Investors 411 Blog

"Too Big Not to Fail"

Bailouts of Big Insurance, Big banks, Big Financials, Big Fannie & Freddie, and now Big Autos. The problem here is in the word BIG. All these companies,industries have been deemed too big to fail without catastrophic results and you know who bails them out – YOU And you know what started this disastrous economic snowball rolling the unregulated financials full of over leveraged debt.

He’s back. Elliot Spitzer has an editorial in Slate based on the unregulated bailouts of giant financial companies that have presented NO new business plans. What we really need is smaller institutions. Do we keep bailing out the giants and/or make them part of the government. There is a different path. Spitzer – "The better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable. "

Especially with financials all we are doing is rebuilding the same edifices that have so horribly failed and helped push many other industries into failure.

Competitive Advantage

Other countries have 4 major advantages over American companies that compete with them.

1) They get government subsidies. (latest example – GE buys 5 midsize planes from China’s sponsored CACC)
2) Other developed counties have universal health care and our companies have to pay for this.
3) We have much freer trade policies than other countries. Jobs and $ are flowing out far faster than they are coming in.
4) Other countries are increasing their support for education and science while we focus on tax cuts and wars.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow -2.51% down
NASDQ -3.14% down
S&P500 -3.21% down
Russell2000 -3.14% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Major reversed the previous days gains. Volume was down. A good technical sign for bulls. Dow closed at 8376 . Dow upside resistance level is 8831 and downside support at Monday’s low @8175

Technically, bulls still have the short term momentum.
Chart of the benchmark S&P 500
Chart of the Russell 2000
Chart of the NASDQ
Chart of the Dow

Fundamentals-

Auto executive continue hearings in front of congress. This time in front of the House.

Unemployment numbers for last month are the what everyone’s watching – The expectations – 350,000 loss The results -533,000 HOLY SH_T Largest monthly loss since 1974. September revised up to 403,000. Oct. up to 320,000

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. LIBOR has fallen from 4.8% six weeks ago to @2 .2% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR is the rate banks charge each other. LIBOR has flatlined.

LIBOR chart (3 month)
Treasury Bonds

Again 3 Month Treasury Bond held steady at 0.01%. 6 Month, 2,3,5, 10 & 30 year all fell again.
Example – a 30 year Treasury Bond fell from 3.53% last week to 3.15% two days ago to 3.04% yesterday – Fundamentally BEAR’s RULE

If investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

Yields keep falling = Continued deterioration of credit market. There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Set range indicator to one month and you will see this chart has dropped to 661 – @7% loss this week on top or a 13+% loss last week – An over 90+% loss since June. This is a clear indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Balitic Dry Index chart another major concern. Oil prices fell to $43.67 a barrel – another indication of economic deterioration. Fundamentals continue to show worldwide recession growing.

Fundamentally its hard to see any extended stock rally if fundamentals keep getting worse. Technically, a short term rally seems possible.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule
Look for range between 7449 and 9654 for rest of year.

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.
It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes) when stocks have a big rally

*5%+% 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 and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold-

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 and/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 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

Hope/Obama

Second Market Updates with editorial cartoons on hope sent in by one of you will follow today.

Auto Loans/Bailouts/TARP

You can get caught robbing a bank and thrown in jail. But if you’re a bank you can take hundreds of billions of dollars from the taxpayers and not be held accountable. Now the General Accounting Office says the $750 billion taxpayer loans/bailout is not transparent and accountable .

Auto makers in front of congress today. Now concessions from Unions .

The financial institutions that created the recession by over leveraging debt created this meltdown just get money shoveled at them. No matte how you feel about the auto loan/bailout – at least there is some accountability being forced on the auto industry.

India/Pakistan

This situation is deteriorating as more evidence of Pakistan’s indirect involvement (elements within Pakistan’s military) with the terrorist group (Lashkar-e-Taiba or LET) responsible for the Mumbai and other terrorist attacks becomes evident. The Asian Times is the largest english online foreign news source for the region. Their reports show a growing knowledge of Pakistani involvement and weak leadership in India.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow +2.05% down
NASDQ +2.94% up
S&P500 +2.58% up
Russell2000 +2.70% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals

Major US markets went through a roller coaster ride and closed higher. We have made up @2/3 of Monday’s huge meltdown combining Tuesday’s and Wednesday’s gains. This technically gives the short term momentum to the bulls. Volume has been below or at average since the week began. Both up days had slightly more volume across the board than Monday’s low volume meltdown.

