Investors 411 Blog

Bailout Detroit. (or OMG this economy is in deep do do)

The American car industry came out with an absolutely dismal earnings results and forecast on Friday. GM alone is burning though $2.3 billion a month over the last 3 quarters and has $15 billion in reserves (the figure was actually 14.2 or 16.2 billion, but I forgot) That gives GM about 6 to 8 months before they go belly up.

The old problems – Detroit went for the gas guzzlers and the fuel efficient car are the future. The foreign companies all enjoy universal healthcare while GM has to foot the bill for this and other financial considerations.

The new problem – GM, Ford and Chrysler can’t get loans and neither can many of their customers. This is the Credit Default Swaps problem moving from subprime to the car industry.

Obviously these companies are going to get some sort of a bailout. Democrats are in charge, an election was won, and promises were made. The wimpy CEO of GM came on CNBC and gave a really weak rational as to why there should be a bailout. No wonder they are in such trouble.

Here’s the main three reasons we be bail out GM.

* The loss of 1 to 2+ million jobs. Not only do all auto company workers loose their jobs. But the ripple effect is huge from part manufacturers to advertisers.
* Bond holders. Even a bigger impact. All those bonds (100′s of billions – I’m guesstimating) that come due in the next 30 years go up in flames.
*Huge amounts of American wealth will get sent abroad. We are already sending hundreds of billions to petro dictators each year. Now the future fuel efficient/electric cars and parts will all be imported from Japan, Korea and probably China who can easily undercut the prices of any startups here in the USA.

What’s needed in a bailout for American auto industry. Some ideas

*Get it in writing – "Must build fuel efficient cars."
*Unions and management need to financially bend.
*Temporary partial ownership of US auto industry should be considered. If American’s know that they have partial ownership they are far more likely to buy.
* Pass universal health care so our auto industry and other businesses can compete on a level playing field.
* Get banks to participate in bailout.

What to watch out for

The intent of the bank bailout (your tax dollars) was that banks in good faith would make loans. They don’t and are hoarding the cash. Example – to auto companies and their customers.

Unlike other countries that got this in writing we did not. You can understand Paulson and Cheney/Bush giving $ to banks/business without conditions, but Democrat Committee Chairs Barney Frank and Chris Dodd let huge blunder go through too. They should not have made banks promise to give out loans in writing, they should have got the commitment it in BLOOD.

The AIG bailout terms were way too oppressive. Something like 8% and then 2% above LIBOR. AIG can’t survive if it has to pay 11% to 14% interest on $85 billion To their credit they did pay back $2.3 billion this week, because they could now borrow from Fed discount window. Terms have to be palatable for auto industry and AIG

When you add the 6.5% and growing unemployment rate plus the loss in jobs that a collapse of the auto industry would bring you = well beyond an 8% unemployment rate. We will probably get to 8+% anyway. The loss in bonds who be devastating on the overall bond market and spread to stocks. Still to come is credit card companies & others who will get impacted by the unregulated Credit Default Swaps market.

The downside to all of this is what is happening to the growing national debt.

Bottom Line – This is NOT going to be your typical 8 month long recession, but something far worse even with an ideal bailout plan of the US auto industry.

Treasury Secretary

The worst possible choice among those that are being considered for this crucial post in the Obama administration is is former Clinton Treasury Secretary Larry Summers. He’s a smart guy but -
*was one of the top ten people most responsible from deregulating the credit default swaps market.
*got in to such problems as Harvard President that all that almost all the Deans pushed him out of office. A sexist who has little verbal discipline
*the Obama campaign is about change and he is the past.
Also important is who runs Office of Management and Budget. For more on Summers and other choices see excellent article on this from Steve Clemons

Economic Molasses

Lowering interest rates has done nothing to help Main Street because banks are NOT passing on the savings. Have you seen mortgage rates fall?

Other countries have forced their banks to make loans as a condition of their bailout, but our government has not. Paulson, Bush, Democratic leadership and Republican leadership have showered money on specific financial institution and they are hoarding it. In fact, the government is secretive about the details of these transaction as several folks (Dillon Radigan) on CNBC (the financial channel) point out. There is a major major problem here.

