Obama’s Cabinet

Remember Republican’s fear mongered that Obama was going to be a "socialist" – "the most liberal Senator" out there who would "surround himself with ultra left wingers" (Bill Ayers).

The exact opposite has come to pass. Left wing blogs who were the original supporters of Obama have now openly started to openly attack Obama over his cabinet choices. Latest example – choices for Interior and Agriculture – an ex Iowa governor and Colorado Senator are certainly not the environmentalist that the left expected to fill these positions.

Secretary of Education was also a questionable choice – Arne Duncan . What makes the lawyer who runs the Chicago school system a good choice? Does Chicago have such a great school system? One of you sent in a reference to the following editorial. (Thanks)

A Republican for Secretary of Transportation .

Perhaps the most flack is over anti gay televangelist Rick Warren to lead the invocation at his inauguration.

The jury is out on if these choices will be the agents of change Obama promised, but the questions surrounding these and other choices are legit.

"Scam of the Century"

CNBC, the financial channel, is running a special this evening with the above title on the Bernard Madoff scandal. This 50 billion dollar Ponzi scheme is going to have many after shocks. How many other are there out there who will blow up like Madoff? Why is there no huge cry for regulations and enforcement that will protect investors?

Tom Friedman calls the Madoff scandal "the cherry on top of the national breakdown of financial propriety, regulations and common sense."

Mortgage Market Meltdown

Foreclosures are rising, housing values falling and unemployment rising. This is not a good combination. Add to this – in the longer term – Alt A & Open Arm mortgages are going to be recalibrated at a higher rate over the next few years. There are more Alt A and Open Arm mortgages subprime.

Bottom Line – Almost nothing has been done about the housing problem and it is going to get a whole lot worse before it gets better.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Consolidation

Index % Change Volume

Dow -1.12% down
NASDQ -0.67% down
S&P500 -0.96% down
Russell2000 +0.77% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Most major US stock indexes retreated slightly in weak volume after Tuesday’s massive rally. Technically low volume pullbacks are just what bulls like to see if stocks have to retreat. The shorter term mojo is still with the bulls.

Technically, this looks like a consolidation after a rally. Sort term technicals still positive.

Dow now at 8924 with the first resistance level at 9026 and major resistance at 9654. The Technical aspect of US equities has been very solid since the late November lows. Short term the momentum is clearly with the bulls.

Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

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

Point of interest for CNBC Jim Cramer fans on his picks for Obama based stocks. Some of these stocks have had a nice two day run higher. GEX is the alternative energy ETF that Market Updates recommends and yesterday it broke out to a new short term high (would have liked to seen stronger volume) -  GEX chart . Cramer’s choices .

Financial giant Bear Sterns had a bad earnings report yesterday, but this had little impact on overall markets. After volume, how markets react to news is the #2 confirmation factor. The lack of a major fall in stocks despite the Bear Sterns and continuing Madoff (see yesterday’s Update) fallout is bullish.

CAUTION – US equities have Short Term positive momentum.

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 WAS being made. LIBOR has fallen from 4.8% two months ago to about 1.58% LIBOR rates are on their second leg down and have again fallen significantly. 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.

LIBOR chart (3 month)
Treasury Bonds

Yields on the short term Treasuries rose slightly and the long bonds fell (10 & 30 year) The 3 month has basically flatlined at 0.01%
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

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

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (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 almost +1% yesterday to 836. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an over 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling (more later)

The dollar is falling about as fast as it ever has. Chart of the dollar .
This is due to the fact that the Fed has already lowered interest rates as low as they can go and now they are going to sell Treasuries and print money to stimulate the economy. This is potentially an inflationary and very dangerous situation if the fall continues.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.
A Santa Clause/Obama rally seems in the works. However, announcement of an auto bankruptcy would have an immediate negative impact.

All the recommended sectors are doing quite well.

FXI (China) is clearly out preforming the USA. Chart of FXI .

EWZ (Brazil) chart is not as good as China, but again outperforming USA. Chart of EWZ . Caution – Brazil s tied to rising oil prices and will under perform on the way down.

GEX (Alternative energy) chart is basically forming a base. Chart of GEX. Will rally with US equities. Broke out to new short term high yesterday This is a play that the Obama stimulus package contains a lot of green energy proposals.

GLD (Gold) weekly chart is not quite as good as major US indexes – then again gold did not fall as much as the US indexes. Gold is a play that inflation emerges at the other end of the recession. Chart of GLD .

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule. Obama/stimulus rally part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

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 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 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 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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