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Elections, Economics & YOUR Stocks

Elections

What polls predicted happened, with a few surprises. Harry Reid won.  Dems did better than expected in Senate and Reps. did better than expected in House.

Personally, great sadness over heroic Russ Feingold’s loss – He was the NOT in any way owned by the PUKE Green Party. (see yesterday’s Investors411.) The PUKE Green/Shadow Institutions won hands down. I’d trade Feingold for Reid or just about every other senator out there.

  • Gridlock – The House will come up with proposals for cutting. Each cut has a specific constituency. That’s a negative for a congress person that has to be specific about cuts. The Tea Party now has to get specific.
  • Obama does have a bipartisan commission on cuts and taxes that’s going public in Jan (I think). This could make a difference and something Obama would/might follow.

Economics

The US economy is in shambles – if you consider negative GDP growth shambles and it doesn’t look like a recovery any time soon. Economists are going to be all over the map on this so I’m using a relative moderate Mark Zandi from Moodey’s Analytic (see yesterday’s Investors411, Zandi – $500 billion in QE = 250,000 jobs and o.3% of GDP).

The +2%GDP growth last quarter has to factor in a lot of stimulus that the far right hates.

  • If you add the $1.7 trillion from QE 1 it equals about +1% of GDP (using Zandi’s math – see above)
  • The non partisan CBO says the Obama stimulus added about +1.7 to +4.5 real GDP growth in the second quarter. Let’s divide the total in 1/2 = 3.1% GDP growth was due to Obama stimulus.
  • 1% from QE1 + 3.1 from Obama Stimulus = +4.1% of USA GDP was enhanced by Obama & the Fed. That’s also a whole lot of jobs.
  • I’m not gong to add another factor – The UNaudited Fed makes other 0% loans to who knows how many shadow banks. But this also juices GDP.
  • Therefore, real GDP 2% total – 4.1% enhanced from Fed & Obama= -2.1% GDP for the USA last quarter without the FED & Obama (Remember, I’m playing with ballpark numbers, but if you add in the unaudited Fed loans I’ll bet our situation is  far worse.)

The Vampire Squids at Goldman Sachs think we need $4 trillion more in quantitative easing. That’s how bad GS thinks the economy is.

Elections plus Economics.

Rodney Dangerfield/BarakObama gets no respect for keeping us afloat but its the future thats more important. Here’s the problem. Without stimulus we have at least a -2% probably -3% GDP growth. This kind of negative growth would hemorrhage jobs.

The Republicans who are taking over, especially the more radical Tea Party radicals hate every form of stimulus from QE 1 to the Obama Stimulus. They are going to scream bloody murder and want to cut.

  • The Obama stimulus is almost all over so all we have now to foster growth is QE 2.
  • QE2 may start out small,but it is going to have to be massive to fix the US economically.
  • Obama & congress did pass a small business jobs bill a month ago that will help.

Stocks

Unstimulated GDP growth is negative, Obama stimulus about over, The US consumer is saving more, the foreclosure mess is far from over and globalization is sending jobs overseas (Big thanks to Robert H who discovered INTC has just opened a billion dollar factory in Vietnam – see comments section of blog)

For the economy - We’re in a hole that should get deeper and deeper. Now only quantitative easing (QE2) is there to help.

Prediction – GDP growth depends on how large QE 2 turns out to be. Think +0.6% GDP  for every trillion of QE.  Getting to a 4/5% GDP growth to bring down unemploynent seem mighty hard.

For stocks - We’re going to need a lot of quantitative easing to keep the USA’s economic  head above water. That means a lower dollar and stocks moving higher despite a rotten economic picture nationally = bullish for stocks



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!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

Index Percentage Volume
Dow +0.58% flat
NASDQ +1.14% down
S&P +0.78% up
Russell 2000 +2.05% -

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

US Stock Markets -

Dollar took a significant hit, so stocks rallied yesterday. The dollar is dangerously close to its support level. If that falls, and the chances of that happening are growing, the stock rally should have legs.

Significant Indexes

  • The Dollar (USD) [Anything daily price move over +/- 0.50 is significant. Dollar usually moves inversely to stocks] The dollar fell a significant -0.74% yesterday. Dollar currently moving within a range (see below). Now close to breaking down through support levels of consolidation range. Another fall like yesterday’s and support breaks. Trend for stocks = Neutral/Bullish
  • The Baltic Dry Index (BDI) [measures cost of world trade. Also proxy for China, emerging markets, exporting countries]Fell a -1.81% yesterday. BDI now consolidating after bull run that began in June. The BDI has been overshadowed by the dollar moves. @another 4% drop to support level and change to bearish. Longer term Pattern now= Neutral
  • McClellan Index – (MO) [The rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks.] Basically flat closed at +6.37% yesterday. Six week trend (see chart) is starting looking bearish but location still = NEUTRAL

Reading Tea Leaves.

Again Mantra for last two weeks -Any move in UUP (tracking ETF for dollar) above 22.7 resistance is trouble for stocks. Any move below 22.18 support level is good for stocks. A breakout of either the support or resistance level will tell you who wins the dollar war.” UUP closed at 22.25 and fell -0.17% Another fall like this a strong support level for the dollar breaks.

Bottom Line = From yesterday -”gives bulls slight advantage”  That advantage for dollar bears and therefore stock bulls became a whole lot stronger with falling dollar nearing support. Looks like the betting before of Fed’s QE2 announcement today is for a falling dollar.

All eyes on Fed and how big QE2 is going to be. What the Fed says and does about QE 2 Today will probably set the course for stocks and settle the dollar war.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

(I do manage 6 accounts that have other positions)

  • EWS (Singapore)
  • SSO (2x what S&P does).

Again the Mantra for the last week - “Not making any specific move until dollar breaks out of its range. I would look at a breakout higher for the dollar, and a corresponding fall in stocks and the MO to oversold as a buying opportunity for long term investors. “Looks like next Wednesday Fed meeting is the big event.”

I’m back to buy the dip even though the MO is near zero –

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including ”YOUR Stock List.”

Longer Term Outlook - CAUTIOUSLY BULLISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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