• Everyone from US Military Commanders to Apple Computer are held accountable for their actions. Bankstas are special.  They don’t have to mark to market their earnings results.

• Goldman Sachs earnings (even without mark to market accounting) report is worse than expected and has a revenue LOSS – next day goes up +6%. Apple, who has to use mark to market accounting has a worse than expected earnings report and goes down -6%

• No one will go to Jail – Price fixing scandal grows as major banks (BAC, C, JPM, DB) are accused of Price Fixing

• Noted Economist, Prof Mark Hudson explains how European Debt Crisis is “Bankstas waging war against the people of the world”

The 1% at the top benefit enormously from banks. They reap they huge bonuses & salaries, they trade the unregulated Credit Default Swaps, and they run and invest in High Frequency Trades.

Damn it feels good to privatize those gains, socialize the losses and not be held accountable.

What do we sheep do?

(except the Occupy Wall Street protestors)

BAC and other banks save enormously when you use your debit card instead of a check. Now they charge a $5 monthly debt card fee. Again and again and again and again….

We sheep passively get fleeced.

• All eyes on Sundays big meeting on European Debt

Taking it on the Chin.

After four very successful YOUR Stock List, the 14 stocks in YSL #5 is taking it on the chin.  The reasons

• Two days ago CROX had a bad earnings report and fell -39%
• Yesterday GRMC suffered from a poor forecast by a major analyst and fell -13%

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Another Shoe Drops

Remember the wealthy wife of Philippines Dictator Ferdinand Marcos – Imelda?  Well she truly loved shoes.   The above is a photo of a very minor potion of Imelda’s collection.

Imelda is no longer with us, but her shoes are raining down on Wall Street in increasing numbers every day. It’s not just the other shoe that’s falling but  but a symphony of shoes that are hitting their marks each day and destroying what’s left of the non transparent American Financial system.

__________

Bernanke and the Shoes

Smoke was coming out of the Fed chairs ears as he angrily denounced AIG in front of a congressional committee. AIG is an Insurance company that was running an (unregulated) “hedge” fund according to Bernake . We gave these crooks another $30 billion because the collapse of the company (shares now worth $0.42) would devastate the world’s financial system. Yahoo news on Bernanke: Bail Out Bad Borrowers Too

__________

Imelda’s revenge

The shoes are not only clobbering their targets – other companies that ran similar “hedge” funds full of over leveraged toxic assets – but are also hurting the entire world. AIG has tanked. Citigroup is 27 cents away from becoming a stock counted in pennies. GE down over 95% from highs. Wells Fargo, Bank of America, and the other “usual suspects” stock and bond prices are disintegrating. XLF (the Financial market basket of good and bad financial companies) has fallen from 30 to under 7 within a year and many stock markets all over the world hit new lows yesterday.

_________

Senator Bernie Sanders and the Shoes

Vermonters love their independent (socialist) Senator. Here’s why – Sanders to Bernanke – Tell us what banks have sought bailout money. Bernanke – We have a new web site… Sanders again – tell us what banks. Bernanke NO. Sanders dropped a shoe on more than Bernake

__________

Why are Bernanke Obama and Geithner’s lips sealed?

First any bank that has taken bailout money is likely (like AIG and CitiGroup) to keep asking for more. Who knows how vast the “hedge” fund trading or toxic debt is?  It’s all hidden.  Therefore, the shoes keep falling and the markets keep melting down.  If the government & companies exposed the facts investors would realize the dreaded N word – Nationalization – would get used. These stocks would fall off a cliff and the markets would take a big hit. So we keep dying a death of a thousand cuts from falling shoes and the market slowly melts down. Which is worse?

Stop hiding the facts. Take the hit. Stop the shoes. Let’s start fixing the financial problem.

__________

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Stocks

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Technicals & Fundamentals

We did NOT get the predicted oversold bounce yesterday. Instead markets consolidated in declining volume. Perhaps we’ll get some sort of over sold bounce today, but more and more its looking like the short term momentum is totally owned by the bears. 

