On Friday the government’s employment numbers for last month will be published. ADP National Employment numbers (a private group) yesterday released a figure of 693,000 jobs lost in December. This is way up from the 500,000+ jobs lost in November. There was a huge jump in the number of lost service sector jobs. After US markets closed Monster’s Online job’s Index echoed the ADP estimates. CNBC (financial channel) story on job loss figures.

8% job loss seems to be the figure economists are projecting for the future. The frightening aspect of the ADP #s are how fast the job loss is growing.

Jobs are perhaps the most crucial component of the whole financial mess. One significant result – The bigger the job loss the less the ability to pay mortgages = more defaults = lower home prices.

Economic Outlook 2009 and beyond

The Financial Times today has an editorial by Nouriel Roubini, the economist who definitively and accurately predicted the whole financial meltdown titled "Warning: More Doom Ahead "

The last 1/2 of this editorial clearly sets out the enormity of the problem and outlines the credit bubbles that have yet to burst. Roubini does end on a relatively positive note.

"Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be."


Will go over recommended ETF positions instead of focusing on credit and trade market flows (BDI & Treasury bonds)



Headline – Jobs Jobs Jobs

Index % Change Volume

Dow -2.72% up
NASDQ -3.23% down
S&P500 -3.00% down
Russell2000 -3.42% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Just when technical factors seemed to be on the brink of another upside move some sobering fundamental numbers on JOBS spoil the party. Technically volume was not a forecasting factor in the significant price drop. Volume figures were mixed and a bit below average.

Bottom LineIf we can hold onto gains this week, another leg higher is very possible. Next major resistance level is around Dow 9650. See charts.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – See above editorial. ADP numbers take investors by surprise. 8% unemployment seemed built into stocks, but the rapidness of the decline has caught everyone with their pants down.

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

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 is being made . LIBOR continues to fall 3.4% two months ago to about 1.40% LIBOR rates have fallen significantly and leveled off inthe last few days. 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. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month T Bill fell to 0.07% Shorter term yields fell. Longer term rose yields rose. The 30 year T bond rate is just above 3%. .
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.47% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets PANIC STILL RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world. For better definition see LINK
Bloomberg data and chart LINK (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 yesterday (+almost 2%) to 789 We have had a significant rally off the lows of @660 three weeks ago week.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets and trade markets

Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

Strategy - Volatility rules and a 6+% move higher in the Dow is a big move in a week. Personally, will start adding some SHORT positions to protect the gains of last week. The higher we go the more short positions.

Shorting rallies to protect gains is working. Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend.


Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded

Technicals – Series of Lower Lows and Lower Highs = Bears Rule. Obama/stimulus rally phase 2 is underway. 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 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 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+3 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 9000 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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