dropped from 4.8% to just above 4%. We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear.

LIBOR chart (3 month)

Treasury Bonds

Bottom Line – Banks are not leading to other banks, but the commercial leading market is opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil. So oil too moved up +3.13% and ended the day at at $74.39.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) This is a contrarian indicator. The VIX is easing back down from its record highs

Chart of VIX.

Short Term Outlook = Rally!

Most everyone is following the Dow instead of the benchmark S&P 500 so lets take a look at the major resistance levels that need to be broken. Dow now stands at 9281. the high last week was 9794 and the major resistance level is 10,000. At that level you may see some money jump back into the markets further accelerating the rally.

Still buy the dips till we reach resistance at 10,000. Also remember this euphoria over the credit problems easing does not factor in a possible major major recession. See yesterday’s Updates on the CDS problem and Nouriel Roubini’s forecast.

The best thing that could happen today for bulls is a Dow that is flat or has meager (up to 200 points) losses in light volume. Big move higher are subject to large falls. Once the Dow reaches above 9,794 a bullish reevaluation of the rally will occur.

CAUTION – Volume has not confirmed the move higher. Till this occurs this whole rally is suspect.

NOTE WELL – Right now all the sectors that have got clobbered on the way down are leading the charge higher (example banks and energy) Not the traditional sectors like tech and small caps that usually lead us out of recession.

Personally I’m now over 10% back into the markets. Buying on dips. and plan to reach 15 to 20% invested ASAP. However did sell into yesterday at close. I’ll again buy any dip.

This market is a traders dream. Buy dips sell into rallies.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Cautiously Bearish

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded .
As Always Do Your Own Research Before Investing

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October 20, 2008

Market Update – Credit Default Swaps

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

The $50 to $70 Trillion dollar Black Hole – Credit Default Swaps

Nouriel Roubini is an NYU economics professor who predicted the financial sub prime mortgage crisis way back in 2006. His web site LINK is rated the #1 economics web site in the world by The Economist.

Roubini thinks we now are taking the right action but firmly holds to his prediction of "a recession that lasts as long as 24 months, with unemployment reaching 9% and depressed home prices falling another 15%. " The total credit loss from the subprime mortgage mess will be "closer to $3 trillion" rather than the $1.4 trillion the already discredited (they keep jacking up their figures) of the International Monetary Fund (IMF)

Most on the CNBC the financial channel that cheerleads for the markets think things won’t get so bad, but there are a few others out there who think they’ll get a whole lot worse than Roubini’s forecast.

What are Credit Default Swaps (CDS)

Simply they are totally unregulated insurance policies or bets put on financial instruments like credit cards, home loans, student loans, equity lines of credit, and other stuff like subprime mortgages. No one really knows how big this CDS market is because it is unregulated but most estimates come in at $50 to 70 trillion. Context – That’s bigger than the entire world’s GDP last year, about 5 times bigger than the US GDP and several times bigger than all the equity in US stocks

The best explanation out there on CDS that’s simple, graphic and takes less than a minute to skim was in the NYT LINK

Two important facts

1) instead of calling this credit default insurance, they called it "swaps" so that it would not fall under the regulations of the insurance industry.
2) as the NYT chart shows there were a whole line of dominoes (bettors) who kept assigning the insurance contract (CDS) to another party (bettor)

Who Started the CDS Catastrophe?

Last week Updates went over why we should look in the mirror when it comes to credit. Now let’s get more specific.

CDS’s were the political brainchild of Republican Senator Phil Graham (Ironically the man McCain choose as his chief economic advisor) Graham led the deregulation effort which cumulated in the 2000 Commodities Future Modernization Act. Fed Chair Alan Greenspan endorsed the move and fought bitterly against any attempt to regulate markets and thus his reputation offered protection for Republicans and many Democrats who supported deregulation and CDS.

This all came out of those who worship economist Milton Freedman and took his concept of non intervention in free markets to its extreme. It started with Ronald Reagan who claimed government is the problem not the solution (at the time government was creating problems) and every President including Clinton to George Bush #2 followed this course. Free markets do work better than socialism, but obviously NO regulations/government intervention has created a $50 to 70 trillion dollar black hole.

