Investors 411 Blog

Three Month Treasury Bill & LIBOR

The 3 MTB is perhaps the best indicator of the level of fear in the Credit Markets. It shows the $ investors are willing to pay to have their funds in a safe place for 3 months. On Friday the 3MTB fell -63.79% to 0.21%.

Unless the credit markets start moving higher any stock rally is probably going to crash and burn. Credit Rules

The fact that The Fed Rate was reduced to 1.5% does cut down the spread between the two. That’s good news. However LIBOR rates are more significant a barometer to compare the 3MTB to. LIBOR is closed today, but you can check out the #s.

LIBOR and the bond market is closed today. Stocks are open.

OIL

Oil prices are going to fall with the markets, because the of the fear that in a recession people will us less gas.

The Dollar

The relative strength of the dollar is good news for the USA. It show that worldwide there is bore confidence in the USA than other countries.

The VIX

Chart of VIX.
The VIX has reached the moon. This is the highest the revised VIX has ever been. Friday’s close was 69.95 up +9.43% The extreme level of fear indicates an oversold market and the possibility of at least a short term bounce.

Short Term Outlook

Technically – Almost all technical indicators point to a short term rally. However fundamentals and specifically the credit market rule. Credit Markets Rule – Stocks are secondary

Fundamentally – Psychologically fear has to play itself out and the high level of the VIX indicates we are near that point. Technically stocks have had a climax sell off late last week and this should give bulls some hope. Again the Baking Panic rules – It’s kind of spooky to have a rally with the bond markets closed.

Best Read of the Tea Leaves . Markets are so oversold, the VIX so high and we have had a climax sell off = Rally

Stock Markets tend to look ahead (six months) so those with high tolerance for risk should consider nibbling back in. (See Long Term Outlook)

Note: There is a major difference between Traders who think of trades in hours, days and weeks) and Long term Investors who think of investments in terms of years and decades.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARISH
Technicals - The VIX,oversold stocks and climax sell off giving short term buy signal
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. Credit Markets Rule

(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

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.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100% Cash -

* 10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) Generally – Really Big Banks Look good

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

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips. Sell into rallies. Long term Investors who can tolerate high risk and are 100% in cash could nibble a little on these big dips.

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

October 8, 2008

Market Update – Worldwide Rate Cut

Self Magazine

Once a year Market Updates suggests donations to a cancer organization. This is NOT that time. However, check out the following article from Self magazine (page 178) One of my daughters (a cancer survivor) is flying over a mogul on her snowboard to raise awareness for health.

Presidential Debate

FOX, CNN,CBS reaction groups and NBC and Survey USA polls all had Obama winning the debate. One poll has Obama/Biden winning the previous debates by 50 to 29%. Interestingly McCain seemed afraid to bring up any of the negatives charges he and his surrogates have made over the last few days. (see past Updates) Perhaps because Obama was there to defend himself. Often elections are not won on issues, debate and substance but mudslinging.

These negative accusations will get worse as the campaign continues. The Associated Press has already called one of Palin’s attacks "racially tinged" and factually lacking.(see past Updates) Look for a kitchen sink of more obvious racial ties to negative black figures and Obama. This worked in a Senatorial race in Tenn. 2 years ago when the Dem’s ran a black candidate and will probably happen again.

McCain who would not even look at Obama in the first debate referred to him with contempt as "that one" in this debate. As stated before a McCain/Liberman ticket would have been formidable because it would been sen as a move to bring this country together. Instead McCain choose an under qualified, inexperience, far right, religious radical as his VP. When you add this to McCain’s obvious temper and distain for those who disagree with him you get a a very frightening combination.

Cheney/Bush did not go radically negative till after the the elections and 911 – You were "unpatriotic, hated, democracy or did not support the troops" came after the 2000 elections.. Some negative stuff/exaggerations obviously makes it into all campaigns but the latest goes way over the top. LINK to video

FEAR

Obviously fear is driving worldwide markets. This started because we did NOT have proper regulations and enough enforcers in our financial markets . Now this crisis exploded across the world and what was originally thought to be a slowdown in US markets has turned into a worldwide meltdown. First there was Enron, but the real first warning came in this collapse was Bear Sterns. One could spend days assigning blame. But what’s really on the minds of most folks now is how low will we sink and what’s can be done about it.

