China, Buffett and the Electric Car – Green Technology

China has just launched its first home grown electric/hybrid vehicle – the F3DM. BDY co. which Buffett own 9.9% of just announced the new car. If or when American auto companies collapse, we will once again be sending boatloads of money abroad to buy cars like the F3DM that will be manufactured in China. Story LINK

Fox in Charge of the Old Hen House.

The feature story since Friday in financial news has been the $50 billion lost by those investors who trusted Bernerd Madoff and his Investment Company. The SEC is supposed to govern folks like Madoff, hedge funds, financials and anyone who trades stocks. Since Greenspan took over as Fed Chair in 87 we have lived by the philosophy of free market zealots (like Ayn Rand) who believes any almost regulations on capitalism was unnecessary. One again we are getting hit over the head with another example of lax or non existent enforcement and regulations.

It was all a big Ponzi scheme and there is no silver lining – the money is gone. It makes you wonder about all those big unregulated hedge fund. How many more Madoff’s are there?

Bank Robbers Get Jail Time.

But what happens when the banks or financial institutions rob you? You bail them out with your tax dollars and watch as confidence in the American financial system crumbles. Of course other industries Insurance, Auto’s and others get sucked down with the implosion of over leveraged banks. Transparency, regulations have not been put in place to prevent this from happening again. We don’t even know which financial/banks are in trouble.

Flying Shoes

Throughout the rest of the world (from China to Mecca) the headline has been the story of the Iraqi news reporter who threw his shoes at President Bush. al Zaidi who called Bush "a killer of children" as he threw the shoes has become a hero throughout most of the world. Foreign news sources quote his family as saying he had become depressed after watching/covering the destruction of Iraq neighborhoods and the loss of "innocent" lives.

You can google almost any foreign news source and you’ll find al Zaidi almost universally depicted as a hero. For a starting point on sources outside US mainstream media on this -  al Zaidi .

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow -0.75% down
NASDQ -2.10% down
S&P500 -1.27% down
Russell2000 -3.39% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Over the last few trading days stocks have moved lower in decreased below average volume. Monday’s volume was the lightest since the 1/2 day’s trading after Thanksgiving. Falling markets increased volume is just what bulls like to see.

The news has been pretty negative and its surprising to see stocks holdup as well as they have. Seems most of the bad news is already factored into the markets.

Therefore,Both the primary (volume) and #2 factor (how markets react to news) seem to be bullish right now.
Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

The auto bailout/loan is in limbo. Will Paulson and Treasury act?

Some major financials are announcing earnings results today. Goldman Sachs just announced bette than expected earnings.

Fed meets rates today. Lower (0.50%) interest rates expected. They could lower rates to zero.

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% two months ago to 1.85% LIBOR rates have again started to fall . LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news.

LIBOR chart (3 month)
Treasury Bonds

All the yields kept falling – relative to last year. month, week and day. The 3 month has basically flatlined at 0.01%
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 over +5% yesterday to 803. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an over 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling and Therefore Oil Prices Rising (more later)

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.

Other indicators covered above are all showing short term signs of life. A Santa Clause/Obama rally seems in the works. However, announcement of an auto bankruptcy would have an immediate negative impact.

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 transparency problem 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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