Trends, Politics & Economics

Banks – Is the Sky Falling?

Answer – No, but its being held up by smoke and mirror

The simple truth is, if you were to value the assets vs. the liabilities of most major banks and many smaller banks you would find that they do NOT have the collateral to back their loans.  Plane and simple – If the government (your tax dollars) paid the market price for troubled assets now these financials would go bankrupt . No assets would be left. If this happened, the whole banking sector would probably meltdown in panic. What’s more – as the unemployment figures grow this problem is going to increase.

Tim Geithner , like Paulson before him is going to take a shot at blowing the smoke and moving the mirrors today at 11:00AM EST.  The question is can he keep the banking/financial sector afloat long enough for the economy to turn positive and some of over leveraged positions become more solvent.

The ultimate answer or last line of defense to this problem that nobody wants to even take about is NATIONALIZATION .

The Bottom Line –  there is a massive shift in wealth from those who created this problem (they made truckloads of $) plus those who own the banks/financials, and you the American taxpayer who is bailing out banks to prevent an economic collapse. MAD? – smoke should be coming out your ears. The co director for The Center for Economic Research, Dean Baker makes the case Nationalization or Welfare

Obama on Stimulus

Lost count last night of the times Elkhart Indiana (middle class America) was mentioned is Obama’s stimulus speech  You can read or watch videos of the Obama’s speech at CNN – Paraphrasing his money quote – "It s only government that can break this cycle of recession."

Early review- NYT – unfortunately concludes "Odds are…even an $800 billion stimulus package will fall short of what’s needed to combat today’s downturn, and that more will be needed later. When the Obama administration asks for more, it will need to be able to make a compelling case that the first round was the best it could possibly be. It’s certainly not there yet."

#1 Progessive Voice in American Media

He’s quoted by everyone from Pelozi to Limbaugh – Nobel prize winning, NYT columnist Paul Krugman . His latest editorial "The Destructive Center"

What’s Pork?

A Bridge to Nowhere, Compensation for Filipino WW 2 Vets as part of the stimulus plan are certainly pork. But as one of you suggested does a "water park" wanted by a governor as part of the stimulus program constitute pork? Thanks for this and all your emails .

First a water Park like Disney World or a baseball park creates jobs to build the facility. Both workers and suppliers benefit. Once built it continues to create jobs for workers and revenue for products it sells (food, souvenirs, etc) It also generates tax revenue for the state.  So is a Water Park pork?   I’d certainly prefer money going to education bridges etc., but a ready to go water park in the right location (not Alaska) could create jobs jobs jobs and increased tax revenue for states.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Technicals

US stock markets held onto last weeks gains. Technically, this is a positive sign .

Troubled GE shot up like a rocket reversing most of last weeks losses.  Another positive.

Both volume and how markets react to news (our primary indicators) still show a rally building .

Secondary Indicators

Both Treasury Bonds and LIBOR have moved in a bullish direction over the last few months. The Baltic Dry Sea Index that measures the flow of goods between countries, is on fire +48% over the last 4 days and another +10% on Monday. = Big Time Short term bullish signal.

Fundamentals

Today we learn what Tres. Secretary Timothy Geithner and what he plans to do with the second 1/2 of the TARP money. (see yesterday’s comments) Can’t over emphasize the impact the importance of this plan to both financial stocks and world markets.

Dr. Doom and the Black Swan – These two guys predicted the current financial crisis. Their comments "Even if we play our cards right…it will take at least 12 months to get out of this recession." That’s the good news. For the bad news read full article on Roubini and Taleb

Short Term Outlook/Strategy

Technically signs of a rally building are about as strong as they get. Fundamentally, the stimulus package has passed the Senate and that’s a whole lot of money about to juice US economy. However, what Geithner says about allocating the the TARP money is key to any short term rally.

Oppenheimer analyst Meredith Whitney, a financial bear,  is on a winning streak and therefore the analyst that has Wall Street’s ear. If she goes thumbs down on Geithner so will the markets according to CNBC’s Jim Cramer

Bottom Line – Still no long term light at the end of the tunnel, but technical signs for the rally to continue exist.

Long Term Outlook = BEARS RULE

• On a 1 to 5 scale Bears Rule is at the bottom.
• This section rarely change s
• Changed are bolded and in plum or crossed out

Technicals - Best read of the tea leaves – 2009 Markets range bound between Dow 7449 (last year’s low) and 9654 (November 08 high )

Fundamentals – Problem in financial sector is far far far far far bigger than fist imagined. Impact of mess is going to take years to resolve.

