Paul Krugman

Armed with the Nobel Prize & a NYT column, the Chair of Princeton’s economics department, the vocal Paul Krugman, is perhaps the world’s most talked about economist.

Today he not only spanks Reaganomics or the free market capitalism that got us into the worst recession since the Great Depression, he goes after “All the President’s [Obama's] Zombies.” LINK Excellent editorial and well worth the read.

“Reaganomics has failed to deliver what it promised, yet people still believe that government intervention is bad, and leaving the private sector to its own devices is good.”

Health Care

Even though there has been 11,000 health care events in 2500 towns and a huge 280,000 people Obama internet event (Thursday) occurred I don’t have the foggiest idea of the specifics behind the different competing plans for health care reform. Dozens of the “Town Halls” have been invaded by angry protesters and dominated the media attention. The waters are muddy and people are throwing more mud.

One point is clear – the skyrocketing costs , denied claims, & huge amount of uninsured are growing. The future is going to be one huge mega disaster – Costs up 100% in last 7 years and lots of folks age going to loose coverage because its going to go up a whole lot more in the next 7 years .  If health care costs you, your employer, or the government $13,000 for your family this year will we be able to afford $26,000 seven years from now?

The total cost for just my wife and I now run at @ $18,000+ a year not including dental. (Her employer, deductables, out of pocket expenses)

Republicans are going to do nothing. They’ve done nothing for decades.  However, this whole process is in need of leadership that can only come from the President. So far all that’s happened is the waters have been muddied and lots of people are throwing mud.

Financials – Driving Stocks Higher

This whole week is devoted to why US markets are moving higher – financial stocks or the shadow banks. The long term results may not be desirable economically, but in the short term this is the trend that is leading US equities and the world’s stock markets higher.

While the health care debate is almost the only focus of the media the fundamentals behind the financial trend higher  is becoming firmly established. There’s the good, the bad, and the ugly behind this, but now its just time to mark the fundamentals and change investment strategy to take advantage of the trend

  • We no longer have the transparency of mark to market accounting. Bad assets can and are being hidden.
  • The administration and the Fed have flooded financials with low interest loans
  • Almost nothing has been done to fix the too big to fail shadow banks

These banks are not be loaning out money at the rate they should. But when the big shadow banks do loan out money they are making killer profits.

Bottom Line for YOUR investments Investments in financials should continue to outperform despite other economic problems.

(more below and throughout the week)


STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index Percentage % Volume
Dow +1.67% up
NASDQ +1.59% up
S&P500 +1,86% up
Russell2000 +2.26% -

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

  • Brown = repeat statements
  • Green = usually bullish statements
  • Red = Usually bearish statements

Technicals and Fundamentals

Both the NASDQ and the S&P 500 had gains in increased above average volume.   The volume was not earth shattering, but enough to confirm the gains.

The one fundamental that is the driving force behind the stocks surging is financials – Lets take a look at the price charts worst of the worst.

These are the companies (AIG, CitiGroup & Fannie Mae) that were among the leaders on the downside and the trend is clearly higher.  (See above editorial) The trend is your friend and let’s ride it.

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Significant forecasting tools/Indexes for stock markets

BDI The Baltic Dry Index measures the flow of goods by price (world trade) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern .  The BDI fell - 78 on Friday . We’ve again broken a support level and formed another lower low. Four days in a row down between 70 – & 90 points. The mid term trend since early July is clearly bearish, with a series of lower lows and lower highs. @ 2298 is a major area of support and the BDI has fallen since early June from 4291 to 2468.  This is just 170 points away from a major support level.

In a nut shell the BDI is

  • short term - Bearish pattern
  • mid term Bearish pattern
  • long term - Bullish pattern

Bottom Line This is NOT looking good . While we are still a long way off from major support levels but the mid term (since June) bearish trend is growing. T he case for trade barriers between nations and a growing worldwide recession is getting stronger.

While this index does not have as immediate impact on stocks, as the Dollar does, it is very significant to long term worldwide economics.

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$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

The dollar fell -0.44% Friday and, you guessed it, stocks rallied. The Dollar is in a range between $79.5 and $77.5 . A breakout to either side will seriously impact stocks. Dollar closed at $78.04.  Its getting closer to its major support level of @$77.5

Mantra Dollar up = US stocks down & Dollar down = US stocks up

A gradual reduction in the price of the dollar is part of the solution to global worldwide recession

This is the index to watch because its impact is immediate.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

Investors411 will become more involved in the financial sector. – ETF’s – XLF. UGY (2x financials) & FAS (3X financials) Investors411 will also be taking profits in some.  – Even though its not a dip lets start small and reopen the  position in financials.

Do not think we are too late to join this rally train, because the fundamentals (see editorial above) still support it.  There will be dips and Investors will buy those dips up to a 20% total position.

Because the Republicans, Democrats and especially the Obama administration are unwilling or too distracted by health care to go after shadow banks this trend will continue.

This move to add to financial sector is going to be a major change in investment strategy

Long Term Outlook = CAUTIOUSLY BULLISH

See Changes in STRATEGY, POSITIONS, & OVERVIEW sections of blog

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

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