It’s hard to understand why credit markets (LIBOR) are moving in the right direction. Perhaps its because European banks are starting to make loans. Something has to happen on this side of the pond. If banks don’t loan what good is the bailout except making profits for banks? Naomi Klein has an article on this in the Rolling Stone. Here’s a shortened version "Stopping the Bailout Profiteers "

The focus should now be on job creation in the private sector.

Republican Cannibalism

The chief political corespondent (Carl Cameron) on right wing FOX news said McCain big wigs called Sarah Palin a "Wasila Hillbilly," that she thought Africa was a country not a continent, and she could not identify the 3 countries in North America. In turn, right wing blogs have launched "operation leper" excommunicating those Republicans who criticize Palin

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -4.85% up
NASDQ -4.34% up
S&P500 -5.03% up
Russell2000 -3.65% –

Headline – Jobs jobs jobs

US Market & Foreign Markets -

Technicals – ( From yesterday) – "We could have another really nasty day."

We did have another nasty day and this time volume increased and therefore confirmed the price move. The volume wasn’t huge but substantially more than the previous day. Mantra = Volume is the #1 confirmation factor of any price move.

We have now lost a wee bit over 1/2 the gains we made in the major indexes since we retested the lows two weeks ago. That 50% figure s big in technical analysis (for those who want to understand more look up Bollinger Bands or Fibonacci retracements at investopedia.com for very short explanation) That’s not good news for us bulls. However a 50% retracement is a big support level and holding on here could would be very bullish for stocks.

We are technically just above the 50% level when you use the yearly low of 7800.

Bottom Line – This is a major support level that should hold. If it does not, this market will probably at least retest Dow 7800 low next week.

All markets are interconnected. So let’s look at what happened in Asia overnight. This will give us some idea how the US markets will might trade. Japan -3.55% Korea +3.29% China +1.75%
Europe is up +1 to +2% and that’s good news.

Fundamentals – All week investors have focused on the monthly jobless data. Expectations of a bad number (-200,000) are a chunk of the reason stocks have fallen dramatically the last two days.
NB -Everything else was written before this job’s number came out Job’s number for October =-240,000 Unemployment at 6.5%, Last two months revised down. = Real bad news for Main Street economy because its going to get worse. Also politics. These numbers got massage in previous month by the current administration and the bad news was announced after the election.

(repeat) Historically November starts a usually very bullish period for stocks. December is historically the best month of the year.

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.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.38% yesterday. That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR at 2,.29% this AM. Again good news for credit and stock markets.

The 3MTB fell -17.11% to +0.315%. The Fed rate is 1.00% A falling 3MTB is NOT good news.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is opening up especially in Europe. This helps Main Street’s – Credit cards to adjustable mortgage rates are tied to LIBOR. But by no means is credit back to normal.

OIL

Oil prices rose a fell -4.53% and consequently the dollar rose. Most of this movement is related to short term traders making bets on of the dollar. Dollar goes higher = Oil goes lower.

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 obviously moving back up

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

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

Reading The Tea Leaves –

The technical 9764 resistance level held and the predicted post election dip materialized yesterday. Failure to break out through Dow 9764 (see chart) resistance level means new range for stocks is between 9764 and 7800.

Longer term investors buy the big dips.

Personally "my long term investments are now 10% stocks. .

Traders – The spreads in the credit markets are narrowing and another stimulus package is probably coming. = Buy the Dip

Long Term Investors – As we approach Dow 7800 another opportunity to buy. Those of you who missed out when markets went well close to or below 8500 have another opportunity to nibble

Economically, Main Street is no where near out of the woods. But there is hope.

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,. Technically all this = at least a short term rally and maybe a long term bottom.

Reading tea leaves – Look for range between 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) 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

We are in a recession. How bad/long 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)

50% to 90% Cash – This depends on your risk tolerance Long Term Investors (up to 10+% stocks – only buy big dips)

*10%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*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 9,000 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 big 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

Overview (for new readers)

If you do not understand a market term look it up on investopedia.com Happy to answer any email questions on markets or politics, but first look up a term you do not understand.

Two mega trends dominate worldwide economics and greatly influence politics – Peak Oil and Globalization. Right now the direction and impact of these trends are being significantly impacted by worldwide recession

Long Term Investors = Buys and holds a stock for years.
Traders = Hold stocks for less than a day to a month ( A trader can also turn his/her trade into a long term investment)

Polls and Election Analysis

5-30-8 Of all web based companies out there that did polls fivethirtyeight.com offered the best analysis of what was happening and was pretty close to the actual vote count. They too (like Market Updates) predicted a tighter race than than others.