Asset Allocation

15% to 30%+ Stocks (Depends on your level of risk) Buy/nibble the dips below 8,000 – the bigger the better.  -

Recommended Sectors

• 5%+ US Index ETF’s - UWM (Exchange Traded Fund does @ 2x what Russell 2000 does ) & QLD (does 2X what NASDQ does)
• 5%+ Emerging Markets - FXI (China ETF) & EWZ (Brazil ETF)
• 5%+ Alternative energy - GEX (alternative energy fund)
• 5%+ Gold - GLD (ETF for gold)

Chief Strategy -

Buy the dips. Use the Dow as a barometer for all of the above sectors except GLD. This is NOT your fathers buy and hold market. Under 8 years of Bush the Dow went from 11,000 to 8,000 and left a whole dung heap of economic problems.

Protect your gains – After rallies you can protect your long positions by using ETF’s that short the market. Two ETF’s that short major indexes (@ 2x the loss). These indexes go down you make money. The closer markets get to 9000 the more you think about shorting. Until the long term outlook changes this hedging strategy will remain.  Note – long positions/ETF’s  NASDQ & Russell, short positions/ETF’s S&P & Dow

• SDS – Ultra short S&P 500
• DXD – Ultra short Dow

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

We got a mountain of snow in Boston over weekend and still shoveling – so have to cut this short

Veil of Secrecy – Banks

What happened to all the $100′s of billions we gave to financials and banks? No one knows. They know less about the amount of "toxic debt most financials have. Even the #1 right wing financial channel is concerned or banks sitting on a trillion in cash AP – They still fly corporate jets.

Oh Canada

Canada added $4 billion to the American auto bailout/loan . Their $4 billion is a far bigger chunk of their GDP than our loan/bailout to American auto’s was.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Consolidation

Index % Change Volume

Dow -0.30% up

NASDQ +0.70% up

S&P500 +0.29% up

Russell2000 +1.48% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Friday, was what they calla "triple witching" day where options expire and there is almost always a lot of trading. Markets were basically flat.

The shorter term mojo is still with the bulls until stock’s close below their opening price on last Tuesday. This area just above 8500 held for three days in a row (last Friday, Mon. and Tues.) and is a short term support level.

Dow now at 8579 with the first resistance level at 9026 and major resistance at 9654. The Technical aspect of US equities has been very solid since the late November lows. Short term the momentum is still with the bulls . Downside support level just above 8500 is in danger of falling. Today’s test of this level is relevant to the Santa Clause/Obama rally continuing.

Chartof the benchmark S&P 500

Chartof the Russell 2000

Chartof the NASDQ

Chartof the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Auto Bailout/loan is now history.

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 is being made. LIBOR has fallen from 4.8% two months ago to about 1.46% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month has basically flatlined at 0.01% 6 month fell slightly and longer term rose yeilds rose slightly. Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.08% for a ten year treasury bond.

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.

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.

BDI fall more than -1% yesterday to 818 . We have had a significant rally off the lows of @660 in the last week. However, The BDI had seen an 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Dollar Falling

Wild ride over the last three weeks- especially last week. Basically, the dollar has gone from a high of $88 to low of $78 and at the end of the last two days setteled at $81. Chart of the dollar .

The dollar is falling because of the low US interest rates and it looks like the Fed will bee printing a whole lot of $ to keep the financial system liquid.

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. Long term stock rallies simply do not have the money supply to exist as long as the credit panic continues.

Dow 8500 is the technical support level that’s closest and 9000 is the upside resistance level.

Historically the markets turn before the economy, however fundamentally its hard to see signs of any long term economic turn,

Hedges

Definition of hedges .

As I’ve discussed with many of you, personally I am long (bought lots of) FXI (the China ETF) and I’m hedging it with a short position in US equities – SDS or others listed below. The higher FXI gets the more I hedge. The lower it goes the less I hedge.

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. Obama/stimulus rally part 2 seems to be taking hold . Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial transparency problem 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 to 25+% 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 huge 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

Last Update for week – No Updates Thursday through Monday

Auto Loan/Bailout – Green Technology

News headline – Bush to appoint Car Industry Czar in tentative short term $15 billion auto loan compromise. If some technology innovator and business person like Bill Gates or Steve Jobs got the Czar job I’d enthusiastically jump up and down in support of the package.

Tom Friedman has an editorial in today’s NYT that mirrors a lot of the concepts in this section yesterday. He focuses on "Project Better Place " (PBP is often cited in Updates) that is working to build an electric car network in different countries across the world (Hawaii just agreed to participate). TF editorial "While Detroit Slept ."

One interesting fact is that GM refused to participate in this network, instead Nissan and Renault are producing their electric cars.

