WHAT’S UP? – GM crumbles – the impact; Major trend establishes itself – Reverse Colonialism; Your broker’s bias; Stocks -Buy and hold is dead – why; Changes to Positions section; Your stock questions

Image: Allison Kimble, Scott Kimble

Auto Parts Workers – Josh Anderson/AP photo 

GM/US Auto’s Crumble

GM sock fell over -20% yesterday to below 1933 prices. It ended the day at $1.15.

What happened is that big companies that hold GE bonds also have Credit Default Swaps (remember how CDS’s crumbled housing) protecting their bonds.  Therefore, they have no financial incentive keep the company in business. Looks like bankruptcy is almost inevitable. Story link to pain of car sector dissolving. This looks like a death spiral.  Consequences of bankruptcy -  

  • The worse case senerio the Stress Test had for unemployment (now -8.9%) was -10.3% - We could easily surpass this.
  • More unemployment = more foreclosures = Home prices fall = less consumers buying = more stress on banks= greater chance of economic meltdown. 
  • The USA is addicted to oil and cars. Transportation is vital to the economy. We are already dependent on foreigners for oil and now we will be dependent on them for cars/manufacturing. 

The Trend – Reverse Colonialism

One significant trend that is almost ignored is just how significant a role other countries are playing in buying our debt.

Most talking heads put foreign ownership of the US at @$5 trillion now. The whole way our financial structure has been moving over the last 40 years has depended on expanding and over leveraged credit. Foreigners have bought up lots of this credit.

Inevitably, foreigners are going to demand better and better assets as they become bigger and bigger shareholders in the USA. Already in  countries like Saudi Arabia – the  #2 form of income is foreign ownership.

It’s doubtful that foreign entities will stop buying US debt because it will hurt their own economies. But what is more likely is that they will demand more significant and better American assets to finance America’s future debt. In essence - Reverse colonialism

Bottom Line – Teach your kids Chinese.

Buy and Hold is Dead

Thanks for all the  personal emails on specific stocks (see comments section) I will answer them. But, I do NOT recommend individual stocks because I’ve long since realized that everyone else knows more and has access to better information than I do. 

Your broker is biased.

  • Brokers are paid by how much $ they have in the market 
  • Each AM they are given a list of companies to push that their bosses have made deals with. This info is given to most wealthy clients first.  
  • Individual stocks are too easy to manipulate like GM (see above) Your broker might not be, but brokerage companies play this game.

Buy and hold 

  • Buy and hold used to work in multi decade bull markets.  Since 2000 (Dow at 11,000 & now at 8,400) we’ve been in a Bear Market.
  • Markets now move much faster because hedge funds and private mega institutions dominate trading. The buy and hold mutual funds are not as significant a factor as the past. Even mutual funds trade far more often than they use to.
  • Short term traders with computers and far more esoteric trading tools dominate the markets.

This is why Investor’s 411 looks for mega trends and follows them with low cost stable market baskets of stocks (ETF’s)



Index Percentage % Volume
Dow +0.60% up
NASDQ -0.88% flat
S&P500 -0.10% up
Russell2000 -1.35% - 

Technicals & Fundamentals

Major markets closed mixed. Mostly to the downside. Volume was up but below average for the S&P 500 and Dow. Above average and flat for the NASDQ. Volume so far this week is not showing any sign of confirming the price move. Therefore …

Still looks like natural profit taking after a big run higher. I could develop into a reversal if volume increases.

XLF - The ETF that tracks financials (mostly shadow banks ) fell -2.12% in flat below average volume.  Repeat - Since the current rally began two months ago only 4 times have we had two down days in a row for financials.  So if today is another down day in, especially in light volume, short term traders might (day and swing traders) might see it as an opportunity to buy.

Short term Traders only – would buy the dip today (see above) and use stops to limit losses

If Shadow Banks go up – so will stocks. If Shadow banks go down so will stocks – The mantra of the markets for the past two months continues.

WTIC charts “Light Crude Oil”.(see chart). Oil prices momentarily crested over $60. Prices were up 0.30% to $59.71.  In one sense high oil prices are bullish. Higher oil prices indicates that investors think demand will be strong in the future. The downside is higher energy prices is it further diminishes the buying power of the middle class consumer in America,

Repeat from yesterday-What happens to Shadow Banks is still the dominant factor controlling what other stocks do. Investors411 has given the good,the bad and the ugly of the privatizing the gains and socializing the risk in Shadow Banks – The good is the gains on Wall Street.

 The Upcoming war We have rapidly created an incredibly massive subsidy system for America’s Shadow Institutions – How do we disconnect from these wealthy welfare recipients?

Most likely senerio for week -  Consolidation or profit taking. Let Shadow banks be your guide.

Email Question from MamaJama

Should we take profits on China and Brazil now? (see Comments and Positions section of blog) 

Reading the Tea leaves - There is at least a short term dip coming. Investors411 has already dumped positions in financials and techs.  Do plan as a trader to buy the dip in financials.

 Yes you can take some money off the table/take profits in China & Brazil. No one evr went broke taking profits. You can also buy some protection.

Remember, the last time I recommended this (the “swine flu scare”) I was wrong. Right now, personally I’m selling some Brazil (EWZ) with the intention of buying the dip.

As stated many times in the past month – what happens to shadow banks is what moves stocks.  China and Brazil right now (in the short term) will follow this trend. As long as Shadow Banks rule – and right now they seem to have the Obama administration in their pocket – stocks should not fall too far too fast.

Long Term Outlook = NEUTRAL

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


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