The overwhelming crowd in Washington was certainly uplifting. However, at our hotel far more Jamaican’s than white American’s on holiday joined together to watch Obama take the oath of office. Tears flowed freely in the room. Obama’s inauguration has had a major impact on Jamaican’s and others throughout the world. At least now there is hope, but hope alone in not enough.

Another interesting point is that the resorts and plane flights were packed with people = what recession.


Updates has warned over the impending meltdown in financial/bank stocks. (see below) Bank prices collapsed yesterday and the FLX (see below) reached new lows. Now Bank of America and Citi group, two huge financials loaded with credit default swaps, are again melting down. Will the Obama administration, like the Bush administration just throw money at these and other institutions without any accountability or transparency?

One major concern – It was Obama’s new chief economist Larry Summers (as Clinton’s Tres. Sec. Clinton) who enthusiastically supported the deregulation that opened the door for most of the problems are swamping financial companies.

Few banks made any loans with the cash they were given in part 1 of the TARP. England and other countries have nationalized trouble banks that were "too big to fail" and are forcing these institutions to make loans instead of buying other banks, paying dividends, & handing out bonuses. Obama’s administration this AM halted the regulatory process pending review.

Bottom Line – Over the last few decades we have cut government so that it became too weak to regulate big business. Mega companies from CitiGroup to General to GM proved that left to themselves they were incapable of self regulation.

The absolutism of "free trade" and "free markets" have let greed run wild. Combine this with no real central planing and an eviscerated government. The result is a stock market, country and world facing the largest economic crisis since the Great Depression.

Remember – You should be very critical of TARP part 1, but it did prevent a worldwide run on the banks. While major banks are in trouble there is currently no run on the banks.



Headline – Financial Meltdown

Index % Change Volume

Dow -4.01% down
NASDQ -5.78% down
S&P500 -5.28% down
Russell2000 -7.03% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major meltdown led by financials. The Dow broke through its major support at 8,000 and ended the day at 7949.

XLF is the financial sector ETF Chart here. As the chart shows financials fell another -16.53% yesterday to new lows. Financials used to be the largest sector of the market and may no longer hold that distinction. But, they are certainly capable of leading all major indexes lower. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bank Sector is collapsing. Volume did NOT increase (probably because of the inauguration). However this sector could easily drag the rest of the American and foreign markets with it.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

IBM – Had a very positive earnings report.

Both Citi and BAC are leading financials and the rest of stocks DOWN. State Street Bank and others are also getting clocked.

Forecasting Future Trends

LIBORLIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.12% (good news for stocks)

LIBOR chart (3 month)

TreasuriesT Bills yields show how fearful investors are . The lower the rate the more the fear. Short term yields – 3 month T bill was falt at 0.07% and longer term treasuries were basically fell 10 year rose to to 2.38% (low yields show fearfull investors flooding to Treasuries instead of stocks – Bad news for stocks)

Treasury Bonds chart

Baltic Dry IndexMeasures flow of goods between countries . Yesterday it remailed flat . Almost 85% drop since June. (short term good news are the gains over the last two weeks)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

Strategy Shorting rallies to protect gains is working. (see below) Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend. Obama rally (stimulus package) is holding up equities right now.

Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Both these levels have broken and the Dow is at 7949. The 8000 level is the line in the sand. If the Dow can regain 8000 today there is a chance we could rally.

The short term Obama inauguration rally has been OVERWHELMED by the financial meltdown.
We could stabilize today, but confidence in banks seem shattered. Economist Nourille Roubini yesterday announced that banks are basically insolvent. Any extended rally is impossible without a solvent banking sector.


Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

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

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15 to 25+% 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 father’s buy and hold market – over the 8 Bush years the Dow has gone from 11,000 to 8000 and huge 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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