"Financial Thunderdome"

Best term (from old Mel Gibson movie) used by some TV personality to describe the shadow financial system and that is being protected by the Cheney/Bush government. Absolutely still no transparency. They forced about 10 major financial institutions to take bailout money and we have no idea of the solvency of any of them. The exception, of course, is Citigroup who has been given $45 billion plus another $300 billion in probable loans.

Fixing American Foreign Policy – A huge task

By almost every metric our foreign policy has been a disaster over the last eight years. First step – list some of the major problems besides 911 occurring and Osama Been Forgotten.

1) Our position as leader of the free world has been greatly diminished.
2) A far more powerful and still dictatorial China , a less democratic and far more confrontational Russia, and petro dictators have all grown in power.
3) We have created a factory that fosters terrorism by occupying Iraq.
4) Radical terrorist groups Hamas and Hezbolah and others have gained power.
5) After initial success in Afghanistan/Pakistan the situation has deteriorated.
6) Americans and the world have been divided by Cheney/Bush into "you’re either with us or against us" and our fundamental democratic right greatly diminished
7) American "exceptionalism"/arrogance (see earlier updates this week) has blinded us to the reality of the world
Saddam is gone, but the 3rd most corrupt gov’t in the world now rules which is closely tied to Iran – cost a staggering $3 trillion dollars and horrible human toll when all factors are considered.
9) Iran’s power and influence have increased.
10) Fear mongering instead of rationalism rules foreign policy.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow -2.72% down
NASDQ -1.55% -
S&P500 -2.31% down
Russell2000 -3.26% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Technical signs continue to favor the bulls as the markets retreated in declining volume. Both the amount of the fall and the amount of volume was less than the previous few rally days. The fact that the markets have moved higher despite some really bad news is also bullish. Simply by looking at technical signs the "Obama" rally seems to have legs. Investors are not stepping in to buy, but short term traders are moving this market.

The line in the sand number is 9654 – the November high. (see charts – these numbers are presented in rectangles)

Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama Rally = A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

This market is trading on momentum. It seems to have factored in the horrible earnings results and all the warnings that are coming out of companies. We could see a -4% GDP growth for the last quarter. The positive that traders are focused on is that all the stimulus will work. Markets tend to look six month in advance. Six months from now folks are expecting thing to improve.

If the $15 billion dollar auto deal in congress does NOT pass you are probably going to see stocks fall dramatically.

CAUTION – There is very little volume behind the rally. Few are jumping in off the sidelines. The closer stocks get to 9654 resistance level, the more protection (shorts) of long positions is recommended. This is to protect any gains made from buying on the dips. But for now it looks like a rally is in the works.

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 .17% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses.

LIBOR chart (3 month)
Treasury Bonds

All the yields fell except the 6 month.
By no means are we out of the woods, – Fundamentally BEAR’s RULE

Fearful 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.

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.

BDI rose again over +1% yesterday to 679. Two days in a row of small gains. The BDI has seen an over 90+% loss since June. This is a clear indication that worldwide recession is growing. Best hope is that this index is finally reached a bottom.

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. Low oil prices are another indication of growing recession Fundamentals continue to show worldwide recession growing.

Technically, a short term rally is likely. Stocks moving higher on extremely bad news (unemployment report) is a very bullish sign. This right now this s a momentum trade based on stimulus being pumped into the system.

Personally – Will be adding some more ETF’s that short US indexes if rally continues . Right now still hold more long positions than short positions.

CAUTION: If a monkey wrench is thrown into the stimulus being offered – like NO auto bailout/loan happens could fall dramatically impact markets.

Old Wall Street expression "Buy the Rumor and Sell the News" – Right now the rumor/hope is in Obama and the news/reality would be his inauguration. Obviously most people (even many right wingers) believe he is far more competent and less political than Cheney/Bush. The caution here is we have a huge "shadow" financial system, housing prices falling, a world wide recession and a huge amount of debt.

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. Obama/stimulus rally part 2 seems to be taking hold.
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 15-20% 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

Art show at end of week – No Updates Thursday through Monday

Auto Loan/Bailout – Green Technology

The new technology of the future is going to be based around alternative energy. Countries like Spain (30% renewable energy by 2010), Israel (plans to use use almost all electric cars in 10 years) etc. have already made major commitments to this new technology. It’s unpardonable to see so many solar, wind, and other forms of alternative energy companies based or move overseas.

We are more dependent on cars than most every other nation. We send 100′s of billions to petro dictators every year because of our dependency. The future is hybrid, electric even solar cars. Yet this massive and new technology will probably continue to be produced in other countries. Just like oil we will have to import this technology will have to be imported Japan, China, Europe and other countries. We led the internet revolution and the next recognizable major technology shift is going to be led by countries outside the USA.

