Investors 411 Blog

Obama’s first two days are "a burst of executive sunshine " and "transparency".

Here’s 10 of Obama’s orders and/or acts

#1 Closing Guantanamo within a year
#2 Stopping the unfair and unconstitutional trials there
#3 Directing federal agencies to err on the side of transparency and not the Bush delay/secrecy over public records.
#4 tough new limitations on power of lobbyists
#5 Countered Bush’s order that allows past Presidents and VP to keep potentially embarrassing order from the public.
#6 Barred anyone in his administration from leaving and becoming a lobbyists while he is in office
#7 No one can serve in Obama administration who was a lobbyist over past two years.
#8 Both Obama and his future AG declared waterboarding "torture" and prohibited.
#9 Appointed competent top level envoys to Mideast and Afghanistan/Pakistan (Mitchell and Holbrooke) as negotiators.
#10 Spoke to all Mideast leaders (minus terrorist group Hamas)

George Washington and company when confronted with a massive foreign army not only won the day but came up with the Declaration of Independence, the Constitution and Freedom. George Bush when confronted with a small band of religious terrorist – declared war on secular Iraq, denied some basic freedoms that Washington had won and created far more adversarial and confrontational world – "You’re either with us or against us."(I know you could add to this list)

Certainly Obama is going to make mistakes, but its heartening to see America move back in the direction of our founding fathers.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Major Support Level Cracking

Index % Change Volume

Dow -1.28% up
NASDQ -2.76% ?
S&P500 -1.52% ?
Russell2000 -3.05% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Sorry could not accurately read volume figures on charts. Looks like volume was above average and flat. Because there was no significant increase volume, the #1 confirmation factor behind a price move, tells us little. Stocks were much lower but recovered some losses by the end of the day.

XLF is the financial sector ETF Chart here. As the chart shows financials after two huge swings (down then up) lost -6.35%. While this is a substantial amount it is not close to the 15% swings of the previous two days.

The financial sector is currently leading the US and world markets. Overall even though we had a massive gain yesterday the XLF has a multiyear series of lower lows and lower highs (change setting on chart to weekly to see this) – Technically this chart is about as bearish as you can get. In the shorter term a major move like yesterday’s in big volume indicates at least a short term low.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

For those of you who like to invest in individual stocks internet advertising and education stocks are doing well.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals -

MSFT fell over -11% yesterday (poor earnings report). When you consider this and the bad unemployment/housing figures and slowing +6.8% China GDP growth, the markets did a bit better than expected.

The emperor of internet advertising Google beat earnings expectations last night and was up 4+% in after hours trading. Now up +1.3% 9:22 EST

Another giant GE earnings met expectations (a loss of 44%) Analysis of their troubled financial unit. So much of GE’s business comes from financial part of business and it is way over leveraged. GE is down this AM.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.16% Its held steady in this area for about a week. (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 T bill fell to 0.07% and the longer term rates rose a bit. The ten year rose 2.58% (low yields show fearful investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again 5+% . Almost 85% drop since June. (We’ve had a solid gain since the early December lows of around 660 to 945, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves – Strategy – Shorting rallies to protect gains is working. (see below) Until we see 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.

All three forecasting indexes are beginning to indicate a positive move for stocks.

LIBOR has fallen significantly and even mortgage rates have fallen. Treasuries while low are starting to rally and we have seen a significant move higher in worldwide trade (the BDI) Looks like a stock rally is possible. Overall PANIC does still rule the credit markets, but it is easing.

Financials are the problem and will be until the toxic debt question is resolved. Could take years for this to happen. But now with a new administration there is hope. Hope of future transparency, accountability and rules in this area are vital for the economic health of the US and the world.

The other major negative is the employment numbers.

The Dow is hanging in at 8123. Still above its major support level. Even though there are some positives out there, Financial Companies and Employment numbers are overwhelming investors. Bad earnings reports like MSFT led to an 11% decline. This means that bad news is NOT built into market prices. The strong 7936 to 8000 Dow support level is in danger of collapsing today. You can feel a major downside move building.

Financials/Banks are in a lot of trouble with no resolution of their toxic assets in sight. Dow 7449 is last year’s low and the next major support level.

Long Term Investors who can handle risk and are less than 10% invested in stocks – Nibble a little on any major dip. Shorter term investors keep protection (short ETF’s) for now. You may want to drop some as we get closer to 7449.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

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

Fundamentals – Financial transparency/accountability 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 Cleaning up this mess is going to take years and growth will suffer.

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 8000 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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

The overwhelming crowd in Washington was certainly uplifting. However, at our hotel far more Jamaican’s than white American’s on holiday joined together to watch Obama take the oath of office. Tears flowed freely in the room. Obama’s inauguration has had a major impact on Jamaican’s and others throughout the world. At least now there is hope, but hope alone in not enough.

