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

Auto Loan/Bailout – Green Technology

The new technology of the future is going to be based around alternative energy. Countries like Spain (30% renewable energy by 2010), Israel (plans to use use almost all electric cars in 10 years) etc. have already made major commitments to this new technology. It’s unpardonable to see so many solar, wind, and other forms of alternative energy companies based or move overseas.

We are more dependent on cars than most every other nation. We send 100′s of billions to petro dictators every year because of our dependency. The future is hybrid, electric even solar cars. Yet this massive and new technology will probably continue to be produced in other countries. Just like oil we will have to import this technology will have to be imported Japan, China, Europe and other countries. We led the internet revolution and the next recognizable major technology shift is going to be led by countries outside the USA.

Perhaps we are just too fat, arrogant, politically polarized, to make a difference any more. However right now Green technology is leaving the USA. We need American companies, including car companies that can innovate and compete with foreign manufacturers.

Three Reagan Ideas That Need to Die

Francis Fukuyama is a well known former neocon who has become a realist. Like Alan Greenspan who admitted he was wrong about unregulated free markets, Fukuyama admitted his errors and is offering alternative solutions. He list the 3 ideas that need to be "reformulated or discarded."

1) The belief that the enormous "shadow" financial market could regulate itself. (Greenspan’s false premise)
2) Tax cuts would always be self financing – these cuts led to growing deficits
3) Overwhelming US military dominance would lead to the collapse of all American enemies.

Too many on the far right are caught up in emotionalism, fear mongering and American "exceptionalism." (see yesterday’s update) to change. But there are folks like Greenspan and Fukuyama that are willing to admit mistakes and look for solutions.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama/Santa Clause Rally

Index % Change Volume

Dow +3.46% up
NASDQ +4.14% up
S&P500 +3.85% up
Russell2000 +4.40% --

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Some resistance levels fell and stocks again staged a major rally in volume that was slightly higher than the day before. We’re not getting the major spike higher you’d like to see when markets move higher, but any increase is better than none. Technicals are showing that this rally could continue. Dow at 8937. The 50 day moving average resistance level is at 8941 and falling. 9000 is another minor resistance level.

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 . Again, volume was only slightly higher and therefore did not really confirm the rally.
Chart of the benchmark S&P 500
Chart of the Russell 2000
Chart of the NASDQ
Chart of the Dow

Fundamentals-

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. 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 rose to to 0.03%. Most of the 2,3,5, 10 & 30 year Treasury Bonds also rose.
By no means are we out of the woods, but the trend has turned for the last two days – 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.

BDI actually rose over +1% yesterday to 671. 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.

Prices in the BDI & the 3MTB, as well as oil have moved higher in the last two days. A small move in the right direction.

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 ETF’s that short US indexes now and more into any rally. 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.

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 .

China FXI did break out of its trading pattern and rose +8.8% yesterday.

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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