Wall Street Journal and Stimulus

The weekend WSJ had a lead editorial (you have to subscribe to get the editorial) that suggested the remainder ($400 billion) of the stimulus should be given to American business in the form of a tax cut .  The WSJ does, of course, have a "supply side/free market" economic bias that is to enrich the companies they write about. What is good for Wall Street in the short term is often quite the opposite for the long term well being of the country and even stocks. Best example is the WSJ support for "free markets" to regulate themselves greatly intensified the worldwide recession. (see past Investors411)

If you cut taxes for business here’s what happens-

  • The money could go into a stock buyback
  • The money could go into dividends
  • The money could go into bonuses for top executives
  • The money could go into research
  • The money could go into hiring new workers  – First choice to hire is, of course, cheaper labor outside the US that does not have  heath care or has fully paid health insurance by the country.

Stimulus value for the American economy is minimal, but for the individual company its great. The stock market is recovering quite well on its own, why do we need to cut its taxes more?

If you offer a stimulus plan that gets money flowing and more people buying products – business also grows, but so does the economy because more money flows. I’ve given two examples, but there are others in the stimulus program

  • The $8000 first time home buyer stimulus . This works in a myriad of ways Some – Stimulates a much larger purchase ($100,000+ homes), new homes need new appliances, increases property values of surrounding homes, helps fix the declining foreclosure crisis, could result in more construction jobs etc. In short much more money flows and demand grows.
  • The Cash for Clunkers progra m – Even if you factor in only the cars built in America (60% – see your emails) This encouraged the purchase of the remaining 2009 inventory, put more efficient cars on the highway, gets more money flowing (purchase of a $20,000 car).

In short DEMAND increasing and MONEY FLOWING among more people makes an  economy grow far faster than simply cutting taxes on business which has almost no impact on demand and gross money flows.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index Percentage % Volume
Dow +1.03% down
NASDQ +1.79% down
S&P500 +1.31% down
Russell2000 +1.42% -

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

Major US indexes rose in light decreased volume on Friday.  The decreased volume show indecision of investors and traders over the jobs data.  The jobs rate fore from 9.4 to 9.7% but the job loss fell from 247,000 to 216,000 jobs. Over 1/2 the job loss was in the manufacturing and construction sectors.

Last Week , FEARLESS FORECAST "is for a down week ." Major US markets were down as well as most world markets .

This week , FEARLESS FORECAST - is for an up week .

Major news for the week is going to be Obama’s health care speech on Wednesday. Anything less than a clear full & forceful  commitment  to a public plan for heath care will give insurance companies and some major HMO’s a quick boost in price.

Bottom line here is Wall Street will probably come out of this with the feeling that they own or have broken the Obama administration.  This should add to stock prices in the short term.  The long term is a different story (more later).  The BDI has also started to level off and formed a base. (see below)

History – In 1929, right before the great depression, the market reached its high on the Tuesday after Labor day

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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 over the last 9 days , +17 yesterday.

Unfortunately, since early summer we have created  lower lows and lower high that confirms both the mid term bearish trend .@ 2298 is a major area of support and the BDI has fallen since early June from 4291 to 2413. This is just 115 points away from a major support level.

The 9 days of relatively flat trading could be a technical base forming just above the BDI’s major support level.  The 17 Friday is a small,but hopeful move in a bullish direction.

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

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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 was fell -0.35 % Friday. Dollar closed at $78.16. Its  major support level is @$77.5 & it has 2 major resistance levels – a falling 50 day moving ave. at @$79.o0 and the August highs of @ $79.5 .  If it breaks down through support stocks should rise, if it breaks up through resistance stocks should fall.

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

For an unbelievable 11 straight days the dollar has reversed direction – One day up and the next day down.  If the dollar goes in the same direction two days in a row you might call it a trend.

Positions

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

Sold 1/3 (or 6% total stock) position in FXI (China) Boy this sure looks like a mistake this AM

My bias – I will be away at an art show this weekend & I tend to get conservative when I’m not near my computer. – Too scared of bad jobless figures on Friday. The decrease

Your Comments

Both privately and in the comment section of the blog you are asking for individual stock recommendations. OK I have a few. NVS (Novartis)-  a swine flu play (46% of US flu vaccine) and Apple computer – AAPL (Apple is moving into China)

I bought both these stocks early last week. Please remember this is a trade rather than an a longer term investment. I have a predetermined 8% loss price that I will get out. What I have is a trailing stop which means if the stock goes up so does the stop.  Will take 1/2 profits with a @8% gain and let the rest ride.

Both stocks have decent technical charts, a fundamental story, & if markets move higher, they should outperform like they did Friday. (Buy the dip)

I do not like recommending individual stocks and much prefer ETF’s. Sectors are easier to understand, more liquid, and less likely to dramatically fall.

GLD – our 5% position in gold is doing quite well

Have to update positions section (away all weekend) Investors411 problem is that we are under invested in equities. The predicted 5 to 10% correction this month almost happened last week (-4+%), but close doesn’t count.

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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