How to Fix The Economy

Best editorial out there on how to fix American economy by former Labor Secretary Robert Reich. Reich, one of Obama’s advisors, is a dark horse candidate for Treasury Secretary who should be one of the favorites.

Obama should add a few people to his economic team like Nobel prize winners Joe Stigletz and Paul Krugman. Also, George Soros, (hedge fund manager) who wrote a book predicting the financial meltdown would add diversity to this group. What’s wrong with nobel prize winners and a someone who had the foresight to predict what would happen?

Really hope you read Reich editorial so here is complete email address – http://tpmcafe.talkingpointsmemo.com/2008/11/09/the_mini_depression_and_the_ma/

Bank’s "Quiet" $140 Billion

Wa Po front page has a focus on how Sec. of Treasury Paulson, in the middle of the bailout crisis, snuck in an extra $140 billion for big banks .

Meanwhile In Iraq and Afghanistan

Iraq and Afghanistan used to be the focus of this political section. Will get back to these issues this week

Rambo and the Internet

Rahm Emanual is an excellent choice for Obama’s chief of staff. Center/left Democrat who held the#4 position in the House. Nicknamed Rambo because he gets results and many Dems owe their election to him. In getting legislation passed he is a valuable asset.

Obama’s secret weapon is the Internet. His list of 3.2 million donors is also a huge asset in getting things done/legislation passed. Imagine a congressman getting pressure from 10,000 Obama supporters in her/his district from Obama’s internet list. More on Obama and Internet at BusinessWeek and NYT

Lots of you have sent in emails with links on various issues to try to influence Obama and his folks. Main LINK to Obama site is http://change.gov/page/s/yourvision

One on foreign policy
One on the environment

Pentagon Board – "Cuts Essential."

The current military budget is "not sustainable" (Defense department Business Board) and suggest cuts in "costly troubled weapons systems." Boston Globe story

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow +2.85% down
NASDQ +2.41% down
S&P500 +2.89% down
Russell2000 +2.01% –

Headline – $600 Billion/China

US Market & Foreign Markets -

Technicals – [From Friday - "Bottom Line - This is a major support level that should hold."] Friday’s technical price support level did hold despite some extremely bad news (auto & jobless data)

All markets are interconnected. Japan +5.81% Korea +3.52 China +7.27%

Europe is up 3 to 5 % on the China Stimulus news. (see below) This should rally American markets

Friday’s rally almost all came in the last 1/2 hour of trading. The volume was weak and less than the day before. Volume did not confirm the move higher.

Fundamentals – China joined Japan and announced a stimulus package. China’s $600 billion stimulus plan relative to the size of their economy is much larger than ours. Of course, China did not run up the huge debt that the US did under Cheney/Bush. They built up a surplus during good economic times and when times get tough you borrow/stimlate. (Economics 101)

Sometimes it takes time for bad news (auto and jobless #’s) to sink in. Having a weekend for investors to think about how bad/long the recession might be may discourage some more long term investors. However, the volume figures indicate that right now only traders are playing the market. Investors have shown no signs of having retuned.

AIG got a new loan bailout package – the terms are much better for AIG. Good for AIG, their creditors & stock markets. The $40 billion more shows just how bad the AIG (credit default swaps) problem was. They must have read the Market Updates Sunday editorial that advocated a change of terms (a joke). AIG up 20 to 30% in pre market trading. This is really a bailout/loan of AIG creditors, not just AIG.

GM way down 20% this AM in pre market trading.

NB – Mea Culpa – In weekend editorial I put auto company closing at a 1 to 2+ million job loss. Right wing commentator on CNBC, Joe Kernan, put the number at 3 million jobs. Gov. of MI (pro auto bias) says auto industry impacts 1 in 10 jobs.

Bottom Line – Put your rally caps on. Stocks and commodities will climb on the huge China stimulus plan

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

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

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.29% yesterday. That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR at 2.24% this AM. Again good news for credit and stock markets.

The 3MTB fell -7.11% to +0.290%. The Fed rate is 1.00% A falling 3MTB is NOT good news,but a -7.11 fall is minor relative to recent volatility.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is opening up especially in Europe. This helps Main Street’s – Credit cards to adjustable mortgage rates are tied to LIBOR. But by no means is credit back to normal.

OIL

Oil prices rose a fell +0.27% and consequently the dollar rose. Most of this movement is related to short term traders making bets on of the dollar. Dollar goes higher = Oil goes lower.

Oil up +5% in pre market trading (again China stimulus package the reason for this jump)

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) . The VIX obviously moving back up

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

This market is a short term traders dream and a long term investor’s nightmare.

Reading The Tea Leaves – Once again its foreign markets (China’s huge stimulus plan) that’s leading US markets higher. Emerging markets led US markets throughout the Cheney/Bush administration.

The technical 9764 resistance level held and the predicted post election dip materialized yesterday. Failure to break out through Dow 9764 (see chart) resistance level means new range for stocks is between 9764 and 7800.

Personally "my long term investments are now 10+% stocks. .

Traders – The spreads in the credit markets are narrowing and another stimulus package is probably coming. = Buy the Dip & Sell the Rallies

Long Term Investors = Buy the Big Dips The overall problem that America has is its consumers are over leveraged. American have borrowed and spent their way into massive debt. The shop till you drop consumer was too dependent on the credit card and all this debt (card, mortgage, federal ™) has got to face reality.

Economically, Main Street is no where near out of the woods. But there is hope.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook -Cautiously Bearish

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 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

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 to 15% stocks – only buy big dips) Wait for the next big dip to add another 5%
*10%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk

*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 -
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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