Perhaps we are just too fat, arrogant, politically polarized, to make a difference any more. However right now Green technology is leaving the USA. We need American companies, including car companies that can innovate and compete with foreign manufacturers.

Three Reagan Ideas That Need to Die

Francis Fukuyama is a well known former neocon who has become a realist. Like Alan Greenspan who admitted he was wrong about unregulated free markets, Fukuyama admitted his errors and is offering alternative solutions. He list the 3 ideas that need to be "reformulated or discarded."

1) The belief that the enormous "shadow" financial market could regulate itself. (Greenspan’s false premise)
2) Tax cuts would always be self financing – these cuts led to growing deficits
3) Overwhelming US military dominance would lead to the collapse of all American enemies.

Too many on the far right are caught up in emotionalism, fear mongering and American "exceptionalism." (see yesterday’s update) to change. But there are folks like Greenspan and Fukuyama that are willing to admit mistakes and look for solutions.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama/Santa Clause Rally

Index % Change Volume

Dow +3.46% up
NASDQ +4.14% up
S&P500 +3.85% up
Russell2000 +4.40% --

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Some resistance levels fell and stocks again staged a major rally in volume that was slightly higher than the day before. We’re not getting the major spike higher you’d like to see when markets move higher, but any increase is better than none. Technicals are showing that this rally could continue. Dow at 8937. The 50 day moving average resistance level is at 8941 and falling. 9000 is another minor resistance level.

The line in the sand number is 9654 – the November high. (see charts – these numbers are presented in rectangles)

Major rally even though unemployment numbers were extremely bad. Rallies on bad economic news = Bull Rule the short term momentum . Again, volume was only slightly higher and therefore did not really confirm the rally.
Chart of the benchmark S&P 500
Chart of the Russell 2000
Chart of the NASDQ
Chart of the Dow

Fundamentals-

This market is trading on momentum. It seems to have factored in the horrible earnings results and all the warnings that are coming out of companies. We could see a -4% GDP growth for the last quarter. The positive that traders are focused on is that all the stimulus will work. Markets tend to look six month in advance. Six months from now folks are expecting thing to improve.

If the $15 billion dollar auto deal in congress does NOT pass you are probably going to see stocks fall dramatically.

CAUTION – There is very little volume behind the rally. Few are jumping in off the sidelines. The closer stocks get to 9654 resistance level, the more protection (shorts) of long positions is recommended. But for now it looks like a rally is in the works.

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 .17% 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 rose to to 0.03%. Most of the 2,3,5, 10 & 30 year Treasury Bonds also rose.
By no means are we out of the woods, but the trend has turned for the last two days – 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.

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.

BDI actually rose over +1% yesterday to 671. The BDI has seen an over 90+% loss since June. This is a clear indication that worldwide recession is growing. Best hope is that this index is finally reached a bottom.

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. Low oil prices are another indication of growing recession Fundamentals continue to show worldwide recession growing.

Prices in the BDI & the 3MTB, as well as oil have moved higher in the last two days. A small move in the right direction.

Technically, a short term rally is likely. Stocks moving higher on extremely bad news (unemployment report) is a very bullish sign. This right now this s a momentum trade based on stimulus being pumped into the system.

Personally – Will be adding some ETF’s that short US indexes now and more into any rally. Right now still hold more long positions than short positions.

CAUTION : If a monkey wrench is thrown into the stimulus being offered – like NO auto bailout/loan happens could fall dramatically impact markets.

Favorite Investment

China – They have a budget surplus, A huge stimulus package (relative to GDP) and if the USA is going to improve so will China. Over the course of the next year they seem to be in a more favorable position. Also technically ETF for china FXI is far closer to breakout from its November high of 28.00. FXI now at 27.83. See chart .

China FXI did break out of its trading pattern and rose +8.8% yesterday.

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. Obama/stimulus rally part 2 seems o be taking hold.
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- 20% 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

Citigroup Debacle/Bailout

Why is Citigroup getting such a favorable deal in their 2 bailouts? – $45 billion plus a 300+ billion guarantee against bad loads (CDS’s).

No restructuring.
No new business plan.
No executive jobs lost.
No one held accountable.

AIG, Fannie & Freddie didn’t get this kind of sweetheart deal and relatively the auto industry is being raked over the coals for their bailout. John Podesta, the head of Obama’s transition team says Citi should be held "accountable "

A firestorm of controversy has erupted. On the surface Bush’s Secretary of Treasury Paulson looks like he’s giving sweetheart deals to his fellow bankers. (Paulson former CEO of Goldman Sachs.) He is. These were the crooks or idiots who got us into this whole mess in the first place.

