"Too Big Not to Fail"

Bailouts of Big Insurance, Big banks, Big Financials, Big Fannie & Freddie, and now Big Autos. The problem here is in the word BIG. All these companies,industries have been deemed too big to fail without catastrophic results and you know who bails them out – YOU And you know what started this disastrous economic snowball rolling the unregulated financials full of over leveraged debt.

He’s back. Elliot Spitzer has an editorial in Slate based on the unregulated bailouts of giant financial companies that have presented NO new business plans. What we really need is smaller institutions. Do we keep bailing out the giants and/or make them part of the government. There is a different path. Spitzer – "The better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable. "

Especially with financials all we are doing is rebuilding the same edifices that have so horribly failed and helped push many other industries into failure.

Competitive Advantage

Other countries have 4 major advantages over American companies that compete with them.

1) They get government subsidies. (latest example – GE buys 5 midsize planes from China’s sponsored CACC)
2) Other developed counties have universal health care and our companies have to pay for this.
3) We have much freer trade policies than other countries. Jobs and $ are flowing out far faster than they are coming in.
4) Other countries are increasing their support for education and science while we focus on tax cuts and wars.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Volatility

Index % Change Volume

Dow -2.51% down
NASDQ -3.14% down
S&P500 -3.21% down
Russell2000 -3.14% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Major reversed the previous days gains. Volume was down. A good technical sign for bulls. Dow closed at 8376 . Dow upside resistance level is 8831 and downside support at Monday’s low @8175

Technically, bulls still have the short term momentum.
Chart of the benchmark S&P 500
Chart of the Russell 2000
Chart of the NASDQ
Chart of the Dow

Fundamentals-

Auto executive continue hearings in front of congress. This time in front of the House.

Unemployment numbers for last month are the what everyone’s watching – The expectations – 350,000 loss The results -533,000 HOLY SH_T Largest monthly loss since 1974. September revised up to 403,000. Oct. up to 320,000

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 .2% 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%. 6 Month, 2,3,5, 10 & 30 year all fell again.
Example – a 30 year Treasury Bond fell from 3.53% last week to 3.15% two days ago to 3.04% yesterday – 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.

Set range indicator to one month and you will see this chart has dropped to 661 – @7% loss this 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 $43.67 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 seems possible.

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
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+% 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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