Stimulus Works

Richard Koo, Japan expert and Economist points out the similarities between the USA and Japan’s “Lost Decade” in Money magazine (pg. 61) His conclusion is that deficit reduction right now in the USA will do the same thing as it did in Japan. Perhaps worse. Here’s his major points. (sorry Money magazine is not on line.)

  • The USA was ultimately pulled out of the Great Depression by a massive government stimulus/spending program – World War Two
  • Japan’s economy started to go south in 1991. Whenever government spending was raised GDP grew.
  • In early 1997 Japan cut spending and GDP shrank from @3.5% (per quarter) to almost -3% in less than a year. The gov’t then raised spending and GDP rose to 2.5%.
  • When Obama launched his $787 billion stimulus program the the GDP was close to -5%. It improved to +3% in a little over a year. Now that the stimulus is running out we are again falling in GDP growth.

The stimulus program, which Republicans have labeled as a failure, helped increase USA GDP from -5% to +3%. That’s a massive success. Now its running out and we are again slipping in GDP. All everyone talks about is shrinking spending. Dr. Koo has a great point and history will repeat itself  if we let it happen.

For more on Koo LINK here

Stimulus from Bernanke and the Fed’s QE1 & 2 helped us recover.

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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

Index Percentage Volume
Dow +0..66% up
NASDQ +0.24% up
S&P 500 +0.57% up
Russell 2000 +0.11%

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Market Analysis

Focus on TechnicalsFundamentalsHFT’s

  • It was the one day a month options expire (3rd Friday of month) so volume was up.
  • The leading party in Germany (Merkels’s CDC) did poorly in a Berlin election. They’ve lost last 6 of 7 elections. More bad news – Former UK PM says 2011 is worse than 2008, and Strass Kahnn ( the French NYC sex scandal guy/former IMF head) say Greece is finished. Italy PM is again over his eyeballs in a sex scandal.
  • Big news of the week is FOMC meeting and announcement Wednesday. A surprise would move stocks higher.
  • Trend - Kicking the can down the road is mana from heaven for HFT who can use every news items to execute short squeezes, pump and dumps or catching institutional traders with losing long positions

Investors411 Technical Forecasting Tools.

  • The PCR was flat at 1.02 (Roughly - above 1.25 is getting Bearish and below 0.80 is getting Bullish. 1.00 = same amount of puts and calls. Over last two years the highest for PCR is @1.50 and lowest @0.60 - anything approach these levels shows change likely For more information on PCR LINK)  Three basically flat days in a row close to 1.00 = Neutral

The McClellan Oscillator

  • (MO) fell slightly to +46.98 (Rough estimates =-30 somewhat oversold, -60 oversold, -90 OMG oversold & +30 somewhat overbought, +60 overbought and +90 OMG overbought) Somewhat oversold  = Bearish/Neutral

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Reading The Tea Leaves

Short Term Outlook

days, week+

  • The excessive amount of “Put” positions has switched to Neutral. The MO is at Somewhat oversold.  This means that bad news will probably now have a negative impact on stocks. We have had some negative news out of Europe this AM (see above.)
  • Technically, Still more  Neutral than Bearish, but Bears are starting to growl. Bearish bias into Fed meeting Wednesday.
  • Fed/Bernanke needs to “surprise” traders/investors for rally to continue.

Longer Term Outlook

month, months

  • Repeat Same old mantraMay 20th forecast still stands. The May 20th summer forecast has come to pass and now we wait to see the Fed’s next move. Add to this Europe is a whole lot worse than previously thought back in May. For the Fed to act significantly – inject more liquidity - I’m afraid we need to see stocks do worse for that to happen.
  • We do have a technical series of higher highs and higher lows build on major indexes.

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Current Positions

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

See POSITIONS Section of blog for more on YSL#5.(scroll to bottom)

Friday, Investors411 waited for more favorable conditions to go short or buy gold. Unfortunately we had only a minor rally and not a big one which would have given us a solid  technical advantage.

Mea culpa – I often wait for a good trading situation to get even better, before I enter the trade. Right now it looks like the minor rally was good enough to make a move. Gold has rocketed in Europe this AM and stocks fallen.

Positions

NLYAnnaly Capital Mgt. Ultra high dividend stock –a @14% dividend NLY was bought in mid May at 17.14 Now at 17.93

GLD (Long Gold ETF) Bought at 167.05 - Sold 1/2 for 8% gainGLD closed at 176.03. Gold is contrarian to stocks and More willing to buy tan sell right now into a stock rally.

Disclaimer I buy everything in the hypothetical Investors411 portfolio. If stock is mentioned and I own it you will know.

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Long Term Outlook

(for US stocks only – not our economy)

NEUTRAL*

*Investors411 has 5 different long term valuations - BULLISH, CAUTIOUSLY BULLISH, NEUTRAL, CAUTIOUSLY BEARISH, and BEARISH.

* Everything written in BROWN is a repeat from a previous day(s)

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

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