The benchmark S&P 500 closed below 700 yesterday. These round numbers are support levels. So another support barrier fell. 

Reading the tea leaves – Until there is clarity in the financial sector (see above) stocks have little chance of sustaining a rally.

Major fundamental for the week is the monthly jobs report on Friday.

How will you know when there’s a chance for a sustainable rally? When there’s bad news and the market’s ignore it or even better – move higher on negative news.

Long Term Outlook = BEARS RULE

See STRATEGY, POSITIONS, OVERVIEW  & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

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News

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Deer in the Headlight

Stop staring at the headlights and Get out of the road

The reason Investors411 brings you news like “the worlds financial system has effectively disintegrated” (see last post on blog – Roubini, Volker Soros) is so YOU can stop standing like a deer in the headlights and do something to protect your economic well being. - 

Obviously, the Laissez-Faire capitalism under the previous four Presidents has spectacularly failed. The tech, housing, and credit bubbles have all burst under the absolutism of “free market capitalism” and something better has to arise from the ashes. 

Over the last eight years we have so decimated/cut and tainted the staffs of regulatory agencies from the SEC to the FDIC that any short term solution from Madoff to Nationalization becomes,at best very very difficult. 

The Real Structural Problem

What we watched over the last 8 years is an orgy of economic bubbles bursting because of unregulated greed of our capitalist system. Yes its time to restore balance, but first you have to recognize the long term structural problems. Researchers Picketty and Saez on where the money’s gone in our country over the last 40 years. Quote from economist Robert Reich& graph from Picketty and Saez -

“since the late 1970s, a greater and greater share of national income has gone to people at the top of the earnings ladder. As late as 1976, the richest 1 percent of the country took home about 9 percent of the total national income. By 2006, they were pocketing more than 20 percent. But the rich don’t spend as much of their income as the middle class and the poor do — after all, being rich means that you already have most of what you need. That’s why the concentration of income at the top can lead to a big shortfall in overall demand and send the economy into a tailspin. (It’s not coincidental that 1928 was the last time that the top 1 percent took home more than 20 percent of the nation’s income.)

This is the beginning of a “Great Recession.” and the real long term structural problems of income inequality have to be addressed. (see Overview section of blog) Only then will we find a long term solution.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Short Term Outlook

Both Citi Group and Bank of America were again had massive losses on Friday based on fears of nationalization.  The ETF that mirrors financials is XLF

The major indexes recovered from -3% losses in huge volume on Friday.  After 5 straight days of financial meltdown technically it looks like we may see a short covering rally continue.  The huge volume in financial stocks, the Dow and the S&P indicates a short term climax selloff. This is where all the weak or frightened investors panic and sell. The more solid long term holders remain. The rally from the 3+% fall is all the short term traders caught in short positions selling. Technically, Friday’s trading and the oversold conditions indicate a short term rally in stocks should continue.

You shouldn’t get too excited  - this is a technical bounce. Sometimes these bounces can be the start of something bigger. What we need is some major change in fundamentals like slowing unemployment or decline in the default rate of mortgages to give any rally substance.

. 

Long Term Outlook = BEARS RULE

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See STRATEGY, POSITIONS, OVERVIEW (new) & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

The Sky Fell

Three very significant economic/business guru’s (George Soros, Nouriel Roubini and Paul Volker have basically all come to the conclusion that “the world’s financial system has effectively disintegrated.” and “there is [little or]no prospect for any near term solution.”

Investors411 has concluded each Market Updates with the same for months. “The problem in financial sector is far far far far far bigger than first imagined. Impact of mess is going to take years to resolve.” This conclusion is now under the Positions heading at top of blog.