Another interesting point is that the resorts and plane flights were packed with people = what recession.

Banks

Updates has warned over the impending meltdown in financial/bank stocks. (see below) Bank prices collapsed yesterday and the FLX (see below) reached new lows. Now Bank of America and Citi group, two huge financials loaded with credit default swaps, are again melting down. Will the Obama administration, like the Bush administration just throw money at these and other institutions without any accountability or transparency?

One major concern – It was Obama’s new chief economist Larry Summers (as Clinton’s Tres. Sec. Clinton) who enthusiastically supported the deregulation that opened the door for most of the problems are swamping financial companies.

Few banks made any loans with the cash they were given in part 1 of the TARP. England and other countries have nationalized trouble banks that were "too big to fail" and are forcing these institutions to make loans instead of buying other banks, paying dividends, & handing out bonuses. Obama’s administration this AM halted the regulatory process pending review.

Bottom Line – Over the last few decades we have cut government so that it became too weak to regulate big business. Mega companies from CitiGroup to General to GM proved that left to themselves they were incapable of self regulation.

The absolutism of "free trade" and "free markets" have let greed run wild. Combine this with no real central planing and an eviscerated government. The result is a stock market, country and world facing the largest economic crisis since the Great Depression.

Remember – You should be very critical of TARP part 1, but it did prevent a worldwide run on the banks. While major banks are in trouble there is currently no run on the banks.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Financial Meltdown

Index % Change Volume

Dow -4.01% down
NASDQ -5.78% down
S&P500 -5.28% down
Russell2000 -7.03% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major meltdown led by financials. The Dow broke through its major support at 8,000 and ended the day at 7949.

XLF is the financial sector ETF Chart here. As the chart shows financials fell another -16.53% yesterday to new lows. 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. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bank Sector is collapsing. Volume did NOT increase (probably because of the inauguration). However this sector could easily drag the rest of the American and foreign markets with it.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

IBM – Had a very positive earnings report.

Both Citi and BAC are leading financials and the rest of stocks DOWN. State Street Bank and others are also getting clocked.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.12% (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 T bill was falt at 0.07% and longer term treasuries were basically fell 10 year rose to to 2.38% (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 remailed flat . Almost 85% drop since June. (short term good news are the gains over the last two weeks)

BDI chart

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.

Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Both these levels have broken and the Dow is at 7949. The 8000 level is the line in the sand. If the Dow can regain 8000 today there is a chance we could rally.

The short term Obama inauguration rally has been OVERWHELMED by the financial meltdown.
We could stabilize today, but confidence in banks seem shattered. Economist Nourille Roubini yesterday announced that banks are basically insolvent. Any extended rally is impossible without a solvent banking sector.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

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

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 8000 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

Just a quick note before leaving. Ironically flying US Airlines to Charlotte, then Jamaica.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally(part 3)

Index % Change Volume

Dow +0.15% up
NASDQ +1.49% up
S&P500 +0.13% up
Russell2000 +2.09% –

US Indexes fell to the Dow 8000 support level (@-200 pts) and then rallied in big time volume. The Obama inauguration, passage or TARP part 2, an oversold market condition, and probable passage of stimulus plan should rally stocks today and Tuesday.

Congratulations to those long term investors (as suggested at end of last Updates) who bought the dip yesterday. At least right now it looks like the right move.

Back Wednesday

Barr

No Updates till Wednesday – Short vacation to somewhere warm.

Green Investments

You can make a positive return on your investment within a year on the following three item’s for your home
* Programable thermostat
* Power strips
* Compact fluorescent bulbs

For more details and why they are cost effective from Daily Green .

Green Stocks/ETF’s – GEX and PBW have been the two green ETF’s Updates has recommended in the past

Tom Friedman controversial editorial on Gaza

This editorial has created a lot of buzz because of its focus on collateral damage.

War is hell. We dropped atomic bombs on Japan to hasten the end of WW 2 and the Allies firebombed/obliterated Dresden Germany in order to hasten the end of WW 2. In both cases there was a huge loss of civilian life. Friedman believes, contrary to most, that Hezbollah actually lost its 2006 war with Israel because Israel inflicted so much damage on Hezbollah’s infrastructure. This is what Israel is now doing to Hamas.

LINK to editorial

Also in NYT is a depressing and different point of view on how the war is marginalizing moderate Palestinians. LINK

The Bottom Line – Always happens after the fighting stops. Do the fundamentalists gain or loose from the results.

Osama Been Forgotten Speaks

Osama for the first time in 8 months spoke. He issued an audio tape urging jihad against Israel. LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Reacting Badly

Index % Change Volume

Dow -2.94% down
NASDQ -3.67% up
S&P500 -3.35% up
Russell2000 -4.35% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – As predicted major indexes all have broken down through their support levels. This fall is being led by financial stocks. Volume slightly declined on the NASDQ, but up and above average on the other major indexes. As you know – Volume rising with prices falling is a bad combination for future prices.