But if you look beneath the surface the major players of the newly appointed Obama Economic team are up to their eyeballs in this mess.

Robert Rubin, who sat directly next to Obama when his first economic advisory group was announced is directly involved in the Citi sweetheart give away. Rubin was Clinton’s former Sec. of Treasury and the mentor for both Larry Summers and Tom Geithner. They hold the #1 and #2 positions in Obama’s new economic team. Rubin also holds a major post on Citigroup’s Board of directors – pay $15 million a year

• Both Summers and Rubin endorsed moves that allowed Citi and so many others to merge and become "too big to fail."
• Summers (Rubin’s protegee) endorsed and fostered the Credit Default Swaps and leverage schemes that are the root causes of the credit crisis.
• Geithner who Rubin supported for his post at NY Fed was supposed to oversee Citigroup a NY bank.
• Rubin talked directly to Paulson about the bailout of Citigroup, who has paid him $107 million over the years.

This is a blatant case of the foxes guarding the hen house. The Feathers are Freshly Falling From Feeding Foxes.

From the right a slash and burn by NY Post "Bounce These Bozo’s "
From the left a more responsible attack on Rubin and friends "Obama chooses Wall Street over Main Street "
From NYT’s Tom Friedman a broader explanation of the Citigroup failure and the breakdown of almost every level of the financial chain "All Fall Down ."

These giant monopolies that are too big to fail need to get broken up into pieces that can fail and do not require a taxpayer bailouts to survive. What’s happened to accountahbiltilty? Will Obama’s team institute the right regulations to govern financials? Time will tell if Citi & others will be held accountable, but right now the foxes are feeding.

We all hope Obama will bring change on January 20th. About the best you can say is Rubin does not have a major formal post on Obama’s team and there is opposition within Obama’s administration.

NB – Ex Fed Chair Paul Volker was put in charge of another Obama Economic committee. Volker is a great choice unlike the foxes involved in the Citi debacle.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Another Obama Rally

Index % Change Volume

Dow +2.91% down
NASDQ +4.60% down
S&P500 +3.27% down
Russell2000 +5.79% –

US Market & Foreign Markets

Technicals

Big rally in light reduced volume. Volume did NOT confirm the move higher.

Technically the volume behind the first few days of the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9287 is the next. 9654 is the major resistance level (see chart of Dow below).

India markets gained almost 1% despite terrorist attack in Mumbai.

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.

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 0.10% yesterday and closed at a rate of 0.05% 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% Not good.

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

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

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

Best guess – Rally looks to have legs to take out some minor resistance levels. We did take out some minor resistance levels Wednesday and historically today’s 1/2 day is usually positive. 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.

Going Out on a Limb – We will probably move higher in the short term. Dow at 8726. But, its hard to see the major 9654 resistance level fall and perhaps some of the more minor resistance levels will reverse the rally.

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.

*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 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

Turkey’s of the Year (Decade?)

This elicited a whole bunch of email responses from you – Thanks for the email. More economic TURKEY’S OF THE DECADE – from you

1. Most mentioned – 911 "Bush was caught with his pants down and stocks went up in flames."
2. The housing bubble
3. The internet bubble
4. The growing gap between rich and poor
5. Katrina’s "economic and human devastation"
6. Bailouts – "The $6 trillion amounts to $24,000 for every citizen" (bailouts = tax dollars, sovereign wealth funds, takeovers, mergers, & biggest – Fed printing $)
7. Trying to privatize Social Security and not fixing other future unfunded mandates.
8. Alan Greenspan and the Fed

Bailouts and Stimulus

Many of you are extremely frustrated at the way government and the Fed is dishing out the dough. – You should be – We failed to properly regulate the credit system and now we and our children will be paying for it.

First it is important to remember that the Fed is NOT a government agency, but a group of banks that work with the government .

The main rational behind these bailouts and stimulus packages is at the start of the Great Depression President Herbert Hoover did nothing and banks collapsed left and right. This and the lack of stimulus caused/intensified the Great Depression. Roosevelt took many actions that diminished the Great Depression and the ultimate public works/jobs program – WW 2 ended the Great Depression. The Bush and Obama administration are trying to prevent another Great Depression.

Not All Stimulus Packages Have the Same Impact.

