Overview (for new readers)

If you do not understand a market term look it up on investopedia.com Happy to answer any email questions on markets or politics, but first look up a term you do not understand.

Two mega trends dominate worldwide economics and greatly influence politics – Peak Oil and Globalization. Right now the direction and impact of these trends are being significantly impacted by worldwide recession

Long Term Investors = Buys and holds a stock for years.
Traders = Hold stocks for less than a day to a month ( A trader can also turn his/her trade into a long term investment)

Polls and Election Analysis

5-30-8 Of all web based companies out there that did polls fivethirtyeight.com offered the best analysis of what was happening and was pretty close to the actual vote count. They too (like Market Updates) predicted a tighter race than than others.

Today 5-30-8 questions the irregularities in Alaska where convicted felon Ted Stevens (R) narrowly leads in a Senate race. See above link. Alaska even though Sara Palin was running had a 14% decrease in votes over 2004 where every other state in the union has an increase in turnout. This includes the 40,000 votes that have not been counted.

Poll compilations got all other states right or were within 5% of actual vote. Here Republicans got 12 to 14% more votes than polls predicted and far less people voted. Something smells fishy in Alaska

Throwing slime – The questioning of Obama’s character (he pals around with terrorists, is a socialist, McCain not Hussein, Reverend Wright, Obama would cause a holocaust etc.) did have some impact. Obama lost 20% to 50% of his lead in many battleground states. Final results (there still are some votes to be counted) from CBS this AM.

Obama 7.6 million votes more than McCain
Obama 53-% vs. McCain 46+% (6.3% victory)
Obama 349- McCain- 162 Electoral votes.
4 Senate Races and 4 House races still too close to call
Senate Dems+5,
House Dems +20

Mea Culpa – I thought all the negatives swift boating adds would hurt Obama more. They did have an impact, but that impact stabilized in the last three days of the campaign. The last minute multi million dollar national and targeted Rev. Wright adds seemed to have little impact. I was wrong.

One Really Unexpected Result – People making over $200,000 a year favored Obama by +6%. In 2004 they went for Bush by a 2 to 1 margin. Obama has proposed raising their taxes. Looks like there are a lot of Warren Buffett’s out there.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -5.05% flat
NASDQ -5.53% down
S&P500 -5.27% flat
Russell2000 -5.74% –

Headline – Reality Strikes

US Market & Foreign Markets -

Technicals – The predicted post election dip happened. However it turned into a meltdown (down 5% across the board) Volume was below average. Therefore, volume did NOT confirm this move. However it sure looks like move down will continue. Another nasty day may be ahead.

Asian markets which had rallied more than American markets also took profits today (overnight) European markets are also down. The losses range from 3% (European) to 7 (Asian)% across these markets.

Fundamentals – (repeat from yesterday) " There will be some selling into the Obama election news."

Toyota had a mega disappointing earnings report after Japan’s market closed.. The Toyota news is really significant for markets across the world. We could have another really nasty day.

Historically November starts a usually very bullish period for stocks. December is historically the best month of the year.

Jobless numbers come out on Friday and they and future numbers are not going to be good.

Big surprise just in – England just lowered interest rates a whopping -1.5% (0.75% expected). The European Union as expected lowered rates -0.50%. All this says to investors is things out there (in Europe) are worse than expected

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 2.48% 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 2.38% this AM

The 3MTB fell -18.28% to +0.38%. The Fed rate is 1.00% A falling 3MTB is NOT good news and +0.38 is too low but if you look at the charts investors have not panicked.

3 MTB chart

LIBOR chart (3 month)

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

OIL

Oil prices rose a fell -7.42% and consequently the dollar rose. This wiped out 3/4 of yesterday’s huge gains. Most of this movement is related to short term traders making bets on of the dollar. England and European Union to lower interest t rates today.

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 was at or near its highest levels ever early last week and is now dropping like a stone = bullish

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 –

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.

(from yesterday) "Wall Street likes to buy on the rumor (in this case Obama is going to get elected) and sell the news."

The fall was bigger than expected and volatility retuned to trading.

Longer term investors buy the big dips.

Personally "my long term investments are now 10% stocks. I am trading a lot on dips and will probably sell at 9764" (I did not sell enough so got caught in part of yesterday’s meltdown)

(repeat from yesterday) The fundamental that could stimulate a rally is a second stimulus package that creates more private sector jobs. However short term selling the election and a bad Friday employment # for the month of October should hurt stocks.

Traders – Technically the move higher looks to be too powerful not to get extended after a dip. The spreads in the credit markets are narrowing and another stimulus package is probably coming. = Buy the Dip

Long Term Investors – As we approach Dow 7800 another opportunity to buy. Those of you who missed out when markets went well below 8500 may get a

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% stocks – only buy big dips)

*10%+% 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
*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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