Legendary Investor George Soros- “Sees no Bottom for World Financial Collapse” (Yes you are seeing double my mistake)

Former Fed Chair and head of Obama’s economic advisory council Paul Volker - “I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.” Same Reuters’ source

The columbia economist who predicted this meltdown Nouriel Roubini “Laissez-Faire Capitalism Has Failed”

Long Term Outlook = BEARS RULE

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

FDR and Stimulus

President Herbert Hover eighty years ago offered no stimulus or loans to a crumbling economy. As a consequence bank after bank failed Unemployment rose above 25 % and by the time Roosevelt (FDR) took over in 1932 we were already in the Great Depression . But, FDR made progress and consequently Americans overwhelmingly re elected him to office in 36. By 1937 he had through a massive government stimulus program reversed the growing unemployment figure and reduced it to under 15 %.

Unfortunately FDR, tried to balance the budget too early in 1937 and the recovery slowed. Again Americans showed overwhelming confidence in FDR and reelected him in 1940. American’s vote again confirmed confidence in his stimulus program. WW2 was in itself one big government stimulus program as was the post WW 2 GI bills and other economic measures. We emerged from all this government stimulus far stronger.

Basic economics teaches you to stimulate faltering economies and when times are good you don’t stimulate, but lower deficits. Many ultra right wing zealots are now trying to re write FDR’s historic economic actions and leadership. These are the same voices that believed "free markets" need no regulations, and lead us into the current crisis.

Undoubtedly, the government has done a poor job in transparency and accountability in the current stimulus and loans packages. However, we have not had the cascading loss of banks and insurance companies (AIG) that would have led to other industries collapsing throughout the world. This is NOT a plea for blanket bailouts. Poorly managed companies have to be allowed to fail. But it does clearly show government stimulating and regulating a faltering economy works.

Bill Cosby and Education

Bill Cosby last Sunday on Face the Nation came up with some interesting statistics on why we should be offering more funding for inner city schools. It costs us $41,000 a year to incarcerate a prisoner and only $8,000 educate a child. You pay now or pay later. Add to this that incarcerated prisoners and welfare moms pay no taxes vs someone who enters the work force and pays taxes.

Funding education should be a priority. (more later)

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Citigroup, AA & Retail #’s -Bad news.

Index % Change Volume

Dow -0.30% up
NASDQ +0.50% up
S&P500 +0.18% up
Russell2000 +1.06% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets "churned" yesterday. That’s the term Wall Street uses for high volume days where the market went nowhere.

XLF is the financial sector ETF Chart here. As the chart shows financials rose +1.37% yesterday after loosing over -5% the day before. While any gain is positive, a +1.37 gain is not enough to put the bulls back in charge. Financials used to be the largest sector of the market and may no longer hold that distinction. But they are certainly capable of leading all major indexes lower.

The major indexes are at their major support levels (just above or below). Volume is starting to pick up. This is never a good sign as we start to move lower. Foreign markets are following the US lead.

AA is the symbol for Alcoa Aluminum, the first Dow company to report. It went down again another 5% in massive volume yesterday. Early indications are negative earnings and outlook are not built into markets and investors are beginning to realize there is going to be no second half recovery. (Bad news for stocks)

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – What’s happened is the Bush administration has asked congress for the second 1/2 of the poorly administered bank/financials (and auto) bailout/loans. The Obama administration will oversee the use of these funds. This has spooked stocks – especially financials. CitiGroup, the mother of all banks, broke support levels and fell 17% in huge volume. City has already twice received bailout funds. Citi is in the too big to fail category and its failure would mean a run on suspect banks worldwide. Citi did recover +5% in reduced volume yesterday. Problem – Citigroup is up to its neck in credit default swaps.

The bottom line – Just the knowledge that the government thinks the bank/financial needs more financial help is enough to make worried investors panic and sell. This time the Panic is a bit more orderly, but with no transparency and no accountability its pretty hard to invest in a financial stock. You know they’re in trouble, especially Citigroup, but who knows which ones will go belly up and what criteria the government is using to hand out loans.

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’s economic team & his proposed stimulus package.

Earnings season begins this week. However, Citigroup remains the stock to watch.

Retail sales numbers out this AM are far worse than expected.

Treasury Secretary Geitner, who Wall Street likes, nomination is in trouble.