1. Tax Cuts – Across the board tax cuts obviously benefit the wealthy more than everyone else (see countless past Updates). They do have a positive impact – the middle class goes out and spends the tax cut money and that stimulates the economy. During war you are supposed to increase taxes. During good economic times you are supposed to decrease deficits.
2. Rebate Checks – This is a one time tax cut and has the same stimulative impact. Great positive impact for politician who voted to give you money.
3. A Jobs Based Stimulus Program – Hopefully, Obama Stimulus Package – This is as close as you get to consensus among Economists.

According to a Univ.of MD. prof on ABC when you give a taxpayer cash he/she goes out and spends it and stimulates the economy. Not always the case with wealth individuals, but this economist put the true value of money given by the government at $125 for every $100 given. However, if you create a job, the true value of the same $100 dollars given becomes $325. – The worker builds a bridge and it has a much larger ripple effect from subcontractors getting payed, commodities being used to the fact that transportation flows better over the new bridge.

Economists might differ on the figure, but JOB creation is far more important economically than giving you your tax dollars. A second factor in this – unemployment compensation and lack of tax revenue from a jobless person. This increases the burden on those who hold jobs/pay taxes. Example auto makers and related industries loose their jobs it ends up costing you $200 billion in unemployment compensation, aid to the states involved & lost tax revenue. (see past Updates.)

(More to come on this)

Note #1 – The big downside of all stimulus and bailout plans is it adds to the deficit and/or long term inflation.

Note #2 – The only entity betting on America is YOU (the government/taxpayer) – If this all works we actually make money on all these loans. We need luck, new paradigms, new regulations, and enough people to believe Obama can walk on water to pull it off.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Happy Thanksgiving!

Index % Change Volume

Dow +0.43% down
NASDQ -0.50% down
S&P500 +0.66% down
Russell2000 +1.46% –

US Market & Foreign Markets

Technicals

US markets held onto their huge gains of the previous days yesterday and the benchmark Dow inched forward. Holding onto gains is a technical bullish sign.

Technically the volume behind the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9337 is the next. 9654 is the major resistance level (see chart of Dow below) There is also a technical resistance level at around 8550 to 8600. This is the midpoint between the last high and low of the Dow. If you want to learn more about this 50% technical retracement theory (Fibonacci retracement ) being a resistance level.

What resistance levels are barriers that hinder the movement of prices going higher. They are called support levels as prices move down.

What needs to happen is for us to break the series of lower highs and lower lows that began over a year ago. Dow 9654 is that line in the sand.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Jobs data is going to get worse and this in the short and long term will drag markets down. This economic downturn is going to get worse before it gets better.

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 four weeks+ ago to @2 .20. LIBOR inched higher yesterday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses.

The 3MTB fell from 0.13% yesterday and closed at a rate of 0.10% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is still dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart) It eased a bit last two days

3 MTB chart

LIBOR chart (3 month)

New added 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 0.04% Not good.

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. But by no means is credit back to normal.

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

Reading the Tea Leaves – italics = same comments as yesterday

Overall strategy remains in place – buy big dips, sell of short into major rallies. The current two day rally, while impressive has a ways to go before reaching a major resistance level (see above) The rally has a strong base (big volume) to build on.

Remember, more often than not new lows are tested

Short term – We are nearing the midway point of the technical trading range and this is often a resistance area. We do have at least a bear market rally that seems to be based on a more competent administration solving the greatest financial crisis since the Great Depression.

Best guess – Rally looks to have legs to take out some minor resistance levels.

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.

NB – Will be adding GLD (gold) on dips to recommended sector. (More Later) Technically its chart has broken out of a trading pattern and fundamentally investors are thinking of it as a hedge against inflation. Market Updates held GLD for years and its time to bring it back.

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 beginning to looks like the recession might 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.

*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 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

Turkey’s of the Year (Decade?)

In honor of the upcoming Thanksgiving holiday – there have been two major blunders that easily qualify for Turkey of the year and also could make it into the top five economic blunders of the decade.

1. Failure to Bailout Lehman Brothers – This spread $365 billion dollars of toxic debt (credit default swaps) throughout the world and shook financial markets to the core.
2. The Paulson Bit and Switch – We were told that the financial system would meltdown unless we spent $750 billion to take "toxic debt" out of the financial system. Instead the money was used to bailout financial companies History will tell if this was the right move. However bait and switch destroyed any credibility that investors had that the Treasury and the Fed knew what they were doing or had some sort of coherent long term plan.

Three major economic blunders of the last decade do overshadow this.

1. The massive growth of the unregulated and over leveraged credit in the USA
2. The huge growth of Federal and trade deficits.
3. An unnecessary "for profit" (Iraq) war that will end up costing tax payers $3 trillion dollars.

Citigroup’s Second Bailout

Obviously, some sort of bailout was needed or else the mother of all financial company’s meltdown would have caused financial markets across the world crash and burn. You (your tax dollar) have again bailed out and international company. Remaining questions:

1. Citi still has an unknown and huge amount of over leveraged debt. Will they need another bailout?
2. What other major banks and companies that traded CDS’s will need bailouts.
3. Where is the transparency? Where’s the plan that this failed company is going to have for the future?
4. Why did Warren Buffett get a better deal than US taxpayers?

Some decent editorials with more positives and negatives -
Another Crisis, Another Guarantee NYT
Citigroup Flop Exposes Folly of Empire- Building Bloomberg
Thumbs Up For Citigroup Bailout WSJ

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow +4.93% down
NASDQ +6.33% down
S&P500 +6.47% down
Russell2000 +7.44%–

US Market & Foreign Markets

Technicals

As predicted. the Dow support levels fell and all major US markets made a lower lows last week. (see charts) We have had a very significant two day "Obama" rebound The two day rally has had strong volume behind it. Therefore volume confirmed the move higher and we could see the rally get extended.

Technically the volume behind the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9337 is the next. 9654 is the major resistance level (see chart of Dow below)

What needs to happen is for us to break the series of lower highs and lower lows that began over a year ago. Dow 9654 is that line in the sand.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Obama rally – In the last 1/2 hour of Friday US markets staged a major rally on the news that NY Fed Chair Tim Geithner would become Treasury Secretary. News that Obama’s news stimulus package would be bigger than expected, the announcement of his economic team, and another bailout for Citigroup added fuel to the rally.

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 four weeks+ ago to @2 .17. LIBOR inched down yesterday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses.

The 3MTB bounced back some from 0.02% yesterday and closed at a rate of 0.13% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is still dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart) It eased a bit last two days

3 MTB chart

LIBOR chart (3 month)

New added 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 0.01% Not good.

Daily Treasury Yield Curve

Bottom Line – LIBOR falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. But by no means is credit back to normal.

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

Reading the Tea Leaves – From last update – "Perhaps this week, maybe next week, maybe later but the major Dow support levels (8000 or 7800) are in trouble" The support levels did fall last week to 7449

Dow rebounded inhuge rally. Dow at 8443 – a little less that 1/2 way back toward the major resistance level at @ 9650 We have a another 500 points on the upside before we reach the first resistance level.

Overall strategy remains in place – buy big dips, sell of short into major rallies. The current two day rally, while impressive has a ways to go before reaching a resistance level (see above) The rally has a strong base (big volume) to build on. Remember, more often than not new lows are tested

Short term – We are nearing the midway point of the technical trading range and this is often a resistance area. We do have at least a bear market rally that seems to be based on a more competent administration solving the greatest financial crisis since the Great Depression.

Best guess – Rally looks to have legs to take out some minor resistance levels.

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.

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. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Hopes of a more competent Obama administration have rallied stocks.

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 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY.

*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)

*10%+ 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) (If Obama wins you will see this sector flourish)

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,000 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

Big week in local politics and an art show = very few Market Updates this week

Duck and Cover

Taking Your Job, Your Home, & Your Money

Aside – Note well the correlation between falling stock and home prices. As stock prices fall investors have less money to buy homes and fewer homes get sold. Also the more unemployment rises the greater the foreclosure rate and stocks get toasted too. All three are tied together.

July & October 2007 Dow goes over 14,000 – Then -

1. Investors slowly began to realize that the goose that had laid the golden eggs has died and the housing bubble has burst.
2. Slowly again investors realized there were "Financial WMD’s" (Warren Buffett’s words for Credit Default Swaps – CDS) out there deeply over leveraging the subprime mortgages.
3. Next we learned the unregulated $50 to $70 trillion CDS market involved not only on mortgages, but everything from car loans to credit cards.

The FIX is in as Dow falls to @11,000

The Fed Prints money, Sovereign Wealth Funds buy, Mergers, Your bailout tax dollars, Lower interest rates and a whole lot more occurs globally to fix the housing and unregulated CDS problems

One Big hole in the Dike.

Opps, Nobody comes to the rescue of Lehman Brothers and the 4th largest investment bank goes into bankruptcy. They are so loaded with WMD’s or CDS’s that Lehman Brother’s bond is only worth 8.675 cents on the dollar. LINK $365 billion of over leveraged debt (CDS) is released throughout the world. Immediately London goes limit down (8.9) before stocks open in mid October. Two days after the dust clears the Dow looses about @ 900 points. Investors still believe that the $750 taxpayer bailout will take toxic debt out of system.