How low will we sink? Standard bear markets since WW 2 have fallen on an average of 33%. The S&P 500 has all ready fallen 31% from its high. However, according to almost everyone this financial crisis is not standard by any means. Most experts are calling this the worst financial meltdown of our time or since the great depression. So it sure looks like there is more downside to come.

Fear is feeding on itself. Most technicians looks for a climax sell of to mark the bottom. This is when everyone throws in the towel. You have massive selling in huge volume for one to two days. Wish the Tea leaves showed a bottom, but they do not even though the VIX is at a new closing high. (see below)

to be continued…

Stocks

Best Advise

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index% ChangeVolume

Dow -5.11% -

NASDQ -5.80% -

S&P500 -5.74% -

Russell2000 -6.20% –

Headline – Coordinated Worldwide Rate Cuts

US Market & Foreign Markets

Major US markets had another massive meltdown yesterday and again hit new lows.

The benchmark S&P (is down @31% from its high. The typical bear market since World War 2 is a 33% loss. Virtually every analyst either calls this clear marks the greatest fiscal crisis since the Great Depression or the greatest crisis of our times. Therefore, it certainly looks like we will exceed the 33% loss a typical bear market has.

Volume was flat or down. Therefore, no real confirmation of the massive move lower. (Sorry the chart blocks the volume figures – see links below)

There was good news – The Fed announce it would open its discount window with 60 day loans to companies needing to make payrolls. However the fact that companies would need to use the Fed to meet payrolls spooked investors and markets fell. There was the usual bad news surrounding financial stocks as major bank’s seem to be coming up short in selling bonds and pieces of their companies in an effort to get more cash.

The Fed has become far more powerful and is using far more tools than ever before in this crisis.

The UK is partially nationalizing its banks LINK

Coordinated action around the world our Fed (0.50%) Europe. England, Sweden, & China all lower interest rates simultaneously. British markets were down 6% earlier and are now flat on this news.

This should rally markets today.

Credit Markets are Leading All Other Markets.

How Close is Credit to Freezing UP?

The 3 Month Treasury Bill/Bond dropped +91.46% to 0.785%. (note – there are some panicked folks that do not think the 3MTB is a safe haven) This is good news for credit markets. If the rally can follow through today with another gain that gets us above above 1.00% we could see some stabilization in stocks. Money if flooding out of stocks and into Treasuries.

LIBOR (definition) is still remained flat or rose depending on what measure you use (example 1 month, 3 month etc,) The spread between the LIBOR and the 3MTB Since the L in Libor stands for London and they seem to be nationalizing the banks there well have to wait to see how this all plays out.

OIL

Oil prices rose despite the fall in stocks +2.25% to $90.06 a barrel. Technically it looks like a support level is forming around $85 a barrel.

The Dollar

The relative strength of the dollar is good news for the USA. It show that worldwide there is bore confidence in the USA than other countries.

The VIX

Chart of VIX.

Fear reigns as the VIX is reached an all time closing high at at 53.68. It reached interday high of 58.24 two days ago. This is the highest the revised VIX has ever been. The extreme level of fear indicates an oversold market and the possibility of at least a short term bounce.

Short Term Outlook

Technically – Almost all technical indicators point to a short term rally. However fundamentals and specifically the credit market rule. If credit fears ease markets should rise.

Fundamentally – Psychologically fear has to play itself out and the high level of the VIX indicates we are near that point. If we had had massive selling and close at the lows of the day (down 800 on Dow) that would have been a classic bottom.

Best Read of the Tea Leaves . – Fundamentals and panic rules. These factors are trumping technical indicators that are all calling for at least a dead cat bounce rally because markets are so oversold and the VIX so high.