XLF is the financial sector ETF Chart here . As the chart shows financials fell another -5.77% yesterday and XLF is close to its November low. 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. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bad news is priced into markets, but as exemplified by the retail numbers published yesterday the bad news was worse than expected.

American stock indexes are technically oversold – you can only have so many down days in a row without some kind of bounce. However we have not had the big volume climax volume that usually shows capitulation by investors and indicates an end to stocks falling.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

JP Morgan beat earnings expectations LINK . but unfortunately prices are slightly down on this good news. The big news this AM is the poor health of Apple’s chief Steve Jobs. Apple was down over 10% in post market trading yesterday. LINK

Nobel prize economist (Phelpes) on CNBC this morning is calling for TARP 2 and possibly Tarp 3. Another Nobel Prize winning economist (Spense from Stanford) on same show is echoing negatives. Mainstream economist do NOT see a recovery in 2009 that some investors still do.

The bottom line – Many thought bad news was built into market prices, but the news is coming out worse than expected. If good earnings (JPM) cannot lift a major financial stock price, stocks are still in trouble. Stocks are REACTING BADLEY Good news should mean prices move higher and bad news gets ignored/absorbed in bull markets

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. Citi reports on Friday.

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 1.09% (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 T bill was falt at 0.07% and longer term treasuries were basically fell 10 year fell to 2.19% (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 1% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, 2, 2, & 1% gains in last 6 days)

BDI chart

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.

As predicted Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Oversold conditions exist (6 down days in a row). This could temper any downside move. However the short term momentum is still with the bears

Dow 8200 within 800 points of last years low. Long term investors who can handle risk better might want think about nibbling just a little in any further dip (Obviously the bigger the fall the better). The Obama administration should get a honeymoon and perhaps stocks will get the same. This would be Obama/stimulus rally part 3. However, you should also be prepared to add a short ETF in any rally. (see below)

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

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

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

Stimulus Package

Cutting taxes for Business – You cut taxes for business and what do they do? CEO and Board members get raises, dividends get increased, corporate jets get bought, stocks get bought back, esoteric derivatives get bought, or a lavish weekend party at a spa/resort/penthouse are held. OK some of the money may go for research and development or worker’s salaries, but obviously there is not much bang for the buck or accountability in cutting taxes for businesses.

The Obama stimulus plan plans to give tax cuts to those businesses that hire new workers. However, would not this money be better spent by creating demand for a product. By creating demand business would grow and new workers would be hired. This benefits both consumer and business.

Cutting Your Taxes – Sounds good and the impact is almost immediate. Bush did give us a tax cut and it did keep GDP positive for one quarter – but had no longer lasting impact and GDP for the 4th quarter is going to be something around -4.00%.

What happens to the (especially working middle class) tax cut. Some of it is used to pay down debt and some of it is saved. Commendable behavior, but that does not stimulate the economy and therefore it does not have a big bang for the buck. It’s better than cutting business taxes because it helps middle class consumers who spend on business products. The middle class spends and the economy grows.

Creating Jobs/infrastructure – Government creating private jobs through infrastructure projects. This has the biggest bang for the buck. Take building a bridge or a school. You create a job that turns an individual into a tax payer instead of a welfare recipient. What you build increases demand for businesses products – they grow. Example all the different contractor and materials that are needed to build a bridge/school are also helped. Once you have the bridge/school it benefits the individuals who use them. Example helps the flow of goods – bridge or provides a better educational environment – schools.

The problem with this is that infrastructure projects take time to get started. Red tape bureaucracy & politics get in the way. What Obama is proposing will not really have an impact till 2010.

Green Jobs – Right now hundreds of billions of dollars each year goes to petro dictators who we have become dependent on. This is an added benefit to infrastructure jobs – the money will be staying here. Of course pollution problems and global warming problems will decrease. This puts infrastructure green jobs at the top of the list.

Economist Peter Morici (see yesterday’s updates) and others have done work on how stimulus impacts markets. For more on Morici LINK

Nobel prize winning economist Paul Krugman offered his formula for stimulus yesterday LINK

Another $350 Billion

Bush has asked for another $350 billion – The Obama administration will spend this $. More on this below in "Fundamentals" section.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – $350 Billion

Index % Change Volume

Dow -1.46% up
NASDQ -2.09% down
S&P500 -2.26% up
Russell2000 -2.60% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets fell and volume especially in the financial sector rose.

XLF is the financial sector ETF Chart here . As the chart shows financials fell -5.26% yesterday in increased volume and clearly broke through support levels (11.33 see chart) XLF closed at 10.95. 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.