Forecasting Future Trends

The following is a group of indexes that are all interrelated and strongly influence how stocks moves. At different times one index may be more influential than the other.

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.08% (good news for stocks)

LIBOR chart (3 month)

Treasuries – T Bills yields show how fearful investors are. The lower the rate the more the fear. Short term yields – 3 month rose to +0.07% and longer term treasuries were basically flat. 10 year fell to 2.29% (low yields show fearfull investors flooding to Treasuries instead of stocks – Bad news for stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday it rose another 2+% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, 2, & 2% gains in last 5 days)

BDI chart

We’ve seen a short term pop in international trade to go along with a solid bullish move in inter bank lending rates. Both are bullish signs. However, Panic still rules the credit markets. Prices of major banks are have again started to go south. Looks like at some time another chunk of bailout $ is going to be needed to fix banks in the future. Bush yesterday announced he’s going for the second chunk of bailout/loan money.

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

Strategy – Shorting rallies to protect gains is working. (see below) Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend. Obama rally (stimulus package) is holding up equities right now.

There are some positives out there but -

Add a falling financial sector, AA news, & now the miserable retail #’s = the Dow 8500 support and other major index support level will NOT hold.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule. Obama/stimulus rally phase 2 is underway. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency problem is far far far far far far far far far bigger than anyone thought. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15 to 25+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes) when stocks have a big rally

*5+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5+% Gold
GLD is the ETF for gold-

Chief Strategy – Buy the DIPS of trending sector – This is not your father’s buy and hold market – over the 8 Bush years the Dow has gone from 11,000 to 9000 and huge uncertainty clouds the future.

The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell and/or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the major indexes do.

TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing

Last Update for week – No Updates Thursday through Monday

Auto Loan/Bailout – Green Technology

News headline – Bush to appoint Car Industry Czar in tentative short term $15 billion auto loan compromise. If some technology innovator and business person like Bill Gates or Steve Jobs got the Czar job I’d enthusiastically jump up and down in support of the package.

Tom Friedman has an editorial in today’s NYT that mirrors a lot of the concepts in this section yesterday. He focuses on "Project Better Place " (PBP is often cited in Updates) that is working to build an electric car network in different countries across the world (Hawaii just agreed to participate). TF editorial "While Detroit Slept ."

One interesting fact is that GM refused to participate in this network, instead Nissan and Renault are producing their electric cars.

"Financial Thunderdome"

Best term (from old Mel Gibson movie) used by some TV personality to describe the shadow financial system and that is being protected by the Cheney/Bush government. Absolutely still no transparency. They forced about 10 major financial institutions to take bailout money and we have no idea of the solvency of any of them. The exception, of course, is Citigroup who has been given $45 billion plus another $300 billion in probable loans.

Fixing American Foreign Policy – A huge task

By almost every metric our foreign policy has been a disaster over the last eight years. First step – list some of the major problems besides 911 occurring and Osama Been Forgotten.

1) Our position as leader of the free world has been greatly diminished.
2) A far more powerful and still dictatorial China , a less democratic and far more confrontational Russia, and petro dictators have all grown in power.
3) We have created a factory that fosters terrorism by occupying Iraq.
4) Radical terrorist groups Hamas and Hezbolah and others have gained power.
5) After initial success in Afghanistan/Pakistan the situation has deteriorated.
6) Americans and the world have been divided by Cheney/Bush into "you’re either with us or against us" and our fundamental democratic right greatly diminished
7) American "exceptionalism"/arrogance (see earlier updates this week) has blinded us to the reality of the world
Saddam is gone, but the 3rd most corrupt gov’t in the world now rules which is closely tied to Iran – cost a staggering $3 trillion dollars and horrible human toll when all factors are considered.
9) Iran’s power and influence have increased.
10) Fear mongering instead of rationalism rules foreign policy.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow -2.72% down
NASDQ -1.55% -
S&P500 -2.31% down
Russell2000 -3.26% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Technical signs continue to favor the bulls as the markets retreated in declining volume. Both the amount of the fall and the amount of volume was less than the previous few rally days. The fact that the markets have moved higher despite some really bad news is also bullish. Simply by looking at technical signs the "Obama" rally seems to have legs. Investors are not stepping in to buy, but short term traders are moving this market.

