Treasury Secretary

The worst possible choice among those that are being considered for this crucial post in the Obama administration is is former Clinton Treasury Secretary Larry Summers. He’s a smart guy but -
*was one of the top ten people most responsible from deregulating the credit default swaps market.
*got in to such problems as Harvard President that all that almost all the Deans pushed him out of office. A sexist who has little verbal discipline
*the Obama campaign is about change and he is the past.
Also important is who runs Office of Management and Budget. For more on Summers and other choices see excellent article on this from Steve Clemons

Economic Molasses

Lowering interest rates has done nothing to help Main Street because banks are NOT passing on the savings. Have you seen mortgage rates fall?

Other countries have forced their banks to make loans as a condition of their bailout, but our government has not. Paulson, Bush, Democratic leadership and Republican leadership have showered money on specific financial institution and they are hoarding it. In fact, the government is secretive about the details of these transaction as several folks (Dillon Radigan) on CNBC (the financial channel) point out. There is a major major problem here.

It’s hard to understand why credit markets (LIBOR) are moving in the right direction. Perhaps its because European banks are starting to make loans. Something has to happen on this side of the pond. If banks don’t loan what good is the bailout except making profits for banks? Naomi Klein has an article on this in the Rolling Stone. Here’s a shortened version "Stopping the Bailout Profiteers "

The focus should now be on job creation in the private sector.

Republican Cannibalism

The chief political corespondent (Carl Cameron) on right wing FOX news said McCain big wigs called Sarah Palin a "Wasila Hillbilly," that she thought Africa was a country not a continent, and she could not identify the 3 countries in North America. In turn, right wing blogs have launched "operation leper" excommunicating those Republicans who criticize Palin

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -4.85% up
NASDQ -4.34% up
S&P500 -5.03% up
Russell2000 -3.65% –

Headline – Jobs jobs jobs

US Market & Foreign Markets -

Technicals – ( From yesterday) – "We could have another really nasty day."

We did have another nasty day and this time volume increased and therefore confirmed the price move. The volume wasn’t huge but substantially more than the previous day. Mantra = Volume is the #1 confirmation factor of any price move.

We have now lost a wee bit over 1/2 the gains we made in the major indexes since we retested the lows two weeks ago. That 50% figure s big in technical analysis (for those who want to understand more look up Bollinger Bands or Fibonacci retracements at investopedia.com for very short explanation) That’s not good news for us bulls. However a 50% retracement is a big support level and holding on here could would be very bullish for stocks.

We are technically just above the 50% level when you use the yearly low of 7800.

Bottom Line – This is a major support level that should hold. If it does not, this market will probably at least retest Dow 7800 low next week.

All markets are interconnected. So let’s look at what happened in Asia overnight. This will give us some idea how the US markets will might trade. Japan -3.55% Korea +3.29% China +1.75%
Europe is up +1 to +2% and that’s good news.

Fundamentals – All week investors have focused on the monthly jobless data. Expectations of a bad number (-200,000) are a chunk of the reason stocks have fallen dramatically the last two days.
NB -Everything else was written before this job’s number came out Job’s number for October =-240,000 Unemployment at 6.5%, Last two months revised down. = Real bad news for Main Street economy because its going to get worse. Also politics. These numbers got massage in previous month by the current administration and the bad news was announced after the election.

(repeat) Historically November starts a usually very bullish period for stocks. December is historically the best month of the year.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the the tail won’t wag.

Real progress is being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a few weeks ago to 2.38% yesterday. That’s a real significant drop and shows retail credit is again beginning to flow. Homeowners who have adjustable mortgages tied to LIBOR should all be breathing a sigh of relief. LIBOR at 2,.29% this AM. Again good news for credit and stock markets.

The 3MTB fell -17.11% to +0.315%. The Fed rate is 1.00% A falling 3MTB is NOT good news.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is opening up especially in Europe. This helps Main Street’s – Credit cards to adjustable mortgage rates are tied to LIBOR. But by no means is credit back to normal.

OIL

Oil prices rose a fell -4.53% and consequently the dollar rose. Most of this movement is related to short term traders making bets on of the dollar. Dollar goes higher = Oil goes lower.

Chart of oil (WTIC)

The Dollar

Dollar and Yen are rising. (More on this later)

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) . The VIX obviously moving back up

Chart of VIX.

Short Term Outlook = Rally goes on until it hits resistance Resistance Levels.

This market is a short term traders dream and a long term investor’s nightmare.

Reading The Tea Leaves –

The technical 9764 resistance level held and the predicted post election dip materialized yesterday. Failure to break out through Dow 9764 (see chart) resistance level means new range for stocks is between 9764 and 7800.

Longer term investors buy the big dips.

Personally "my long term investments are now 10% stocks. .

Traders – The spreads in the credit markets are narrowing and another stimulus package is probably coming. = Buy the Dip

Long Term Investors – As we approach Dow 7800 another opportunity to buy. Those of you who missed out when markets went well close to or below 8500 have another opportunity to nibble

Economically, Main Street is no where near out of the woods. But there is hope.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook -Cautiously Bearish

Changes to Bottom Line Section Bolded

Technicals – Double bottom has formed, advance in strong increased volume,. Technically all this = at least a short term rally and maybe a long term bottom.

Reading tea leaves – Look for range between 7800 and 10,500 for rest of year. Dow closes above 9764 (in strong volume) = NEUTRAL Long Term Outlook.

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. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Global growth is obviously slowing

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – This depends on your risk tolerance Long Term Investors (up to 10+% stocks – only buy big dips)

*10%+% 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
*5%+ Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

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 9,000 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 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 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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