Analysis – The bulls are regaining short term control of the markets. Very few people are coming in off the sidelines to invest.

There was also a lot of bad economic news Wednesday. Before each report markets dropped, but when the bad news was announced markets stabilized and rallied. How markets react to news is the #2 confirmation factor behind volume. Both factors are bullish right now, even though many are on sidelines.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

Auto makers are back in front of congress today.

Monthly jobs report due out Friday. Preliminary indication that it is really bad already seems to be discounted by stock market.

England just did a major interest rate cut of 1.00% to 2.00%.
Think ECB (Europe) also did 0.75% cut – more than expected.

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. LIBOR has fallen from 4.8% six weeks ago to @2 .2% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR is the rate banks charge each other. LIBOR has flatlined

LIBOR chart (3 month)

Treasury Bonds

Again 3 Month Treasury Bond held steady at 0.01%. 6 Month, 2,3,5, 10 & 30 year all fell slightly.

If investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. The silver lining in this panic to find a safe place for money is people all over the world are choosing the USA. This is part of the $ we use for bailouts or loans.

There is simply NO confidence in the credit markets – Americans and foreigners are investing in US treasuries and paying ridiculously low interest rates.. Yields falling at all levels = a massive flight to US Treasury bonds at all levels. PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart . (If the link does not work Google – bloomberg baltic dry index)

Set range indicator to one month and you will see this chart has dropped to 672 – @6% loss this week on top or a 13+% loss last week – An over 90+% loss since June. This is a clear indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves -

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Baltic Dry Index chart another major concern.

Dow 8831 and 8923 are the two resistance levels that need to get taken out. (see chart of Dow) The Dow is now at 8591. We seemed to have established enough momentum to at least challenge these levels this week or early next week. Short term technical momentum is back with the bulls.

Mea Culpa – Thought yesterday would be a down day, but as mentioned daily predictions are minor. Watch the major (and minor) resistance levels, volume figures, and how markets react to news.

Daily forecasts/guesses are very minor and what’s important is to short the big rallies and buy the big dips. The closer you get to the low of 7449 – go long. The closer you get to 9654 – go short. The long term trend down – Bears Rule Therefore, getting close to or breaking 7449 is the place to nibble a little long. Anything close to 9000 is a place to short.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule
Look for range between 7449 and 9654 for rest of year.

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.
It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes ) when stocks have a big rally

*5%+% 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 and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold-

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 big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what 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

Auto Loans/Bailout

The major hypocrisy here is financial institutions have received trillions in loans without having to restructure, regulate or even go in front of congress (etc.) They get sweetheart deals with little to no scrutiny. Now congress deservedly is putting the auto industry through far greater scrutiny for what will probably turnout to be a relatively meager $25 billion now and more later.

The year+ long alternative of bankruptcy court is simply not an option. There is a great danger American auto companies would collapse during bankruptcy. The additional chaos it would create in the middle of the worst recession since the Great Depression would be devastating. What entity besides the Federal government (again your tax dollar) would step in bankruptcy court to try to pick up the pieces. (See past Updates)

NYT Story

Green

* As gasoline prices fall under $2.00 a gallon, now is the time to put an additional progressive tax on gasoline – Use these funds to develop alternative energy. Example oil prices below $50 a barrel = tax of $1.00 a gallon. Oil prices below $75 a barrel = $.50 a gallon tax. Lots of folks have suggested something like this.

* Green Bailouts and Stimulus could be on the way when Obama takes control.

Lashkar-i-Tabi

This is the name of the terrorist group that is behind past and probably the recent Mumbai attacks. You’re going to be hearing a lot more about this group and area of the world.

Their overall strategy is to get India and Pakistan into a war. The more the Pakistan/India relations deteriorate, the less Pakistan will focus on the terrorists in their own country. Lashkar-i-Tabi is located in Pakistan and Kashmir. Both countries have nuclear weapons.

Two of the best web sites that give information outside of standard American corporate media on this is WarInContext.org and AntiWar.com Their focus is more oriented on diplomatic solutions.

Warning – This is a Gathering Storm – Events could easily spin out of control.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow +3.31% up
NASDQ +3.70% up
S&P500 +3.99% up
Russell2000 +5.93% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals

Volume moved slightly higher as stocks regained 1/3 to 1/2 the previous days losses. 80+% of the gains happened in the last hour of trading. Technically after a big loss a recovery like yesterday’s is tantalizingly close to being called bullish. The volume was up, but not a lot and you’d like to see 50% of the losses erased. Sorry no clear technical direction has emerged and yesterday’s call " a wild swing in any direction is possible likely today and for the rest of the week". is still in place.

China was up overnight 4+%

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

Auto makers are back in front of congress and this should be the focus of the rest of the week. It’s hypocritical to focus so much attention and analysis in this area (25+ billion bailout) and so little attention to the financial sector bailout (trillions – when you count taxpayer, sovereign wealth funds Fed intervention, other countries interventions etc.) Why was there not the same scrutiny given the financial sector who unregulated Ponzi schemes caused the meltdown.

This guy John Challanger just came on CNBC and announced big increased job cuts for November . His group does a respected independent survey that forecasts the gov’t. announcement. Biggest level of unemployment in 7 years. Government job #’s come out Friday.

We focus way too much on the USA. This recession has spread to the world. Weaker and some emerging economies are going to do much worse than the USA

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. LIBOR has fallen from 4.8% six weeks ago to @2 .2% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR is the rate banks charge each other.

LIBOR chart (3 month)

Treasury Bonds

If investors are putting their money in Treasury bonds for 3 months to 30 years they are NOT investing in stocks. The silver lining in this panic to find a safe place for money is people all over the world are choosing the USA. This is part of the $ we use for bailouts or loans.

{Now using data from Yahoo financial – In part because it also lists municipal and corporate bonds.}

Most treasury bonds fell yesterday.

There is simply NO confidence in the credit markets – Americans and foreigners are investing in US treasuries and paying ridiculously low interest rates.. Yields falling at all levels = a massive flight to US Treasury bonds at all levels. PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart .

Set range indicator to one month and you will see this chart has dropped to 684 – a 4+% loss this week on top or a 13+% loss last week – An over 90+% loss since June. This is a clear indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves -

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Balitic Dry Index chart another major concern

Going Out on a Limb – Best guess – today up tomorrow down in wild swings. Was right about yesterday’s rally. Will stick by that prediction for today.

Daily forecasts/guesses are very minor and what’s important is to short the big rallies and buy the big dips. The closer you get to the low of 7449 – go long. The closer you get to 9654 – go short. The long term trend down – Bears Rule Therefore, getting close to or breaking 7449 is the place to nibble a little long. Anything close to 9000 is a place to short.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

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.

It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes ) when stocks have a big rally

*5%+% 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
FXI (China ETF)

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold

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 big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what 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

Mumbai

Obama can say I told you so – The center of terrorism is located in Afghanistan and Pakistan not Iraq.

Hopefully, India will not repeat the same mistakes the US did and over react. Still the best site/blog for information that is detailed and certainly is much more accurate in analysis than American Corporate Media is Informed Comment . You have to scroll down to Dec. 1. for India.

Green

If Spain can generate 30% of its electric power from renewable sources by 2010. Why can’t we do the same by 2020. = See Wikipedia

Deficits and the Future

Every right wing commentator and stock analyst loved to bash NTY’s Nobel Prize winning economist Paul Krugman (like other Nobel Prize winner he does make mistakes) But he was out in front of the current financial crisis. His latest editorial – LINK

Conclusion- "The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery."

"American’s Look for Next Bubble to Invest In."

The Onion headline from yesterday (above) Updates labeled the "shadow" banking system – the bubble folks were investing in last week.

In one sense the financial sector with all its toxic debt desperately needs investors. If it does not get investors the giant financials crash and the taxpayers will again have to bail them out with loans. The trouble here is who wants to invest in something that is not transparent and full of "toxic" debt.

Volatility

It’s almost impossible to recognize any trend when stocks take such huge moves. Fundamental economic factors like peak oil and globalization become less relevant in the face of a growing long term recession.

The technical series of lower lows and lower highs (on price charts) certainly is still in place creating one clear trend = Bears Rule

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow -7.70% -
NASDQ -8.95% -
S&P500 -9.93% -
Russell2000 -11.85% –

US Market & Foreign Markets

Technicals

US markets got clobbered again with another one of those major meltdowns. Volume the chief confirmation factor was below average. Friday was a 1/2 day so volume was obviously up relative to Friday.

The massive flight by Americans and foreigners to US Treasury bonds (See chart of 3MTB and other Treasury bonds listed below.) shows potential investors are willing to to put their $ in other places than stocks in some cases for a long period of time.

Still a massive sell off in weak volume means volume did NOT confirm the rally. Therefore, a wild swing in any direction is possible likely today and for the rest of the week.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

Citibank and other financials led a rally – but no other indicators followed. You can have a technical rally for so long, but if major fundamental factors don’t follow the rally will run out of steam. Too many people were putting their $ in treasuries, not stocks. There are only a very limited amount of investors out there and most folks playing the markets are short term traders.

Its official – we’ve been in a recession for a year.

Auto makers are back in front of congress asking for $ this week.

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a five weeks ago to @2 .2 LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR is the rate banks charge each other.

The 3MTB fell -50.0% yesterday and closed at a rate of 0.01% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is beyond dismal.

PANIC REIGNS in the credit markets again (check out chart)

3 MTB chart

LIBOR chart (3 month)

Treasury Bonds

All yields fell dramatically from 3 MTB to the 30 year treasury bond. If investors are putting there money here for 3 months to 30 years they are NOT investing in stocks.The silver lining in this panic to find a safe place for money is people all over the world are choosing the USA. This is part of the $ we use for bailouts or loans.

{Now using data from Yahoo financial – In part because it also lists municipal and corporate bonds.}

These is simply NO confidence in the credit markets and a massive flight to US Treasury bonds at all levels. PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg has a good interactive chart on this. You can see how this measurement of goods shipped throughout the world has dramatically dropped. Its fallen over 90% this year.

Set range indicator to one week and you will see this chart has dropped from 825 to 715 or a drop of @ 13%.. So while stocks rallied 15+% last week the amount/ price/measurment of raw goods shipped around the world fell dramatically. This is a clear further indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves – italics = same comments as yesterday.

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Balitic Dry Index chart alsois a major concern

Going Out on a Limb – Dow at 8929. We could rally some more. But, its hard to see the major 9654 resistance level fall and perhaps some of the more minor resistance levels will reverse the rally.
Start thinking to adding SHORTS (see list of ETF’s that short) to protect any long term gains you made when stocks had their last major dip. Best guess – today up tomorrow down in wild swings.

Looks like adding shorts to protect gains was the right call – However in the short term (today +) Volatility Rule. There are no logical long term positive trends. Short term traders are going to swing the market up and down.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE
Changes to Bottom Line Section Bolded

Technicals – Series of Lower Lows and Lower Highs = Bears Rule

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

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.

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (15% Longs ) when stocks rally

*5%+% 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
FXI (China ETF)

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold

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 big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what 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

Brooksley Born

Who is Brookksley Born? She was the Chair of the Federal Trade Commission in the Clinton administration.

She stood up against The Republican mantra of less regulations and bigger unregulated banks that began under Ronald Reagan. She stood up against Graham and all the Republicans who promoted fewer regulations and greater "toxic" leverage. She stood up against Summers, Rubin, and Geithner who endorsed the spreading over leveraged financial WMD’s. She stood up against Alan Greenspan and said NO.

Where is Brooksley Born? Like UN inspector Scott Ritter who accurately predicted there were no WMD’s in Iraq she is not playing a major or any role in the Obama administration. One contrarian Paul Volker does have a major role with Obama

The blog TruthDig.com has an expansive graph and video compilation of the financial crisis all the way back to the Great Depression, mostly focused on recent events. Brooksley Born is included.

Green

Some positive news and sites.

1. New ways to harness tidal energy
2. LA big new solar proposal
3. GreenChipStocks.com is an excellent site whose feature story this week is Israel going to electric cars within 10 years
4. Should TESLA (manufactures successful but $100,000+ electric car) get a bailout to produce a less expensive model?

Shadow Banks

It would be wonderful if all Obama had to do was hold a press conference and stocks would rally. To his credit he did show clarity about the financial situation.

But the hidden story of this rally is the shadow banking done by financial giants and hedge funds. Nobel Prize winner Paul Krugman first used this term – Shadow Banks – to describe unregulated institutions loaded with WMD’s of over leveraged toxic debt.

Latest market rally has been lead by Citigroup (up about 150%) and related financials.

The last Paulson/Rubin bailout/give away was incredibly favorable for them. Most major financials have two banking systems. A more normal system and a shadow banking system that is way over leveraged with toxic debt. Citigroup, the mother of all shadow banks, got the sweetheart bailout (see Friday’s update) Also, no forced regulators looking over their shoulders like in England.

Few are complaining about this because stocks are up 15%. Few complained about the tech bubble or the housing bubble either because they were making $.

Basically Obama’s boys (see Friday’s Update) like Bush’s boy’s have given a free ride to financials with no mandate or oversight to clean up their act.

We seem to be throwing dirt (money) on a leaking radioactive nuclear bomb (leveraged toxic debt) and hoping that if we throw enough dirt no radioactivity will leak out to the surface. We have to hope that the leak will not get larger or the bomb explode. Anything could cause the radioactive leak to grow from growing unemployment to international trade collapsing (See Baltic Dry Index below)

BottomLine – The public sector and the Fed is going to continue to pour money into this situation. Keep your fingers crossed. The positive side of all this is that Obama has a huge amount of international credibility and so does Obama’s economic team despite their questionable past and the current Citigroup bailout.

There is a chance that public/stock investors can keep these shadow banks afloat. If they come back for more $ nationalization and an oversight board has to be the answer.

American’s Look for Next Bubble to Invest In.

The above was a headline from the humor newspaper The Onion. – The internet bubble, the housing bubble and last week Americans began investing in the shadow banks bubble.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Another Obama Rally?
Another Obama News Conference

Index % Change Volume

Dow +1.17% down
NASDQ +0.23% down
S&P500 +0.96% down
Russell2000 +0.91% –

US Market & Foreign Markets

Technicals

US markets were open for a 1/2 day and rallied as they usually do. Volume figures are not too relevant because of the i/1 day.

Technically the volume behind the first few days of this week long rally are encouraging. Dow at 8,829. Dow 8923 is the first minor resistance level and the falling 50 day moving average a a mores significant resistance level 9244 is the next. 9654 is the major line in the sand resistance level (see chart of Dow below). The S&P 500 has a similar chart, but is a bit further away from the same type of resistance levels.

After a massive 5 day rally its time for consolidation.

Asian markets mixed and European down 2 to 3% this AM.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Obama holds a press conference on the Economy and the markets rally. (See above)

Looks like Black Friday was at least decent for stores

Credit cards may pull back $2 trillion over nest 2 years – story
Bottom Line credit cards are going to cost a lot more to use.

From Friday -Today is a 1/2 day for the markets. Historically this 1/2 day has usually been good for the markets. Also November/December are usually good months for stocks.

Three Month Treasury Bill & LIBOR

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

Real progress WAS being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a five weeks ago to @2 .17 LIBOR inched lower Wednesday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR 2.217 the AM.

The 3MTB fell from 33.3% yesterday and closed at a rate of 0.02% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is beyond dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart)

3 MTB chart

LIBOR chart (3 month)

Spread sheet listing all the Treasury bonds traders of last 15 days. This gives a broader picture of the panic or lack of panic over US financial systems. This We will use the 3 MTB as a benchmark, but notice the 1 month MTB is down to 0.02% Conflicting data in two charts. The yeild curve chart says 0.01% Very bad news.

Daily Treasury Yield Curve

Bottom Line – LIBOR (Interbank lending rate) falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. These is simply NO confidence in the credit markets. PANIC RULES

Baltic Dry Index

For Now dropping Oil, The Dollar and the VIX to focus on this Index you probably never heard of.

It is perhaps the best indicator out there to predict world wide recession

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg has a good interactive chart on this. You can see how this measurement of goods shipped throughout the world has dramatically dropped. Its fallen over 90% this year.

Set range indicator to one week and you will see this chart has dropped from 825 to 715 or a drop of @ 13%.. So while stocks rallied 15+% last week the amount/ price/measurment of raw goods shipped around the world fell dramatically. This is a clear further indication that worldwide recession is growing.

Short Term Outlook

Reading the Tea Leaves – italics = same comments as yesterday.

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Balitic Dry Index chart alsois a major concern

Going Out on a Limb – Dow at 8929. We could rally some more. But, its hard to see the major 9654 resistance level fall and perhaps some of the more minor resistance levels will reverse the rally.

Start thinking to adding SHORTS (see list of ETF’s that short) to protect any long term gains you made when stocks had their last major dip. The higher we go the more short positions become palatable.

Long term – Bears Rule Trend is still firmly in place. When it looks like the sky is falling nibble a little. Even if you think Obama can walk on water this is one hell of a mess and there is NO quick fix.

The established technical trend is Bears Rule – A long term series of lower lows (in price) and lower highs. Until this pattern is broken, Shorting (See ETF’s suggested below) as markets get closer to old highs is recommended.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line section bolded

Technicals – Series of Lower Lows and Lower Highs = Bears Rule

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

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.

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (15% Longs ) when stocks rally

*5%+% 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
FXI (China ETF)

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold

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 big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what 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