The line in the sand number is 9654 – the November high. (see charts – these numbers are presented in rectangles)

Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama Rally = A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

This market is trading on momentum. It seems to have factored in the horrible earnings results and all the warnings that are coming out of companies. We could see a -4% GDP growth for the last quarter. The positive that traders are focused on is that all the stimulus will work. Markets tend to look six month in advance. Six months from now folks are expecting thing to improve.

If the $15 billion dollar auto deal in congress does NOT pass you are probably going to see stocks fall dramatically.

CAUTION – There is very little volume behind the rally. Few are jumping in off the sidelines. The closer stocks get to 9654 resistance level, the more protection (shorts) of long positions is recommended. This is to protect any gains made from buying on the dips. But for now it looks like a rally is in the works.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress WAS being made. LIBOR has fallen from 4.8% six weeks ago to @2 .17% LIBOR rates have flattened over the last three weeks. LIBOR is the rate banks charge each other, not businesses.

LIBOR chart (3 month)
Treasury Bonds

All the yields fell except the 6 month.
By no means are we out of the woods, – Fundamentally BEAR’s RULE

Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

Yields keep falling = Continued deterioration of credit market. There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose again over +1% yesterday to 679. Two days in a row of small gains. The BDI has seen an over 90+% loss since June. This is a clear indication that worldwide recession is growing. Best hope is that this index is finally reached a bottom.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. The Balitic Dry Index chart another major concern. Low oil prices are another indication of growing recession Fundamentals continue to show worldwide recession growing.

Technically, a short term rally is likely. Stocks moving higher on extremely bad news (unemployment report) is a very bullish sign. This right now this s a momentum trade based on stimulus being pumped into the system.

Personally – Will be adding some more ETF’s that short US indexes if rally continues . Right now still hold more long positions than short positions.

CAUTION: If a monkey wrench is thrown into the stimulus being offered – like NO auto bailout/loan happens could fall dramatically impact markets.

Old Wall Street expression "Buy the Rumor and Sell the News" – Right now the rumor/hope is in Obama and the news/reality would be his inauguration. Obviously most people (even many right wingers) believe he is far more competent and less political than Cheney/Bush. The caution here is we have a huge "shadow" financial system, housing prices falling, a world wide recession and a huge amount of debt.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded .

Technicals – Series of Lower Lows and Lower Highs = Bears Rule. Obama/stimulus rally part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion?) is far far far far far far far far far bigger than anyone thought.
It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15-20% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes) when stocks have a big rally

*5%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold-

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market-over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future.

The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell and/or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the major indexes do.

TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing

Citigroup Debacle/Bailout

Why is Citigroup getting such a favorable deal in their 2 bailouts? – $45 billion plus a 300+ billion guarantee against bad loads (CDS’s).

No restructuring.
No new business plan.
No executive jobs lost.
No one held accountable.

AIG, Fannie & Freddie didn’t get this kind of sweetheart deal and relatively the auto industry is being raked over the coals for their bailout. John Podesta, the head of Obama’s transition team says Citi should be held "accountable "

A firestorm of controversy has erupted. On the surface Bush’s Secretary of Treasury Paulson looks like he’s giving sweetheart deals to his fellow bankers. (Paulson former CEO of Goldman Sachs.) He is. These were the crooks or idiots who got us into this whole mess in the first place.

But if you look beneath the surface the major players of the newly appointed Obama Economic team are up to their eyeballs in this mess.