Note: There is a major difference between Traders who think of trades in hours, days and weeks) and Long term Investors who think of investments in terms of years and decades.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARISH

Technicals – The VIX gives a clear buy signal. (Short term traders only)
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. But there is hope in a bailout plan

(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

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.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100% Cash -

* 10% US Index Funds
UWM (2x what Russell 2000 does) & QLD (2X what the NASDQ does) Generally – Really Big Banks Look good

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

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips. Sell into rallies. Long term Investors who can tolerate very very high risk and are 100% in cash could nibble a little on big dips.

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

October 7, 2008

Market Update – Worldwide Meltdown

Welcome to some new readers. Usually Updates is published 4 to 5 times a week. This week there will be no Friday Update and maybe a short one on Thursday.

This is stream of consciousness writing. Please allow for errors.

Obama McCain Debate Tonight

Town Hall style favors McCain. Economic situation favors Obama. Polls have moved toward Obama in the last few weeks and he has a slight lead. Debates can often switch momentum.

Keating

In response to the McCain going negative the Obama campaign has finally dropped the Keating Bomb . The full video is now out.

Stocks

Best Advise

Being out of stocks is best for long term investors. Do nothing if you are already in stocks. Make sure your $ are FDIC insured and money markets are SPIC insured. Trading opportunity exists. VIX indicates that we are near a short term low. We are very oversold. = Short term Rally

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -3.58% up

NASDQ -4.34% up

S&P500 -3.85% up

Russell2000 -3.79% –

US Market & Foreign Markets

Headline – Worldwide Meltdown

The Good
At one point the Dow was down 800 points and stocks rallied into the close, ending up down only 370 points. We are way oversold according to virtually every technical indicator out there and overdue for a technical bounce.

The Bad
Volume increased moderately/slightly and was above average. Volume is the chief confirmation factor for price moves. Therefore, the 4% loss combined with the increased volume is makes bears happy. Dow closed below 10,000 support level.

The Ugly

The VIX (measures fear in the S&P 500) hit a new all time high. (see below) This does usually always mean a reversal. However, the volume behind yesterday’s fall was not the massive volume usually associated with a climax selloff.

Fundamentals

Last week

GE’s early earnings report and having to raise capital typified the bad economic news. GE has a financial component that threatens the huge conglomerate and GE had to offer Buffet and Bond holders great terms in order to raise $13 billion in new capital. Translation they are having trouble raising money from banks.

Yesterday

Europe meltdown as various countries like Germany, Greece and others had to guarantee deposits in banks. What happened was a massive run on European banks. Ireland guaranteed its bank’s deposit last week and depositors from all over Europe took their savings out of their banks and put them into Irish banks. Hopefully European banks should get organized and pull the LIBOR rates down. This could spark a rally.

Today

Bank of America pre announced earnings and is down. Alcoa is down 5+% in pre market- First company to report. This is the beginning of earnings season. GM just halted production in all of its European plants. – This is all BAD news, but lots of bad news is already built into the markets.

The good news
Fed is finding new ways to introduce more capital to the markets. Australian Fed just announced a massive 1.00% rate cut. There is hope that the rest of the world will follow.

Credit Markets are Leading All Other Markets.

How Close is Credit to Freezing UP?

The 3 Month Treasury Bill/Bond dropped -12.77% to 0.41%. The good news here is that at one point in the day people were willing to pay 0.10% for a 3 month safe haven for their funds. (note – there are some panicked folks that do not think the 3MTB is a safe haven) Therefore the 0.41% close is better than it could have been.

LIBOR is still rose to +4.27% from 4.11%. The spread between the LIBOR and the 3MTB increased yesterday and that surely is NOT good news. It costs more to borrow money and folks seem to be putting $ under mattresses.

OIL

Oil prices continue to fall dramatically, as do almost all commodities. This is an indication that investors see a worldwide recession/depression in front of us and the demand for oil will dry up. Oil prices fell -6.07% to $87.81 a barrel.

