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
8) 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

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