Robert Rubin, who sat directly next to Obama when his first economic advisory group was announced is directly involved in the Citi sweetheart give away. Rubin was Clinton’s former Sec. of Treasury and the mentor for both Larry Summers and Tom Geithner. They hold the #1 and #2 positions in Obama’s new economic team. Rubin also holds a major post on Citigroup’s Board of directors – pay $15 million a year

• Both Summers and Rubin endorsed moves that allowed Citi and so many others to merge and become "too big to fail."
• Summers (Rubin’s protegee) endorsed and fostered the Credit Default Swaps and leverage schemes that are the root causes of the credit crisis.
• Geithner who Rubin supported for his post at NY Fed was supposed to oversee Citigroup a NY bank.
• Rubin talked directly to Paulson about the bailout of Citigroup, who has paid him $107 million over the years.

This is a blatant case of the foxes guarding the hen house. The Feathers are Freshly Falling From Feeding Foxes.

From the right a slash and burn by NY Post "Bounce These Bozo’s "
From the left a more responsible attack on Rubin and friends "Obama chooses Wall Street over Main Street "
From NYT’s Tom Friedman a broader explanation of the Citigroup failure and the breakdown of almost every level of the financial chain "All Fall Down ."

These giant monopolies that are too big to fail need to get broken up into pieces that can fail and do not require a taxpayer bailouts to survive. What’s happened to accountahbiltilty? Will Obama’s team institute the right regulations to govern financials? Time will tell if Citi & others will be held accountable, but right now the foxes are feeding.

We all hope Obama will bring change on January 20th. About the best you can say is Rubin does not have a major formal post on Obama’s team and there is opposition within Obama’s administration.

NB – Ex Fed Chair Paul Volker was put in charge of another Obama Economic committee. Volker is a great choice unlike the foxes involved in the Citi debacle.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Another Obama Rally

Index % Change Volume

Dow +2.91% down
NASDQ +4.60% down
S&P500 +3.27% down
Russell2000 +5.79% –

US Market & Foreign Markets

Technicals

Big rally in light reduced volume. Volume did NOT confirm the move higher.

Technically the volume behind the first few days of the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9287 is the next. 9654 is the major resistance level (see chart of Dow below).

India markets gained almost 1% despite terrorist attack in Mumbai.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Obama holds a press conference on the Economy and the markets rally.

Today is a 1/2 day for the markets. Historically this 1/2 day has usually been good for the markets. Also November/December are usually good months for stocks.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress WAS being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a five weeks ago to @2 .17 LIBOR inched lower Wednesday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR 2.217 the AM.

The 3MTB fell from 0.10% yesterday and closed at a rate of 0.05% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is beyond dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart)

3 MTB chart

LIBOR chart (3 month)

Spread sheet listing all the Treasury bonds traders of last 15 days. This gives a broader picture of the panic or lack of panic over US financial systems. This We will use the 3 MTB as a benchmark, but notice the 1 month MTB is down to 0.02% Not good.

Daily Treasury Yield Curve

Bottom Line – LIBOR (Interbank lending rate) falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. These is simply NO confidence in the credit markets. PANIC RULES

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

Reading the Tea Leaves – italics = same comments as yesterday.

Best guess – Rally looks to have legs to take out some minor resistance levels. We did take out some minor resistance levels Wednesday and historically today’s 1/2 day is usually positive. PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.

Going Out on a Limb – We will probably move higher in the short term. Dow at 8726. But, its hard to see the major 9654 resistance level fall and perhaps some of the more minor resistance levels will reverse the rally.

Long term – Bears Rule Trend is still firmly in place. When it looks like the sky is falling nibble a little. Even if you think Obama can walk on water this is one hell of a mess and there is NO quick fix.

The established technical trend is Bears Rule – A long term series of lower lows (in price) and lower highs. Until this pattern is broken, Shorting (See ETF’s suggested below) as markets get closer to old highs is recommended.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line section bolded

Technicals – Series of Lower Lows and Lower Highs = Bears Rule

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) is far far far far far far far far far bigger than anyone thought.

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY.

*5%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
FXI (China ETF)

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5% Gold
GLD is the ETF for gold

Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future.

The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the the major indexes do.

TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing