Sherod Brown – Senator from Ohio – A new major player in financial reform

Rules based vs. No rules Capitalism

The 2008 worldwide economic meltdown, cause even Alan Greenspan to realize that markets needed to be regulated. Let’s look at -

Three Major Entities in this drama.

  • Rules based companies – They create or deliver products – P&G, Chevron, Apple, UPS, GM, and even that wonderful artist who you should buy from. Sure, all companies have some sort of problems and may fudge or break the rules, but they produce and /or deliver products. Their profits are based on the products they produce, deliver and services they maintain. They use more transparent accounting.
  • Shadow based financials – They profit from leverage – A needed commodity to foster growth – AIG, BAC, Lehman Brothers, GS, & Citigroup. This is the group that got itself over leveraged because it was unregulated. Instead of being leveraged 10 to 1 (loans to cash) many in this group reached leverage near 100 to 1 using unregulated credit default swaps etc. . So when Lehman collapsed the whole  financial & economic world went with it to the brink of financial collapse. This is the group that most want no rules capitalism or “free markets.” There are, of course, smaller banks that did not get over leveraged.
  • Taxpayers – You benefit and support each group by buying their products or entering into a loan. All this is a necessary part of a growing economy. The problem enters when the profits gets privatized and the risk gets socialized you and your children  pay.  Now the Shadow banks that are fighting to stay in the shadows.

Major Political Players in Congress (for sources on lots of this see past Investors411 or OpenSecrets.org

  • Chris Dodd (Dem. CT) – head of powerful Senate financing committee. The Senate’s important because it has the filibuster/ 60 vote rule. Senator Dodd snuck in the rule that bailed out shadow banks could get their executives bonuses. Democrats on his committee have created (weak – my opinion – see past references to Simon Johnson and Baseline Senerio) legislation to try to fix unregulated shadow financials
  • Mitch McConnell (Rep) -Minority  leader of Senate. Met secretly with 25 Wall St. Shadow bank types and #1 contributor is financial institutions.  He’s trying to unify Republicans against the Dodd reform Bill.  The Republican line is “complete and deliberate misinformation.”
  • Senators Kaufman (D -DE) & Sherrod Brown (D – OH) – have a strong bill forcing the elimination/downsizing of the too big to fail banks. They have some support, including Fed governors, but not enough. Dodd holds all the strings.
  • Blanche Lincoln (D Ark) – has introduced a bill to regulate what Warren Buffett called Financial Weapons of Mass Destruction – Credit Default Swaps.

Obviously the Shadow institutions and their lobbyists want to stay in the shadows. Most taxpayers want reform. You do have a group in congress who say leaving everything alone, let them fail and bring on the second great depression.  This is all getting played out this week in congress.

Fed Governors have jumped on the  elimination/downsizing too big to fail banks bandwagon, but Dodd is a consummate political pro who is in bed with shadow financials – remember, he granted them bonuses. Most Republicans want a weak reform bill and have historically voted against regulations.  Many traders are also putting their money on/investing shadow banks by buying their stocks.

For the latest see Simon Johnson’s piece last night

Here’s my home town’s Bob Kuttner on the differences between Republicans & Democrats

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index Percentage Volume
Dow +0.63% down
NASDQ +0.44% down
S&P 500 +0.71% down
Russell 2000 +1.04% -

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

See Positions for changes made each weekend

cookie-monster-diet.jpg

Giant institutions are buying stocks on dips like the Cookie Monster eats Cookies.

Five straight rally days in a row. Markets moved higher in decreased volume. This has been a usual occurrence for stocks over the last two months. Historically, moving higher in deceased volume is indicates BEARS rule, but that’s not the trend. So we go with the trend = Bullish

You don’t need a weather forecaster to know which way the wind is blows. Even with 5 up days in a row the wind is still with the BULLS

Last Weeks Fearless Forecast – “Down Week”- Goldman Sachs, Greek debt spreading, fears of financial reform and even a volcano couldn’t hold the Cookie Monster down = Bulls Rule.

This weeks Fearless Forecast – The problem here is so many analysts see markets moving higher. Since the McClellan is not yet near oversold prediction is for an up week. Beast single reason for this call is stocks keep moving higher despite bad earnings news in giants like MSFT, AMZN and former tech darling QCOM.

Earnings reports hot and heavy this week & the Fed makes its usual announcement on Wednesday at 2:15 EST. For more see

For those interested in individual stocks here’s a list of best & worst of them who have reported earnings. Again from Seeking Alpha.

Analysis from FridayIf markets are down around noon expect the Cookie Monster to eat the cookies, vegetables and whatever is out there The Cookie Monster (huge institutions investing) stared to buy and eat stock at almost exactly noon.

Significant Indexes

  • McClellan Oscillator rose  to +19.86 Friday.  [Basically, +60 or above = Overbought = sell. -60 or below = Oversold = buy]. More sophisticated investors can use the 50 & 200 day MA’s and adjust from there. StockCharts has a better version of the McClellan chart ($NYMO) LINK. - This is  still NEUTRAL territory, but moving toward oversold.
  • US Dollar – fell a -0.30% yesterday after opening much higher. [Any move over +/- @0.50 is significant.] Mantra - right now The Dollar Rules Is very important. Remember, dollar down almost always = stocks up and visa versa. The positive earnings reports are overshadowing the dollar which is in the upper end of a consolidating range between @$80.00 & @$82.20. Dollar at $81.41. If it moves to either side of that range it will impact stocks.

Positions

The  Positions Section = latest buys and sells – (Revised positions last weekend) - These are positions I actually own

The McClellan Oscillator is NEUTRAL and moving toward overbought.  There is still a long way to go before stock are overbought (@+60). So technically there is some room for the rally to continue. However a better time to buy (less risk) or make a longer term investment is when stocks are oversold. (@ -60)

ETF Trends is a good resources for longer term Investors. I have it bookmarked. Here’s a sample on Emerging Markets

Traders will be interested in Paul R’s comments on side of blog concerning individual stocks.

Why are US stocks outperforming emerging markets?

  • They collapsed further than emerging markets and especially the financial sector.
  • There has been no reform of  the shadow financials and financials again have become becoming the dominant sector of US markets

Long Term Outlook = CAUTIOUSLY BULLISH

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

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