Whose to Blame

The small part of the unregulated CDS market that collapsed was subprime mortgages. Greenspan and the Fed left interest rates far too low for far too long (Bernanke deserves a small part of the blame here too) You know this story – predatory lenders, people getting in over their heads, house flippers etc. At the hight of this subprime mess in 2006 most of the lenders were private companies (@85%) and some were public – Fanny and Freddie (@15%) LINK

All these lenders share some blame, but its what happens next that caused the meltdown. All 5 of the Investment Banks, Insurance companies (AIG), Hedge Funds, Conglomerates, Banks & Financial Institutions across the world resold and resold and resold and resold and resold all this insurance (CDS) further diluting the assets that backed up the original loan. Moody’s and Standard and Poors (major bond rating agencies) also guaranteed lots of these unregulated bonds

So when the first Bear Stern’s hedge fund could not meet its insurance (swap) obligation because it had something like $1 in collateral for $100 invested (I’m guessing) the snowball started to roll down hill.

What’s next

The unregulated $50 to $70 Trillion dollar CDS market is buying and selling today. You’d think they would be a bit more cautious now. They are because the credit markets all over the world are almost at a virtual halt. We the taxpayers have put up $700 billion to fix the $70 trillion still existing CDS market. $700 billion does seem like chicken feed up against 70 trillion.

Let’s say Roubini’s 24 month recession comes to pass and home prices fall another 15% and unemployment reaches 9%. Will CDS’s on credit cards collapse? How much bigger will the subprime mess be? Will home equity, car loans, and student loans follow subprime? Countries could default on their CDS obligations (Iceland’s banks already have this problem – Ton Friedman in NYT on this LINK )

Hell, one solution is to cancel all outstanding CDS’s. Of course this would set off an immediate worldwide depression.

Bottom Line -

If Roubini 24 month recession comes to pass there is NO way the stock market is going to move higher. In fact you could see some might big falls. Many stock market analysts look about 6 months into the future to set price and 24 months is a long time. Few Joe’s and Jane’s in the USA understand the $50 to 70 Trillion dollar black hole hanging over our heads. That’s $200,000 for every man woman and child in the USA.

Best Read of The Tea Leaves. – Two long term paths

1) CNBC and Warren Buffett say buy now. The trouble here is CNBC (the financial channel) is a cheerleader for their advertisers (the markets) and Warren Buffett as well meaning as he is gets these phenomenal guarantees when he buys stocks.

2) Roubini 24 month recession or worse. This would mean more of the $70 trillion of uncollateralized debt (CDS’s) will rain down on us.

Going out on a limb – If you are out of the markets nibble a little and get back on dips – the bigger the better. I would also suggest sometimes selling into big rallies. If you are still 100% invested in the markets I’d sell some into the rallies.

As Updates has pointed out last week there has been a very small move in the right direction in credit markets recently and this should help stocks rally this week. We will get through this crisis, but its now looking like its going to take a few years.

Skipping right to Long Term Outlook going back to bed and pulling covers over my head because the Red Sox’s lost.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Cautiously Bearish

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% Cash – This depends on your risk tolerance

* 10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future. The major trend is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies.

Shorting – Three ETF that do 2x what the the major indexes do -
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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October 17, 2008

Market Update – Buffett Buying

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

Be Still My Beating Heart

Baseball – Our beloved Boston Red Sox with their backs to the wall and 7 runs behind with 3 innings to go, scored 8 runs and won the game. They might not win this AL championship series, but it was one hell of an exiting game. Lesson – Its not over till the fat lady sings.

Presidential Elections

This race is going to tighten, the fat lady is not singing, Obama is vulnerable to negative campaigning as Clinton campaign showed. He may be less vulnerable now that Americans know him better, but negative campaigning works.

"Joe the Plumber" (major subject of last debate) was a great media distraction for McCain. Like Palin, Joe whose real name is Sam was not exactly properly vetted.

* A Republican who voted in the Republican primary
* Made 40K in 2006, not near 250k
* The business he works for and want to buy is worth 100K not 250K
* He’s not a plumber but a contractor
* His big issue – wants to eliminate social security.
* has a $1000+ tax lien for not paying state taxes.

In other words Joe would receive a lot more tax help under Obama’s plan than McCain’s. Giving bigger tax breaks to the middle class works because they go out and spend it. That’s what makes small business grow – a healthy middle class buying products from small businesses.