Today 5-30-8 questions the irregularities in Alaska where convicted felon Ted Stevens (R) narrowly leads in a Senate race. See above link. Alaska even though Sara Palin was running had a 14% decrease in votes over 2004 where every other state in the union has an increase in turnout. This includes the 40,000 votes that have not been counted.

Poll compilations got all other states right or were within 5% of actual vote. Here Republicans got 12 to 14% more votes than polls predicted and far less people voted. Something smells fishy in Alaska

Throwing slime – The questioning of Obama’s character (he pals around with terrorists, is a socialist, McCain not Hussein, Reverend Wright, Obama would cause a holocaust etc.) did have some impact. Obama lost 20% to 50% of his lead in many battleground states. Final results (there still are some votes to be counted) from CBS this AM.

Obama 7.6 million votes more than McCain
Obama 53-% vs. McCain 46+% (6.3% victory)
Obama 349- McCain- 162 Electoral votes.
4 Senate Races and 4 House races still too close to call
Senate Dems+5,
House Dems +20

Mea Culpa – I thought all the negatives swift boating adds would hurt Obama more. They did have an impact, but that impact stabilized in the last three days of the campaign. The last minute multi million dollar national and targeted Rev. Wright adds seemed to have little impact. I was wrong.

One Really Unexpected Result – People making over $200,000 a year favored Obama by +6%. In 2004 they went for Bush by a 2 to 1 margin. Obama has proposed raising their taxes. Looks like there are a lot of Warren Buffett’s out there.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -5.05% flat
NASDQ -5.53% down
S&P500 -5.27% flat
Russell2000 -5.74% –

Headline – Reality Strikes

US Market & Foreign Markets -

Technicals – The predicted post election dip happened. However it turned into a meltdown (down 5% across the board) Volume was below average. Therefore, volume did NOT confirm this move. However it sure looks like move down will continue. Another nasty day may be ahead.

Asian markets which had rallied more than American markets also took profits today (overnight) European markets are also down. The losses range from 3% (European) to 7 (Asian)% across these markets.

Fundamentals – (repeat from yesterday) " There will be some selling into the Obama election news."

Toyota had a mega disappointing earnings report after Japan’s market closed.. The Toyota news is really significant for markets across the world. We could have another really nasty day.

Historically November starts a usually very bullish period for stocks. December is historically the best month of the year.

Jobless numbers come out on Friday and they and future numbers are not going to be good.

Big surprise just in – England just lowered interest rates a whopping -1.5% (0.75% expected). The European Union as expected lowered rates -0.50%. All this says to investors is things out there (in Europe) are worse than expected

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.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.48% yesterday. That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR at 2.38% this AM

The 3MTB fell -18.28% to +0.38%. The Fed rate is 1.00% A falling 3MTB is NOT good news and +0.38 is too low but if you look at the charts investors have not panicked.

3 MTB chart

LIBOR chart (3 month)

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. But by no means is credit back to normal.

OIL

Oil prices rose a fell -7.42% and consequently the dollar rose. This wiped out 3/4 of yesterday’s huge gains. Most of this movement is related to short term traders making bets on of the dollar. England and European Union to lower interest t rates today.

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 was at or near its highest levels ever early last week and is now dropping like a stone = bullish

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

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

Reading The Tea Leaves –

The technical 9764 resistance level held and the predicted post election dip materialized yesterday. Failure to break out through Dow 9764 (see chart) resistance level means new range for stocks is between 9764 and 7800.

(from yesterday) "Wall Street likes to buy on the rumor (in this case Obama is going to get elected) and sell the news."

The fall was bigger than expected and volatility retuned to trading.

Longer term investors buy the big dips.

Personally "my long term investments are now 10% stocks. I am trading a lot on dips and will probably sell at 9764" (I did not sell enough so got caught in part of yesterday’s meltdown)

(repeat from yesterday) The fundamental that could stimulate a rally is a second stimulus package that creates more private sector jobs. However short term selling the election and a bad Friday employment # for the month of October should hurt stocks.