Bait and Switch Taxpayer Bailout

Secretary of Treasury Paulson instead of using money as intended to take toxic debt out of the system gives it to mostly big banks. There is no oversight, little transparency in this move which oversteps Paulson’s authority. The banks hoard the $ instead of making new loans. Even Barney Frank who should be and busting blood vessels screaming about this, is just saying "this is not what we intended this money to go for." Brain dead american public/media is busy watch pretty pictures of Obama family and following Brittany Spears Sarah Palin adventures.

Why is there so little objection to Paulson’s probobly criminal move? Probably because without the infusion of your tax dollars (bailout money) these financial stocks would crash and burn because they are loaded with CDS’s. This would send stocks into a massive fall and the 8,000 Dow technical support level would now be a cinder.

Last two weeks – Dow fall @ 12+% from its high

Three HUGE companies that lead three major sectors of the economy are slammed. They all have one thing in common. They are loaded with financial WMD’s of CDS’s.

1. GE – chart falls @25% twice what the Dow fell in last two weeks. GE Financial is loaded with CDS’s or WMD’s
2. Citigoup – chart falls @35% The mega bank loaded with CDS’s announces 40,000 jobs cuts today
3. GM – chart falls over 50%. GMAC – their financial division is loaded with CDS’a or WMD’s. Will the entire auto sector go bankrupt like Lehman Brothers?

Jim Cramer (CNBC Mad Money Friday night) computes that Lehman’s Brothers bankruptcy cost the Dow about 15% and a GM bankruptcy would cost the Dow down another 30%.

Would you lend money to any of these companies? Warren Buffett loaned billions to GE, but since then their stock is down @35%

Fear Returns to Credit Market

See LIBOR and 3 Month Treasury Bill commentary below.

Standing on the Edge of a Cliff

Bottom Line – We’re standing on the edge of a cliff. Technically we are @500 points away from the last line in the sand support level for the Dow at 8,000. There s one ledge on the cliff that says nasty long recession. The abyss is a depression.

This is not the time to be Long Stocks, unless you have short positions that protect these long positions. There are just too many things that have to go right for us to fundamentally hold the 8,000 support level. Who were the institution(s) that bought the last time at 8,000. one totally wild proposition is the Treasury or the Fed somehow stepped in and bought or encouraged (twisted arms) institutions to buy at Dow 8,000.

Please somebody talk me down from the edge. Till then BEARS RULE and at some point in time the 8,000 support level will collapse. Housing will continue to decline. Even if Obama can walk on water (he can’t) his administration is two months away. The worst is yet to come.

I know I’m sounding like Dr Doom, (Nouriel Roubini) so let me put the icing on this dark cake. Scroll down a little and look at this chart of consumer spending since 1993 to present.

When we fall which ledge will we hit?

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -3.82% down
NASDQ -5.00% down
S&P500 -4.17% down
Russell2000 -7.07% –

Headline

US Market & Foreign Markets

Technicals

[From Friday -"Yesterday's rally was all about the technical aspects of the market and had little to do with fundamentals."]

About 2/3 of Thursday’s gains were wiped out (in lower volume) = Bad news for Bulls – Benchmark Dow down 5% for week.

Asia closes slightly higher overnight. China leads up + 2.22%

Futures on the Dow down about -2% at 9:00 AM EST.
Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

See above editorial.

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 three weeks ago to 2 .24. However, The last four days the LIBOR has started to rise again. This rise is accelerated. NOT good news for Bulls

LIBOR at ___? this AM. # comes out at 9:00AM EST.

The 3MTB fell -31.58% yesterday and closed at 0.130% The Fed rate is 1.00% The rally is good news, but it is well below the 0.20% support level. A normal 3MTB would be just under the Fed rate.

Sure looks like PANIC is starting to envelop the credit markets again

3 MTB chart

LIBOR chart (3 month)

Bottom Line – LIBOR falling helps Main Street’s – Credit cards to adjustable mortgage rates are tied to LIBOR. But by no means is credit back to normal.

OIL

Chart of oil (WTIC)

The Dollar

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

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX
Short Term Outlook
= NASDQ broke support and closed at a new low. Other major indexes within 2% of closing lows

[Repeat] The overall problem that America has is consumers and government are over leveraged. American’s have borrowed and spent their way into massive debt.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

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 8000 and 10,000 for rest of year. Very concerned 8000 Support level will not hold.
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) Wait for the next big dip to add 5 to 10% PROTECT ANY LONG POSITIONS .

*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)

*10%+ 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) (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 – Long term traders should use these ETF’s when markets get close to major resistance levels.

TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing