Welcome to some more new readers of Market Updates
This is stream of consciousness writing so please allow for mistakes.

Overview (For new readers)

Two mega trends Globalization (also check out Tom Friedman’s The World is Flat) and Peak Oil have for many years dominated economics. How these trends impact the world greatly influences everything from economics to politics.

Currently the threat/reality of worldwide recession has impacted these mega trends. This started because we did NOT have proper regulations and enough enforcers in our financial markets and has obviously spread to the rest of the world. The last sentence was an oversimplification – lots more to come on this subject.

Market Updates is divided into 3 sections Politics, Stocks, and Long Term Outlook. Changes in Long Term Outlook are written in plum

I do appreciate your emails and try to answer them relatively quickly. There is sometimes a problem when I have art shows

Obama and Fear

More than a handful of you have expresses a fear that Barak Obama will be assassinated before the election. Sunday Frank Rich wrote about this in the NYT

Wednesday’s Presidential Debate

Back in 2000 George Bush was behind in the polls and surged to the lead after winning the final debate.

RealClearPolitics.com is a right of center site that presents many different points of view in American politics. On the upper right side they do a compilation of polls Last Thursday AM Obama was up 4.7% and is up 7.3% this AM. TalkingPointsMemo is a left of center blog that also keeps a compilation of polls. This compilation is usually under the lead story on the right.

Gordon Brown Saves the World?

It Looks like the Swedish/British plan in taking part ownership in troubled banks is gaining traction across the world and in the USA. Gordon Brown is the PM of England. You weed out the really bad banks and allow them to fail and support the other institutions. Europe is already instituting this and it looks like the US will follow. See article White House Revising Economic Plan .  We have given out government latitude to adopt this solution in the $700 billion plan.

US bond markets closed today so announcement of this plan is being probably delayed to tomorrow.

Nobel Prize in Economics

This year’s Noble Prize in economics goes to NYT columnist and & Princeton economist Paul Krugman for his work on trade theory. Krugman is often quoted in Market Updates.

Krugman on Aug 29th 2005 editorial accurately predicted this current crisis in a NYT editorial.

Another hero’s who sounded the alarm.

Warren Buffett called financial derivatives "financial WMD’s" on March 4th 2003

Stocks

Best Advise

Being out of stocks is best for long term investors. Do nothing if you are already in stocks or sell some into rallies Make sure your $ are FDIC insured and money markets are SPIC insured. US Treasuries and real gold are out there for those who are in a huge panic.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -1.49% -

NASDQ +0.27% -

S&P500 -1.18% -

Russell2000 +4.66% –

Headline – US to Take Ownership in Banks

US Market & Foreign Markets

Technicals
Thursday’s huge drop and the Dow’s 678 point drop at the open on Friday in huge volume certainly looks like a climax sell off. Technically, the volume and the spike higher in the VIX confirm this. All the investors who were going to sell sold and the "weak" investors are all on the sidelines. At very least a short term rally which started Friday at the open should see some follow through today.

You will probably see financial bounce a bit more than other sectors ( because they are so beaten up), but if a longer term rally gets established tech stocks and small caps usually lead the way out of downturns as they did on Friday.

Stocks around the globe are rebounding.

Fundamentals

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

The 3 MTB is perhaps the best indicator of the level of fear in the Credit Markets. It shows the $ investors are willing to pay to have their funds in a safe place for 3 months. On Friday the 3MTB fell -63.79% to 0.21%.

Unless the credit markets start moving higher any stock rally is probably going to crash and burn. Credit Rules

The fact that The Fed Rate was reduced to 1.5% does cut down the spread between the two. That’s good news. However LIBOR rates are more significant a barometer to compare the 3MTB to. LIBOR is closed today, but you can check out the #s.

LIBOR and the bond market is closed today. Stocks are open.

3 MTB chart

OIL

Oil prices are going to fall with the markets, because the of the fear that in a recession people will us less gas.

Chart of oil (WTIC)

The Dollar

The relative strength of the dollar is good news for the USA. It show that worldwide there is bore confidence in the USA than other countries.

Chart of Dollar

The VIX

Chart of VIX.
The VIX has reached the moon. This is the highest the revised VIX has ever been. Friday’s close was 69.95 up +9.43% The extreme level of fear indicates an oversold market and the possibility of at least a short term bounce.

Short Term Outlook

Technically – Almost all technical indicators point to a short term rally. However fundamentals and specifically the credit market rule. Credit Markets Rule – Stocks are secondary

Fundamentally – Psychologically fear has to play itself out and the high level of the VIX indicates we are near that point. Technically stocks have had a climax sell off late last week and this should give bulls some hope. Again the Baking Panic rules – It’s kind of spooky to have a rally with the bond markets closed.

Best Read of the Tea Leaves . Markets are so oversold, the VIX so high and we have had a climax sell off = Rally

Stock Markets tend to look ahead (six months) so those with high tolerance for risk should consider nibbling back in. (See Long Term Outlook)

Note: There is a major difference between Traders who think of trades in hours, days and weeks) and Long term Investors who think of investments in terms of years and decades.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARISH
Technicals - The VIX,oversold stocks and climax sell off giving short term buy signal
Fundamentals – financial mortgage transparency problem is far far far far far far far far far bigger than anyone thought. Credit Markets Rule

(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

People feel like we are in a recession. The actual strict definition – 2 quarters of negative GDP growth has not occurred. How bad the recession will be is be is the major question.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100% Cash -

* 10% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) Generally – Really Big Banks Look good

*5% Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall

Chief Strategy – Buy the dips of trending sector
Traders who have a strong tolerance for risk jump in on dips. Sell into rallies. Long term Investors who can tolerate high risk and are 100% in cash could nibble a little on these big dips.

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

  • Share/Save/Bookmark