Real Town America

This 4 minute video is by far the best of the hundreds of different video’s produced about the Election . It’s from Jon Stewart’s Daily Show visit to one small town called Wasilla and after laughing you will probably send it to all your friends.. LINK

POP QUIZE

NBC/WSJ poll yesterday did an in depth analysis of the problems voters had with the candidates. Guess what by far the biggest problem was with John McCain – his closeness to Bush? His handling of the economy? Iraq? Erratic responses, Negative campaign? Something else?

Answer a the very end of Market Updates.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Index % Change Volume

Dow -2.50% flat
NASDQ -4.14% up
S&P500 -3.08% flat
Russell2000 -2.96% –

Headline – World Recession

US Market & Foreign Markets -

Technicals – When a stock or index gives back over 1/2 the previous days gains – bulls worry. Yesterday major US and foreign indexes gave back well over 1/2 the previous days gains. You can feel the bear’s breath on the back of your neck.

Fundamentals – The LIBOR 3MTB spread continued to close but the rare of change is slowing (see below). Real problems in global growth are intensifying across the world and it looks like US markets have not factored in just how bad the global recession will be.

Nouriel Roubini (see Monday’s Updates) is guest host on on CNBC (financial channel) this AM. Psychologically his views are not going to help markets today. If this guy is right there is no reason to be invested in stocks. Listening to him while writing Updates is depressing. At least he is more optimistic than he was two weeks ago,but still calls for two years of word wide recession.

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.

The 3 MTB inched higher +7.35% yesterday to an interest rate of 1.095%. Inched is a relative term, the 3 previous averaged over 50% moves.
Set up below is another new link to LIBOR 3 month chart. Here’s a link to a definition from Investopedia

As the chart shows the LIBOR, while still very high but taken a dramatic drop since the revised rescue/bailout plan of buying equity in banks has been accepted) LIBOR in a week+ has dropped from 4.8% to 3.83%. Again the rate of change has diminished, like the #MTB We still have a long way to go. LIBOR should be a lot closer to the 1.5 % Fed rate but the trend is very clear. LIBOR is again falling in trading this AM to 3.54%.

3 MTB chart

LIBOR chart (3 month)

Bottom Line – Banks are not leading to other banks, but the commercial leading market is slowly opening up. This helps Main Street’s access to credit cards to adjustable mortgage rates.

OIL

Basically stocks go up so does oil. Stocks go down so does oil.

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) This is a contrarian indicator. The VIX is easing back down from its record highs

Chart of VIX.

Short Term Outlook = Rally may have been derailed.

NYT head business online news is markets are having problems across the world. LINK Countries from Argentina to Japan are having huge problems

We could see a big down day and hopefully a rally into the close

Personally (for traders not long term investors) I’m now 10% back into the markets. Buying on dips. That 10% sure looks like its in trouble today.

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

Reading The Tea Leaves – We may not have hit our lows, but we’ve already had a 33% loss. How low can it go? Certainly below the 7800 interday low. Right now the Dow has recovered to 9000. Could we loose another 33% to 6000 its possible. I don’t think we’ll loose another 33%, but I do think the next two years will see us at least test 7800 and probably get below that.

Roubini arguements just make too much sense – back to BEARS RULE

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – Bearish

Technicals – Double bottom has formed, advance in strong , increased volume, and a new high on VIX -Technically all this = at least a short term rally and maybe a long term bottom.
Fundamentals – financial mortgage transparency problem 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

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. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

* 75% to 100% Cash – This depends on your risk tolerance

* 10+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X what the NASDQ does) DDM (ETF that does 2X what the Dow does)
*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 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 or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on dips. 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

Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

Answer to POP QUIZE

His choice of Sarah Pain for Vice President was the biggest problem voters have with John McCain (37%). The Wasilla Alaska video sort of gave you a big hint. Talk about your $400 John Edward’s haircut ,Sarah Palin has had a $150,000.00 makeover.

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