Traders – Technically the move higher looks to be too powerful not to get extended after a dip. The spreads in the credit markets are narrowing and another stimulus package is probably coming. = Buy the Dip

Long Term Investors – As we approach Dow 7800 another opportunity to buy. Those of you who missed out when markets went well below 8500 may get a

Economically, Main Street is no where near out of the woods. But there is hope.

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,. Technically all this = at least a short term rally and maybe a long term bottom.

Reading tea leaves – Look for range between 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) 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

We are in a recession. How bad/long 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)

* 50% to 90% Cash – This depends on your risk tolerance Long Term Investors (up to 10% stocks – only buy big dips)

*10%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*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 9,000 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 big 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

All of us old timers who had fought for equal rights in the 60′s erupted last night in rivers of tears. What we had taught our children and believed in so strongly about America came to pass last night as a black man, Barack Obama was elected President of the United States. What a phenomenal message Obama represents for the USA and the world. What’s unique is he is first our president who happens to be black. This is the only country in the world that this would happen.

Last night -

*Hope won out over fear
*Competence over ideology
* Working together over unilateralism

In watching Barack’s campaign over the last few years you have to be inspired by his managerial skills and competence. He started from nothing and took everything that the far more experienced Clinton and McCain campaign’s threw at him. Barack adapted, organized, counter punched and won. What’s most impressive is the ability of Barack (and those close to him) is his creative competent managerial skill.

The torch has been passed to a new generation. The war in Iraq is over and the "you’re either with us or against us era." has at least for now come to an end. Yet, if you are our enemy we will still "fight you and defeat you."

Hillary Clinton – Proved she is the energizer bunny of American politics. What a positive Hillary is for women everywhere who have fought for so long and so hard to break the glass ceiling. Even after defeat she didn’t whine but worked her heart out for the Obama campaign (68 trips).

John McCain – Where was the man who gave that gracious conciliation speech in the campaign?

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +3.28% up
NASDQ +3.12% up
S&P500 +4.08% up
Russell2000 +1.39% –

Headline – Amazing Rally

US Market & Foreign Markets -

Technicals – The predicted "Amazing Rally" happened – it just took three instead of one day to materialize. The folks at the right wing financial channel may finally begrudgingly admit that a chunk of this rally was because Obama was going to be our next president (consistently led in the polls) and the nation would move forward is hope not fear.

Volume did move higher confirming the price move. However, volume was average at best.

We’ve had two Amazing rallies. and that’s a long term bullish sign.

Reaction from Asia was positive over night Korea +3% Japan +4.5 and China +3. European markets are down@ -2% this AM

Fundamentals – We did NOT get a filibuster proof Senate senate and that’s good for Wall Street. There will be some selling into the Obama election news.

Historically November starts a usually very bullish period for stocks. December is historically the best month of the year.

Jobless numbers come out on Friday and they and future numbers are not going to be good.

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.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.7% this AM. That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR down another 0.20% this AM.

The 3MTB rose +10.71% to +0.465%. The Fed rate is 1.00%

3 MTB chart

LIBOR chart (3 month)

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. But by no means is credit back to normal.

OIL

Oil prices rose a huge +10.36% and consequently the dollar fell. Things should move in the opposite direction today

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 was at or near its highest levels ever early last week and is now dropping like a stone = bullish

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

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

Reading The Tea Leaves –

(repeat) traders should lock in (sell) gains at or near technical resistance levels of 9764 or 10,000 and wait for a dip to buy.

(repeat) Holding stocks through Tuesday is risky because of the elections according to CNBC’s Jim Cramer.

We did basically hit the 9764 resistance level yesterday (within 20 points) . Wall Street likes to buy on the rumor (in this case Obama is going to get elected) and sell the news.

Longer term investors buy the big dips.

Personally my long term investments are now 10% stocks. I am trading a lot on dips and will probably sell at 9764 or 10,000 depending on the volume figures. Breakouts through these resistance levels in big volume would be bullish and a reason to hold on to short term trades.

The fundamental that could stimulate a rally is a second stimulus package that creates more private sector jobs. However short term selling the election and a bad Friday employment # for the month of October should hurt stocks.

Technically the move higher has be too powerful not to get extended after a dip. The spreads in the credit markets are narrowing and another stimulus package is probably comming. = Buy the Dip

Economically, Main Street is no where near out of the woods. But there is hope.

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,. Technically all this = at least a short term rally and maybe a long term bottom.

Reading tea leaves – Look for range between 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) 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

We are in a recession. How bad/long 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)

* 50% 60% to 90% 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 the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*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 9,500 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 big 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

The Republicans have launched the biggest negative, fear mongering, character assassination attack adds in history against Obama in the last 48 hours of American Politics.

Massive buys from Republican 527′s the RNC and McCain/Palin adds have thrown every piece of slime possible at Obama. This has been augmented by the Republican blogs right wing media,leaflets and mailings. Obviously campaign finance reform is at best a joke in front of an onslaught like this.

This election is going to be a lot closer than you think!

Obama’s compilation poll numbers actually improved from +6.9 to +7.3% on RealClearPolitics.com yesterday. But elections are not held nationwide. Forget this number!

The negative adds attacking Obama have been targeted to battleground states, NOT the nation. These statistics are nationwide and include the huge populations of California and NY where Obama has 20%+ leads. When you factor that in the race becomes much closer. The character assassinations are working. The question is how well.

Example – New Hampshire is a battleground state. UNH has a daily tracking poll and five days ago it was at +16%, two days ago it was at +11%. Nothing measures the last 48 hours. But other more major polling outfits have this race two days ago at about +7%.

This is happening through out all battle ground states as Obama’s once commanding lead in battle ground states has been cut in about half over the last week.

If McCain /Palin are successful with this attack instead of going after issues this country will be torn in two and all politics and the media will become is negative, slime throwing, character assassinations. – because it works/sells. Fear mongering has made us a truly weaker and divided nation. If you think America was divided in "you are either with us or against us" under Cheney/Bush years – you haven’t seen anything yet.

Instead of dying down as they usually do the media outlets on both the left and right will hyper charge the negativity. – It works/sells. Minority groups will feel that they were cheated by lies and charter assassination and react. If you even associate with a Muslim you too will be labeled a friend of terrorists by our government. The right wing whites will just arm itself more in response. Because of the weak economic situation that already exists the situation could rapidly deteriorate.

The Good News for Obama – Yes there has been a significant impact in McCain’s mud slinging. Throw enough slime and some is bound to stick on some folks. But 4 factors are in Obama’s favor.

1) early voting has softened the impact of the last minute swift boat adds. Perhaps 1/3 of Americans have already voted and missed most negatives.
2) Obama has reached above 50% of the vote in the polls of some critical battleground states for over a week. This means that the vote is pretty solid here and the slime will not stick as much on these voters.
3) Obama supposedly has a superior ground game – he is going to really need it today.
4) Obama has a lead in the polls of @7% and most voters know this. This will encourage Obama supporters and discourage McCain supporters.

What to watch for election night

Virginia – Polls close early here (7PM EST) and if Obama wins in this Republican state, its going to be real hard for McCain to win. Latest polls suggest a +4.3% for Obama two days ago.

New Hampshire – Again polls close early too. If McCain wins or is within 5% of Obama it means that the character assassination or the last 48 hours is working and you will see these numbers reflected throughout the country.

Therefore, you should have an idea of what’s going to happen by 8:00 EST just by watching these two states. This will tell you how all the other battleground states will turn out.

Pennsylvania – A must for Obama – A loss here and its going to be real hard to see Obama win. Obama up +4.4% two days ago.

All the other battleground states.

Obama’s Grandmother Dies

What a devastating blow for the Obama family on election eve. His mentor and perhaps the person most responsible form making Obama who he is yesterday died from Cancer. More on Madelyn Dunham .

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -0.06% down
NASDQ +0.31% down
S&P500 -0.25% down
Russell2000 +0.18% –

Headline – Holding Steady

US Market & Foreign Markets -

Technicals – Markets traded within a normal 125 range yesterday in light volume. This, for the first time in months was a normal light volume day.

Japan was up over +6% in trading last night (stimulus package and they were closed Monday) Other Asian markets fell @ -1 to 2+%

Fundamentals – Manufacturing activity in the USA fell to a 26 year low and the auto industry got decimated in its monthly report . GM car sales dropped -45% for the month. Despite these horrible numbers stocks barely moved yesterday. In the long run this means massive layoffs in the US auto industry and related companies.

Example of how the unregulated Credit Default Swaps market is impacting this is you had to have a credit score above 700 to use GM financing. Other manufacturers loss less Ford 30% but it was really bad news.

The fact that markets held up so well despite the bad news is a bullish sign. Looks like the meltdown of our auto industry is already baked into stock prices.

Earnings season is now 80% over

Historically November starts a usually very bullish period for stocks. December is historically the best month of the year..

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.

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. Oil prices fell -5.57%. Stocks should have shot up on this, but didn’t. The GM news probably acted as a counter weight.

Chart of oil (WTIC)

The Dollar

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

Chart of Dollar

The dollar rose significantly Friday (+0.67%). The major move higher in the dollar (almost 2% in the last two days) is forcing oil prices lower.

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX was at or near its highest levels ever early last week and is now dropping like a stone = bullish

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

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

Reading The Tea Leaves – (Basically same message as yesterday)

Best guess- traders should lock in (sell) gains at or near technical resistance levels of 9764 or 10,000 and wait for a dip to buy.

Holding stocks through Tuesday is risky because of the elections according to CNBC’s Jim Cramer.

Longer term investors buy the big dips.

Personally my long term investments are now 10% stocks. I am trading a lot on dips and will probably sell at 9764 or 10,000 depending on the volume figures. Breakouts through these resistance levels in big volume would be bullish and a reason to hold on to short term trades.

The fundamental that could stimulate a rally is a second stimulus package that creates more private sector jobs.

Economically, Main Street is 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 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) 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

We are in a recession. How bad/long 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)

* 60% to 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 the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*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 9,000 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 big 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

Economics

The Good News -Across the world there are stimulus packages (many better than the one we have) that are moving stocks higher. Worldwide recession is a global problem which started right here with the unregulated Credit Default Swaps market. Another stimulus package that helps create jobs for the private sector would be a positive for US stocks.

The Bad News – Durable goods (see yesterday’s Updates), rising unemployment, a longer term recession, and the continued decline in housing.

The unemployment number for October come out on Friday.

The housing stats look really bad. Right now 18% of Americans have negative equity in their homes. Their mortgages are bigger than the value of their homes. If/when home values fall more than 5% this number will turn into into 23%. "How Many Homeowners Owe More Than Their House is Worth "

Polls

Most compilations of polls show the race now closing. They range from 5.4% to 7.3% for Obama. RealClearPolitics this AM has its compilation reduced from +6.9 to +6.4 for Obama. The end result will be a closer. (Because Gallup just came out this RCP number has changed back to Obama +6.9)

Zogby is the first poll to come out each AM and it actually has an increase to 7.1% for Obama

The two really big polls that have the largest samples and have been around longer than the other polls are Rasmussen (+5%)(comes out at 9:30 EST) and Gallup (+11 just out). Their final numbers come out today.

The real state to watch is VA, PA, & CO. Virginia closes early at 7:00. VA – Obama’s once big lead has fallen to +3.8%.
PA shows Obama with a 7.3% lead and CO show Obama with a 5.5% lead. Obama had been falling but things have flattened in PA and CO has remained consistent throughout.

Other sizable states that matter are FL (4.2% Obama) ,  OH (4.2% for Obama) that McCain has to win. Some compilations show Obama up only 2% in FL. and there is one poll in OH that shows McCain +2.

These polls do not take into account the blizzard of McCain’s negative adds. (see below), Obama’s supposedly superior ground game, and undecided/persuadable voters .

"It’s the Economy Stupid"(part 2)

John McCain has thrown the kitchen sink of negative adds at Obama. His 527′s and far right wing media outlets are hammering Obama with guilt by association adds. Everything from a national adds on Reverend Wright to Obama causing a holocaust to Jewish and Christian voters. The McCain/Palin campaign is doing the same negative labeling – Obama as a "socialist," "palling around with Terrorists," someone you "can’t trust" to do what he says he will do.

In the past this type of fear mongering, demagoguery, and dividing Americans has been money in the bank for Bush. Actually its worked throughout history.

Obama’s focus has been on the economy and the fact that McCain voted with Bush 90% of the time. Obama has had his share of negative adds but it pales in comparison. Barack’s closing speech continues to be about unity " this is not about red states and blue states but the United States."

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +1.57% flat
NASDQ +1.32% flat
S&P500 +1.54% flat
Russell2000 +4.54% –

Headline – Amazing Rally Part 2 (again)

US Market & Foreign Markets -

Technicals – There was no one day Amazing Rally (Part 2 ) – but when you combine Thursday and Friday you get about a 4% rally on the 3 major indexes and a 9% rally in small cap stocks.

