Brooksley Born

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

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

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

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

Green

Some positive news and sites.

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

Shadow Banks

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

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

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

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

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

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

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

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

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

American’s Look for Next Bubble to Invest In.

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

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Another Obama Rally?
Another Obama News Conference

Index % Change Volume

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

US Market & Foreign Markets

Technicals

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

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

After a massive 5 day rally its time for consolidation.

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

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

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

Looks like Black Friday was at least decent for stores

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

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

Three Month Treasury Bill & LIBOR

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

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

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

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

3 MTB chart

LIBOR chart (3 month)

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

Daily Treasury Yield Curve

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

Baltic Dry Index

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

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

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

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

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

Short Term Outlook

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

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

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

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

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

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

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line section bolded

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

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

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) is far far far far far far far far far bigger than anyone thought.

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

Asset Allocation/Recommended Sectors (long term)

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

*5%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
FXI (China ETF)

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

*5% Gold
GLD is the ETF for gold

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market-over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future.

The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the major indexes do.

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

As Always Do Your Own Research Before Investing

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