Counter add – If I were Obama I would have Al the real plumber, Jane the real nurse and Charlie the real cop all who pay their taxes, and do not want to eliminate social security explain how Obama’s tax plan helps them. Counter punching can be very effective.

Still Joe the plumber is a good campaign strategy for McCain because it distracts from the main issue which is how closely tied to Bush/the economy McCain is. This is what McCain wants to distance himself from and what Obama wants to tie him to.

Warren Buffett is Buying.

Perhaps Obama’s most important endorser and the world’s richest man is buying. Interesting he bought when stocks dropped 300 to 400 points yesterday and stopped when stocks rallied. His Buy American, I Am op-ed in NYT LINK

Buffett’s simple strategy is to "be fearful when others are greedy and greedy when others are fearful."

Really wish I knew what Buffett was buying.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +4.68% up
NASDQ +5.49% up
S&P500 +4.25% up
Russell2000 +6.86% –

Headline – Strong Rebound

US Market & Foreign Markets -

Technicals – Another major move in the last hour of trading. This time stocks soared and volume confirmed the move higher.- Volume was both above average and increased over the previous day’s huge fall. We also gained back a little over 1/2 the previous day’s losses.

There was a massive 800 point swing from the lows of the days to the highs.

Every market technician is looking at this weeks trading pattern as a "double bottom." The major US indexes went back and retested the lows and they held. This,coupled with a strong volume rebound and an oversold market sets up at least a the promise of a short term rally.

A breakout over Monday’s high would establish a short term bullish pattern.

Fundamentals – Good news in Credit Markets (see below)

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

The 3 MTB exploded higher +117.5% yesterday to an interest rate of 0.435%. This is very good news fro the credit markets. o.435 is not a great number, but the improvement is. Another few days like yesterday and a whole lot of money will come off the sidelines and hopefully into stocks.

Set up below is another new link to LIBOR 3 month chart. Here’s a link to a definition from Investopedia

As the chart shows the LIBOR, while still very high is moving slowly in the right direction – down. (4.8 to 4.5%)

LIBOR is around 4.4 to 4.5% and with the Fed at 1.5% the LIBOR should be at about 1.6% to 1.7%. So we have a long way to go.

3 MTB chart

LIBOR chart (3 month)

OIL

Basically stocks go up so does oil. Stocks go down so does oil. It’s all about fears of how long the recession will last.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) again hit a record high yesterday. This is a contrarian indicator. Each time a new high is established it usually is a good time to buy stocks.

Chart of VIX.

.

Short Term Outlook

Best Read of the Tea Leaves . – The real charts to watch are the LIBOR and the 3MTB and the spread between the two. A clear trend is beginning to emerge. Fear is dissipating and credit rates are dropping. While they are both still extremely far apart the move is in the right direction.

Technically US equities are at a critical point. They are near major support levels of Friday’s lows and closing low. If these support levels fall, we’ll have to wait for another big volume climax sell off for a new low.

As predicted support levels held yesterday and it looks like we can put our rally caps on. The first important resistance level to break is Monday’s high.

Personally I’m still nibbling on every large dip. (less than 5% invested) GEX (alternative energy) looks promising if Obama gets elected.

Bottom Line – There is going to be a significant recession and global growth will slow. We have a massive long term energy problem and a large deficit – so growth is going to be erratic. But right now there seems to be a feeling of hope that the credit crisis is improving. Make no mistake the entire credit derivative market is huge and unregulated. It goes well beyond housing and no one can really predict how sever the recession will be or even if the new improved plan will work. We’ve dug a huge whole that is going to take years to crawl out of.

But technical signs show some improvement = at least a short term rally.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Cautiously Bearish

TechnicalsDouble bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.

Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% Cash – This depends on your risk tolerance

* 10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)

*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall

*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector
Traders who have a strong tolerance for risk jump in on dips and invest more. Sell into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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October 16, 2008

Market Update – Wednesday’s Presidential Debate

Author: Barr Jozwicki - Categories: Uncategorized - Tags: , , , , , , , , , , , , , , , , ,

If you’re a red meat right winger you loved John McCain’s "attack" performance last night.

However ever if you were an Independent or a Democrat you loved Bark’s confidence, focus and reassuring calmness in the middle of the biggest economic meltdown since the Great Depression. CNN, CBS and FOX polls taken after the debate all gave the victory to Obama by wide margins.

David Gergen (who served in both Republican and Democratic administrations) said "McCain looked angry. It was an exercise in anger management."

Does this matter – You bet it does. When you are in the middle of a crisis you want a leader who is thinking rationally and not one who needs "anger management." This reinforced the approach that both men have taken to the current economic meltdown. – Obama more calm reassuring and focused approach vs McCain’s more erratic, confrontational and accusatory approach. The split screen in this debate was not kind to the McCain. When that 3AM phone call comes Obama has shown he’s ready and McCain’s temperament at 3AM is now a major question.

Best exchange of debate

McCain "Senator Obama, I am not President Bush. If you wanted to run against President Bush you should have run four years ago,"
Obama replied "If I occasionally mistaken your policies for George Bush’s policies, it’s because on the core economic issues that matter to the American people, on tax policy, on energy policy, on spending priorities you have been a vigorous supporter of President Bush,"

Both men scored points and McCain was the clear aggressor, but Obama was an effective counter puncher and held his own. McCain needed a game changer because he is behind in the polls and it looks like he did not achieve this. However McCain’s intensity will energize the folks on the far right.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -7.87% down
NASDQ -8.47% down
S&P500 -9.03% down
Russell2000 -9.47% –

Headline – Monday’s Huge Rally Evaporates

US Market & Foreign Markets -

Technicals – Another huge price fall that plunged lower in the last hour of trading. Volume was slightly above average and was far less than the previous two days. Volume did not confirm the move lower. All the major markets are now at or close o their Friday’s closing lows – a major support level. Technically – This is a very critical point for US equities and the world. Will support levels hold?

Technically, if support fails to hold and we establish lower lows on the price charts a long term bear market seems almost inevitable.

Fundamentals – Another bubble is bursting – global growth. Many of the talking heads on the financial channel (CNBC) were warning about some major signs of drops in China’s economic growth.

Bernanke warned in a speech that there would be no quick fix to economic problems. It looks like investors are now accepting the fact that a recession will probably last through 2009.

Lots of talking heads saying that there are a lot of hedge funds and mutual funds that still need to sell because of investors redeeming their shares.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

The 3 MTB fell -14.98% yesterday to an interest rate of 0.20%. This is not good news fro the credit markets. The minor gains of the last two days evaporated and indicates that credit is still and it looks like investors are still running to put their $ into treasury bonds as a safe haven at a phenomenally low interest rate.

Set up below is new link to LIBOR rates. Here’s a link to a definition from Investopedia

LIBOR was basically flat yesterday. What is important to notice is the huge rise from a month ago of the one and three moth LIBOR and the fact that 30 year mortgages have moved from 7.16% to 7.60% in one month.

How do you have a recovery without mortgage rates declining and credit sill frozen?

Caution Both these Links run on a 15 to 20 minute delay.

3 MTB chart

LIBOR rates

OIL

Basically stocks go up so does oil. Stocks go down so does oil. It’s all about fears of how long the recession will last.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX
Chart of VIX.

.

Short Term Outlook

Best Read of the Tea Leaves. – The real charts to watch are the LIBOR and the 3MTB and the spread between the two. Yesterday this was bad news.

Technically US equities are at a critical point. They are near major support levels of Friday’s lows and closing low. If these support levels fall, we’ll have to wait for another big volume climax sell off for a new low.

So this is where the rubber meets the road. Best guess is that support will hold because of the weak volume behind yesterday’s selling. Those who can tolerate risk, this is a opportunity to nibble a little.

This market is speculators speculating on what other speculators will do. Many long term investors will return when credit spreads narrow.

My Bias – I often have the financial channel (CNBC) on in the background as I work and they are basically cheerleaders for the markets an clearly have an upside bias.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Cautiously Bearish

Technicals – Will the support levels hold? For right now it signs look sightly more positive than negative.

Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken and there are other problems out there.

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question. It’s beginning to look like the recession might last through 2009

Asset Allocation/Recommended Sectors (long term)

* 80% to 100% Cash – This depends on your risk tolerance

* 10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)

*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall

*5% Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips and invest more. Sell into rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. Do not buy into rallies

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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