Art show at end of week – No Updates Thursday through Monday

Obama and Foreign Policy

Will there be some of the substantive changes so many were hoping for or will Obama turn into Bush lite? Over the last month this has been the subject of most of your emails. The jury is out, but in 6 months to a year we should know the answer.

Will Obama change the Bush approach to foreign policy? So many of us hoped his early opposition to the Iraq war was a signal that he better understood that the invasion of Iraq just fomented more terrorism and lost us allies though out the world. Major question to be answered.

Will their be a timely withdrawal from Iraq?
Will Obama junk the Bush doctrine?
Will we still be God’s chosen people, above international laws or will we rejoin the other nations of the world?
Will Guantanamo get closed?
Will Obama try to stupidly nation build Afghanistan into an American mini me – a nation that historically has always been ruled by tribalism?
Will the War on terrorism continue to be the organizing principle of foreign policy?

Andrew Bacevich called the problem "American Exceptionalism " – We are the superiors of everyone else and as the "chosen people" our nation is above the rules that govern everyone else. This "exceptionalism" has led to runaway free markets that required no regulations and the neocon’s who ran Cheney/Bush foreign policy that labeled any American’s who disagreed as against democracy or against the troops.

Americans, because of this exceptionalism/arrogance have lost almost all of their self awareness. How do you solve any problems when only YOU know the answer.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama/Santa Clause Rally

Index % Change Volume

Dow +3.09% -
NASDQ +4.41% up
S&P500 +3.65% -
Russell2000 +4.91% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Dow closed at 8635 . Up side resistance level is 8831 and downside support at Monday’s low @8175 . Technically, bulls still have the short term momentum. More significant resistance is around the 50 day moving average at 8985 (and falling), and the round number 9,000. The line in the sand number is 9654 – the November high. (see charts – these numbers are presented in rectangles)

Major rally even though unemployment numbers were extremely bad. Rallies on bad economic news + Bull Rule the short term momentum. Volume was only slightly higher and therefore did not really confirm the rally.

Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama this weekend talked about huge infrastructure spending (stimulus package) – This should put some more juice behind Friday’s rally. "Biggest stimulus since 1950′s" Obama’s economic team, his stimulus plan and confidence (hope) in Obama are obviously impacting stocks favorably. Combine this with all the Fed action and while this stimulus does not have an immediate impact, it will have a long term impact.

Is the worst over? Some investors believe this. These folks believe might get another month or two of bad unemployment news, but Obama’s economic stimulus and team are coming to the rescue. It looks like these folks believe the absolutely horrible numbers (a -4.0%+ GDP) are already factored into the markets.

CAUTION – There is very little volume behind the rally. The closer stocks get to 9654 resistance level, the more protection (shorts) of long positions is recommended. 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 is the rate banks charge each other. LIBOR has flatlined

LIBOR chart (3 month)
Treasury Bonds

Again 3 Month Treasury Bond held steady at 0.01%. 2,3,5, 10 & 30 year all rose reversing the trend.
Example – a 30 year Treasury Bond fell from 3.53% last week to 3.15% t0 3.04% Thursday and rallied to 3.12% Friday – Fundamentally BEAR’s RULE

If 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.

Set range indicator to one month and you will see this chart has dropped to 663 – @7% loss lat week on top or a 13+% loss last week – An over 90+% loss since June. This is a clear indication that worldwide recession is growing.

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. Oil prices fell to $40.81 a barrel – another indication of economic deterioration. Fundamentals continue to show worldwide recession growing.

Fundamentally its hard to see any extended stock rally if fundamentals keep getting worse.

Technically, a short term rally is likely. Stocks moving higher on extremely bad news (unemployment report) is a very bullish sign.

Some of you invested/traded more on the dip Friday as stocks dropped after the job news – Thanks for the emails. Yes this is exactly what investing on dips is all about.

Favorite Investment

China – They have a budget surplus, A huge stimulus package (relative to GDP) and if the USA is going to improve so will China. Over the course of the next year they seem to be in a more favorable position. Also technically ETF for china FXI is far closer to breakout from its November high of 28.00. FXI now at 27.83. See chart .

Lots of investors believe that if a stock builds a base and after breaking out it is still within 5% of its breakout level it is still a good investment. Usually breakout levels (in the case of FXI 28.00) are retested.

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 o 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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