The Game of Chicken

Douglas Holtz-Eakin is about as powerful a conservative economist  as there is.

Here are his money quotes on the Republicans holding the debt ceiling hostage to the demands of their right wing/Tea Party ideologues.

  • Default Would Be An Economic Disaster…Little defaults, big defaults; default’s a bad idea period and there should be no one who believes otherwise.”
  • “We need to grow at this point more than anything else.”
  • “The idea that somehow it’s a pro-growth strategy to raise interest rates on a permanent basis in the United States is just crazy,”

Its one thing for Investors411 to beat the drum for these economic ideas again and again, but when arguably the chief Republican economist (Top economic advisor for Bush & McCain, and runs his own right wing think tank ) says the same thing- you have to realize just how “crazy” and ideologically based  the Republican’s in congress have become.

Those big Republican Wall Street investors should be on the phone right now screaming at the Tea Party they created about realities out here in on Main Street America. Because to manufacture this crisis over the debt now is going to sink not only Main Street, but Wall Street even further. Our focus today must be Jobs and growth.

As Republicans push for “brief” default China warns Republicans -

“They are playing with Fire.”

How blissfully ignorant Americn sheep are, as they are mesmorized by their media’s depictions of the tawdry affairs of a musle bound governor and congressman, to the fiscal realities that threaten to explode.

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KISS & Stocks

(Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

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Index Percentage Volume
Dow -0.16% Down
NASDQ -0.04% Flat
S&P 500 -0.10% Up
Russell 2000 +0.28% -

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Technicals, Fundamentals & Analysis

  • RepeatIf the Fed waits weeks/months to offer more liquidity then CAUTIOUSLY BEARISH should be the outlook. (NB I added word weeks)
  • A significant gain evaporated yesterday after Fed Chair Ben Bernanke’s speech was revealed. Bottom Line no QE #3 (additional liquidity) = No rally in stocks.
  • THE MOTHER OF ALL FUNDAMENTAL FACTORS - It trumps everything – No more Fed liquidity = No stock rebound.
  • The McClellan Oscillator (MO) chart rose to -44.65.  US Stocks are moderately oversold. Oversold stocks are the single major technical factor preventing a major meltdown.
  • Markets from the introduction of Fed QE 2 moved higher on weak volume, now they are moving lower on weak volume.

  • Reading The Tea Leaves – Wall Street’s message to world – We are going down until the Fed introduces more liquidity. Technical aspects may be give hints at market directions but fundamentals rule. Investors411 has hammered and hammered on how important Fed liquidity is for many many months. Yesterday’s speech was the cherry on top of proof that Fed liquidity is the 800 lbs. bear in the room.
  • Reading The Tea Leaves – You put an  800 pound bear in a room and introduce fire (see above editorial on debt ceiling) Now guess what happens?

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Positions

Below – Investors411  hypothetical portfolio that should outperform the S&P 500.

SLV/AGQ (very roughly 2x silver) Sold 1/2 for +3% profit. Have a sell order in on balance for 3% loss. (see Friday’s comments section of blog.)

REMX(Rare Earth metals) Investors has a 1/2 position in this ETF

NLYAnnaly Capital Mgt. Ultra high dividend stock.

Yesterday – Bought 1/2 position in TZA at 38.65 Bought IMAX at 36.35

The US stock markets have stapled a message in the head of Fed Chair Ben Bernanke. We are not going to buy until you give us more liquidity/stimulus.

The question becomes how low can you go?

Therefore Strategy is clear -

  • Short any rally – Investors411 will use TZA (3X short small cap stocks) and SDS (2x short S&P 500 more conservative) Will add to TZA today.
  • Sell into any rally - Investors will sell both REMX and newly acquired IMAX – Longer term holders of IMAX still have possibility of making out till after premiere of blockbuster Transformer’s movie in July. SLV & NLY seem to be unaffected for now.

REMX & IMAX are NOT Inferior positions and if you have enough insurance/short positions to cover any losses then I’d hold them.

This is very much the same condition as the Silver trade in April, where there was a high probability that the trade you made would work. (both long and short) Shorting rallies is that trade. What will kill the trade is the belief that the Fed will take action and introduce more liquidity. Remember – There’s risk in everything

Disclosure - I own SLV, NLY, REMX, & IMAX (the later should have been in  Investors portfolio)

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Longer Term Outlook

NEUTRAL/CAUTIOUSLY BEARISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

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