Over night Asian markets rallied Hong Kong +2, Korea (new stimulus package (+5) ) and Japan closed (for holiday?)

USVolume was basically flat and average. There was slight gains and losses. Therefore volume is not really confirming the price move. However, The fact that we held above the massive move higher early last week is an overall bullish confirmation of the move.

Small caps (Russell 2000) are leading the charge higher because they are the ones that took the biggest hit.

Fundamentals – Earnings season is winding down. Emotions have taken over trading and fundamentals do not seem to have the impact they normally do..

Historically November starts a usually very bullish period for stocks.

Elections – The markets here and across the world have probably factored in an Obama win. If the Democrats win 60 seats in the Senate or McCain wins the election you could see a radical one day move. (Lower if Dems win Senate and higher if McCain beats Obama)

Long term election results – Remember historically since 1920 stocks have done better under Democrats than Republicans. Latest example – Under Clinton the Dow went from 3,000 to 11,000 and under Bush 11,000 to 9,000 ending in a huge recession.

Outlook for the week (relatively positive) from CNBC LINK

Unemployment numbers come out on Friday and They are going to be bad.

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 rose +16.00% yesterday to an interest rate of +.435% The spread between the 3MTB (which measures investors fear) is still closing. Good news for bulls.

The lower the gap between the 3MTB and LIBOR the more it shows credit markets returning to normal. What started out as a dramatic lowering of the spread on the announcement of coordinated rescue plans throughout the world has slowed dramatically. This shows that the original euphoria that launched a 10+% rally is slowing

According to CNBC this AM LIBOR was down 0.48% last week and add another 0.17% this AM= Good news for Bulls.

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. Oil prices fell +2.80%

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 was at or near its highest levels ever early last week and is now dropping like a stone = bullish

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

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

Reading The Tea Leaves –

Best guess- traders should lock in (sell) gains at or near technical resistance levels of 9764 or 10,000 and wait for a dip to buy. Holding stocks through Tuesday is risky because of the elections according to CNBC’s Jim Cramer. Traders these resistance levels look like a time to lock in gains and wait for the next dip.

Longer term investors buy the big dips. Personally my long term investments are now 10% stocks. I am trading a lot on dips and will probably sell at 9764 or 10,000 depending on the volume figures. Breakouts through these resistance levels in big volume would be bullish and a reason to hold on to short term trades.

The fundamental that could stimulate a rally is a second stimulus package that creates more private sector jobs.

Economically, Main Street is 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 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) 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

We are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred . How bad/long 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)

* 60% to 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 the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*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 9,000 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 big 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

Welcome to the handful of new Market Updates readers!

This is NOT a typical Market Update , but a weekend election edition . Update’s usually comes out most weekdays before the market opens at 9:30 AM EST and is divided into three sections – Politics, Stocks, Long Term Outlook on investments.

Today is about polls because so many of you are interested in them and the 2012 elections are only 4 years and 2 days away. (you’ve sent lots of emails in on this -thanks). However, before the Polling #’s there is one concept about economics that is important to share AM

"When Consumers Capitulate"

Last week (Thursday) gov’t data showed a -0.3 GDP growth for the 3rd quarter ending Sept 30th. A -3.1% fall. This report contained one ominous data point that need to be illuminated. Durable goods fell -14.1% in the 3rd quarter. That’s stuff like cars, expensive metal sculpture (me) washing machines etc..

Significance/Context – The last time durable goods fell was in the 1980 recession. The 3rd quarter ended before the October stock market meltdown. We did recover some of the losses in the last week, but ended up @20% down for the month.

You can imagine the impact the stock loss is going to have on the durable goods number for the last quarter of 2008.

Our $50 to $70 trillion of unregulated Credit Default Swaps is certainly going to get impacted as fewer people buy durable goods. CDS’s cover credit cards, insurance, car loans home equity loan and other stuff like infamous sub prime mortgages.

Bottom Line – This is just the start of the recession and its going to get a whole lot worse before it gets better.

Best link for more on this is Nobel Prize winning economist who writes for NYT. Paul Krugman . Krugman like everyone is not always right, but he accurately predicted the rough economic times ahead.

Polls

How does crow taste? So far the prediction that polls were going to narrow and McCain was going to gain ground have been wrong.