Futures have oil prices back up over $90.

The Dollar

The relative strength of the dollar is good news for the USA. It show that worldwide there is bore confidence in the USA than other countries.

The VIX

Chart of VIX.

Fear reigns as the VIX is now at 52.05. It reached 58.24 yesterday. This is the highest the revised VIX has ever been. The extreme level of fear indicates an oversold market and the possibility of at least a short term bounce.

Short Term Outlook

Technically – Almost all technical indicators point to a short term rally. However fundamentals and specifically the credit market rule. If credit fears ease markets will rise.

Fundamentally – Lots of talking heads are blaming yesterday’s fall on fears that the bailout/rescue US plan will not work. It looks more like the fact that recession/depression fears spread to Europe and the rest of the world was largely to blame.

Psychologically fear has to play itself out and the high level of the VIX indicates we are near that point. If we had had massive selling and close at the lows of the day (down 800 on Dow) that would have been a classic bottom.

Bernanke speaks to congress today.

Best Read of the Tea Leaves . – The technical levels are really oversold and the VIX is at the highest ever. In the long term markets are driven by fundamentals, but it sure looks like we will see a short term relief rally.

Because the panic was worldwide the case for at least a short term bottom is even stronger. Even though news like GM halting production in all its European plants hurts the fact that we are going to have a recession is already built into prices.

Note: There is a major difference between Traders who think of trades in hours, days and weeks) and Long term Investors who think of investments in terms of years and decades.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARISH

Technicals – The VIX gives a clear buy signal. (Short term traders only)
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. But there is hope in a bailout plan

(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

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.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100% Cash -

* 10% US Index Funds
UWM (2x what Russell 2000 does) & QLD (2X what the NASDQ does) Generally – Really Big Banks Look good

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

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips. Sell into rallies. Long term Investors who can tolerate very very high risk and are 100% in cash could nibble a little on big dips.

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

October 6, 2008

Market Update – Negative Adds

Sorry – abbreviated Updates today. Back to back art shows. Will try to be more comprehensive Tuesday and Wednesday.

Bama Bashing

The McCain campaign has been relentless in its negative adds. Since Boston is next to swing state New Hampshire we get to see them all. Now Palin is "unfairly" claiming that Obama is "palling around with terrorists who would target their own country" This attack has has a clear racial tinge to – he is not like us The Associated Press story denouncing these attacks.

Obviously McCain campaign is doing everything it can to keep the subject off the economy. You can read a lot more about this and see Obama’s new add countering this at the following site TalkingPointsMemo (scroll down)

Keating

For several weeks many have wondered why McCain’s/Keating ties have not been used in this campaign. You can see a short 97 second video on it here LINK

McCain was directly involved and financially benefited from in the lasts major scandal and it was the same type of unregulated corruption that caused both meltdowns. He was admonished for it on the floor of the Senate, Keating spent 4 years in jail, the crisis cause a 23% drop in the markets,and we had to bail out lots of baks (over 100 billion in 1990 dollars)

Obama campaign has dropped the Keating Bomb .

Best Advise

Being out of stocks is best for long term investors. Do nothing if you are already in stocks. Make sure your $ are FDIC insured and money markets are SPIC insured. Trading opportunity exists

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Stocks

Index % Change Volume

Dow -1.50% up

NASDQ -1.48% up

S&P500 -1.35% up

Russell2000 -2.87% –

US Market & Foreign Markets

All the major US indexes are trading at new lows and so are most of the foreign stock exchanges. The major US indexes are trading below levels That they were before Bush took office. Never a good sign that stocks take a hit and volume is increased and above average.

The weekly chart pattern (scroll down at links below) of the benchmark S&P 500 & other major indexes have since last years October high formed a series of lower lows and lower highs. Technically this is about as bearish as you can get.

Will give more on fundamentals tomorrow

How Close is Credit to Freezing UP

OIL no longer RULES

The Dollar

Usually an inverse relationship to oil prices.