Happy St Patrick’s Day - Hedging - Your job, your home and your investments are probably your top three economic assets. When it became evident that all three were deteriorating economically or faced some sort of threat the simple way to handle this problem was to hedge your assets. Plus – Obama/Summers disappoint on AIG. More on Mark to Market Accounting.

Cartoon from Slate.com

Obama/Summers 180 on AIG

A very disheartening article in NYT that explains Obama’s economic team knew about the AIG bonuses months before they were made public. Larry Summers on the Sunday talk show said “the government can not just abrogate the contracts”  OK, Obama is now outraged about this and promises action, but you want to handle something like this handled before it emerges.

Unions, pensioners, bond holders, executives, workers are all trying to work together to change their contracts to keep GM from going under. So why can’t the company AIG, that the government owns 80% of, do something about the bonuses?

Even more disheartening is most of these bonuses are going to the small  AIG division  that traded credit default swaps or the toxic assets and therefore created the financial mess.

Bottom Line - More and more it looks like Obama’s economic team (Rubin, Summers & Geithner) is going to favor Wall Street over Main Street.

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Hedging

Your job, your home and your investments are probably your top three economic assets. When it became evident that all three were deteriorating economically or faced some sort of threat the simple way to handle this problem was to hedge your assets.  

Home values were declining, a recession was expanding and stocks had started to drop from their late 2007 highs. Personally, my independent business started to pull back, my house declined in value, so I was left with what to do about my investments. Once you realized how over leveraged the banking system was the decision to go into cash became even clearer. – My other two major assets were deteriorating and stability was needed somewhere.

Hedging was an added reason that in the late summer of 2008 Investors411 moved to 90% cash as a major positions

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More Hedging

Currently, because of the severity of the recession, hedging also plays a major factor in any investment. When the few long positions Investors411 held (FXI EWZ GEX) moved too high a hedge was put in.  See Strategy section of blog. 

Bottom Line – Times have changed  - This is not the old stock market of 1980 to 2000 or your fathers market where everything automatically went up. From 2000 to 2008 the Dow went down almost 30%.

Bob Dylan – “The times they are a changing”

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AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

 

Stocks

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Index Percentage % Volume
Dow -0.10% up
NASDQ -1.92% up
S&P500 -0.35% up
Russell2000 -1.71% -

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Technicals & Fundamentals

XLF (ETF) the beaten up financial sector is leading this rally – up over 30% last week, but down 1.95% yesterday. Citigroup was up 100% in a week. Short term traders are loving this action.

Big volume on a flat day is something Wall Street technical analysts like to call “churning.” A major battle was held between the bulls and the bears. There were heavy casualties on both sides. Churning usually indicates a reversal of trend.  This is reinforced because in the short term we are overbought. Therefore, bulls have less troops to act as reinforcements. 

Critical to all this in that major major 741 support level on the S&P 500. (see chart at side of blog) SPX now at 754.

Fundamentally, the proposed changes for the Mark to Market accounting rules (see past updates) is very bullish for financial stocks. This is the #1 factor holding up stocks and the financial sector right now. We are giving what has been a corrupt financial system (companies like AIG, Citigroup B of A) an accounting system that is less transparent.

Obviously, Mark to Market is a  short term boon for the corrupt over leveraged banks and the stock market.  One wonders what the long term impact will be as these toxic assets slosh around the system and are hidden by accounting methods. 

Reading the Tea Leaves – Fundamentals are moving in a positive direction and technicals in a slightly negative direction. If we can hold out above 741 support then this rally (@10%) has a good shot at at least being at least as good as the 20% or 28% bear market rally we’ve had in the last 6 months. 

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Long Term Outlook BEARS RULE

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

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

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