Cautious Optimism on Stimulus

Christina Romer

We’ve come back from the edge of the financial cliff, Stocks have rallied significantly, & Job loss has decreased from @700,00 a month to 216,000 last month.

“We have absolutely seen a change in trajectory,” said Christina Romer, top White House economic adviser. White House said that translated to about “one million jobs that would have been lost without government efforts

There have certainly been many different government programs along with the Fed that have change the financial picture – In its first report to Congress on the stimulus, the White House Council on Economic Advisers said the economy was improving and would have been far worse without the stimulus . LINK

Also Treasury Secretary Tim Geithner both in front of congress and on the CNBC echoed some of those achievements and future problems – LINK

One interesting point is besides these economic gains $80 billion have come back in from the loans.

Making $ off the Stimulus

Instead of editorializing on the stimulus, let’s take a look at how to trade/invest on this huge amount of cash stimulating the US and the world’s economy and make your portfolio grow. Some significant points.

  • The Chinese stimulus is over twice as large as the US relative to the GDP of each country. Their stimulus is more focused (one political party) and faster acting. We’ve already seen a far bigger move in their market than ours. This should continue. Invest in China
  • US has guaranteed the solvency of the giant “too big to fail” shadow financials. Smaller banks are not covered and getting toasted. From the best Goldman Sachs t o the worst AIG & Citi , if the government is going to guarantee your survival you have a huge advantage. Invest in too big to fail shadow financials
  • All the printing of money,taxpayer stimulus, & government loans is forcing the dollar lower. The US is a deficit nation. This forces commodities (traded in dollars) higher. Invest in commodities – Copper, Gold, energy & and energy rich countries – Brazil

Health Care

One of you sent in the a link to different views on health care from the NYT. Will post this on the comments section of the blog. This echoes a comment made by Doggie’s Mom.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index Percentage % Volume
Dow +0.84% up
NASDQ +1.15% down
S&P500 +1.04% up
Russell2000 +1.45% -

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

NASDQ continued its breakout move. Both the Dow & the S&P, joined the NASDQ  broke out to new yearly price highs yesterday. Small cap stocks (Russell 2000) broke out two days ago. – Bullish sign

Up five trading days in a row for major indexes – we’re getting a bit oversold.

This rally is very much related to the dollar dropping. According the talking heads over 1/2 of the profits of the S&P 500 come from foreign countries – so when the dollar drops their profits grow.

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Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

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 has leveled off and started to rise over the last two weeks. Flat yesterday +01 yesterday.

Each day this looks more like a base has been formed above a key support level Longer flat bottoms and slowly moving higher is usually indication of, at least, a short term bottom-Bullish short term outlook for BDI and we have certainly recovered from the devastating lows of Dec./Jan.

The BDI is 41% off its high (early June) Before that it gained almost +170% from early April to Jun e

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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 dropped of the table and through its major support level three days ago and has continued to fall.  It fell -0,30% yesterday. This added drop is confirmation of the technical breakdown the day before. Dollar closed at $76.81. Its  major support level is @$77.5 . After 11 days of consecutively being up one day and down the next, the dollar has fallen 4 days in a row. Short term Bullish for most stocks

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

Bottom Line – Both the BDI & the Dollar are forecasting at least a short term rally.

Last year’s low was around $71, so there is a long way to go before the next major support level.


Positions

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

Instead of waiting for that illusive 5 to 10% dip to invest nibble a little bit now. This is a dollar dropping rally. Don’t get a sugar high from it.


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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