In fact, Obama has been inching ahead when you consider the handful of groups that do compilations of polls over the last three days. Up from @+6.1% to about @+6.8% is a rough guesstimate.

Perhaps the best compilation site is Pollster.com because they actually have six folks who analysis of the polls. They have McCain making slight gains over the last few days. Similar sites all show a trend in the he other direction to Obama. They have Obama with a @+6.8% lead. Example TalkingPointsMemo.com (scroll down to chart +7.1%)

One fascinating item look at is how the polls looked right before the 2004 Bush/Kerry election. RealClearPolitics.com 2004 graph/compilation chart LINK or the actual poll company number s then and compare them with today’s results .

Bottom Line _ The popular vote does NOT matter and it is the electoral college that counts. Since most of the states have double digit leads in one direction or the other let’s look at the states that matter. Obama has an overall lead most of these states.

There are 5 big states that matter the most – FD,OH,PA,NC and VA. Because Obama in former Bush states actually has big double digit leads – IA and NM, and looks unbeatable in CO and NV, McCain must sweep all 5 to to win. (PA is a state Kerry won)

Not impossible,but unlikely unless there is a seismic shift in poll numbers.

PA and VA are clearly moving in McCain’s direction Obama’s double digit lead at the beginning of the week has evaporated to to@ +5%. OH has remained pretty consistent at @+5 to +6% for Obama. FD compilations of polls are about +2 to +4% for Obama. and NC about +0.5 to 2.0% for Obama. Most of these polls are now a day or two old.

If McCain takes all 5 he has a descent shot at winning since other states that are too close to call ND, MT, IN and GA will probably break his way too.

Barr

3 days before the election

Although in all the compilation of tracking polls Obama is leading by 6% and Obama actually improved slightly in the last 2 days you are going to see this lead vanish by election day.

The reasons for this is the fact hat McCain is playing hardball and Obama is not. No matter what anyone says negative campaigning works! People vote more with emotions than logic. Being dogmatic works. McCain/Palin dogmatism works. Emotions rather than logic bring people to the polls.

No matter how false – labeling Obama as a "socialist," "associates with terrorists" is an emotional response and all Obama is doing is playing defense. This generates a huge turnout in the right wing base. Comments like the one from the senator in Georgia "their bringing carloads of blacks to the polls" works. Palin even though she is totally unqualified for the job brings out the base because she is a charismatic right wing zealot.

Deja Vu all over again – Yogi Berra

Emotion and fear trumps logic and reason The Obama campaign/Democrats do not understand this. This is exactly how Bush won and the mold is not broken. Kerry ignored the impact of the Swift Boat crowd and it cost them. The exact same thing is happening now.

Obama has failed to use his biggest weapon the McCain/Keating scandal (see past Updates) and all the lobbyist surround McCain. He has failed to tie McCain to his votes causing the Credit Default Swaps market. He needed to put McCain on the defense. With the mud McCain is throwing-some of it is going to stick no matter how outrageous.

The 30 minute infomercial was a waste of time and money which should have been spent on negative adds.

Being dogmatic works in an elections and Obama got to show he can sling the mud , or a better term a fight. Taking the high road does NOT win elections.

Forget lots of these other states – defend PA which is rapidly slipping and choose one or two of the big 3 or 4 toss up states NC FD OH VA to focus on. It’s all about the electoral map and the large number of Hispanic voters that are going for Obama looks like it will make a difference in the West. NV NM and CO (these #s are actually improving for Obama), but all the other states outside the far west the lead is falling. 10 to 12 point leads in VA and PA has already been cut in 1/2 and a 6+ % lead in Ohio will change because McCain has spent the last two days there.

What Obama needs to do is map out a course that gets him 1 more electoral vote than McCain and a backup plan. Devote all you $ to that strategy in the last 3 days and go negative in your adds.

To understand tracking polls the you have to realize they are taken over the course of a few days and when the lead changes direction it is usually happens on the last day or two. There is a major shift going on in VA, PA, OH and other battle ground states to McCain. This is going show up in the national polls today and get worse.

What Obama supposedly has is a huge ground game. This will get matched by McCain’s closing momentum. So this race is now too close to call.

Barr

PS – I’ve got three decades of experience running political campaigns and if your an Obama supporter I’d be out there working for my candidate today.