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.

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.

Some of these financial and other institutions have to be allowed to fail. They have to fix the accountability, transparency problems that the first bailout/loan package contained. Lot’s more on this later.

Institutions that are too big to fail need more government oversight – Ben Bernanke just said something like this AM at London School of Economics. Also expects more job losses in at least 1st 1/4 of 09 and turning this around will take time.

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.

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 1.16% (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 flat at 0.02% and longer term treasuries all fell. 10 year fell to 2.30% (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 2+% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, & 2% gains in last 4 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
Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

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.

We’ve seen a short term pop in international trade (BDI) to go along with a solid bullish move in inter bank lending rates (LIBOR) Both are bullish signs

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 . BINGO – Bush/Obama asked for the second half of the $750 billion bailout package.

Add a falling financial sector to the mix and the Dow 8500 support level will probably 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

Afghanistan

The CIA has found a new way to win over Afghan warlords. Money may not work well since the lucrative opium trade flourishes in Afghanistan. These old warlords have found something that puts smiles on their faces and on the faces of their many wives – Viagra. Yes, blue lightning is is being used by the CIA as a bribe.

Mexico

This is another country with a massive drug problem and ironically just like Afghanistan we are the major end users of the drugs causing the problem. The drug war in Mexico is perhaps the most under reported war on the planet. Here is an old photo essay from Time mag. It’s getting worse not better.

Obama is meeting with the Mexican President to go over the alarming escalation.

Israel/Hamas

One of the most under reported aspects of the Israel/Hamas conflict is that Israeli elections are being held in February. This has to impact what actions Israel takes. Three major parties are all positioning themselves accordingly and these elections have to influence Israel’s actions. Strong support inside Israel (80%+) for war and even stronger support in US Senate and House who overwhelmingly back Israel in a vote (above 95%). There is growing support for Hamas on the Arab street, but most moderate Arab governments right now are also angry with Hamas.

This is turning into a wider – Egypt, Saudi Arabia and other more moderate Sunni dominant Islamic countries vs. Iran (Shia dominated and Hamas’s #1 backer) Ironically, Hamas itself is made up of Sunni fundamentalists.

Iran has warned Hamas NOT to accept any ceasefire and threatened the withdrawal of support according to Jerusalem Post. LINK

Neither Israel or Hamas has accepted any cease fire.

Stimulus Package

Focus of this weeks Updates is going to be Obama’s stimulus package. One of the most used sources is going to be a guy that lives in my hometown (or he used to). He writes for BusinessWeek and the occasionally for Boston Globe. Bob Kuttner is also the a founding editor of the American Prospect. LINK to his most recent editorials.

What’s most important about any stimulus pan is the bang you get for the buck you spend. Kuttner and others often quote the work of U of Md. Economist Peter Morici Here’s Kuttner quoting Morici

The lion’s share of stimulus should be public outlay. Economist Peter Morici calculates that a tax cut of $100 billion produces a net economic stimulus of $125 billion, when multiplier benefits are factored in, while $100 billion of infrastructure investment has the far more potent eventual effects of $350 billion. In a deepening recession, public spending delivers both more economic punch and more political benefit. Citizens once again experience the positive uses of government, not just the negative gains of government cutting taxes.

More tomorrow

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Job’s Report

Index % Change Volume

Dow -1.64% down
NASDQ -2.81% down
S&P500 -2.13% down
Russell2000 -4.13% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets were fell yesterday as volume fell. Markets did well despite really horrible jobs news. The Dow is at 8599 – within 100 points of its 8500 support level. (see chart)

Volume did NOT confirm the move lower. Volume fell and was below average.

Bottom Line – Technically we are not approaching the Dow 8500 and similar support levels for the other indexes with a head of steam/volume. Right now looks like support levels will hold.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – The rapidness of the decline in jobs has caught everyone with their pants down. The -524,000 was expected, but the significant downward revision of previous months that cause the jump to 7.2% was not expected. 7.2% is the headline that every American read in their news report. Considering that the markets held up pretty well despite the news.

Earnings season begins this week. It going to be really bad. Lots of this bad news is already built into stocks. We’ll have to wait and see how the first few major earnings reports and forecasts impact those particular stocks to get an idea of what will happen in the longer term.

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 in a week.

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 1.27% (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 fell to 0.02% and longer term treasuries were mixed. 10 year fell to 2.39% (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 6+% yesterday. Almost 85% drop since June. (short term good news a 4 and 6% gains in last two 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. 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.

Dow now less than 100 points away from its 8500 support level. This support level is where we (shorter term traders) have been successful buying equities or lightening up on short positions.

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets
Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

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.

We’ve seen a short term pop in international trade (BDI) to go along with a solid bullish move in inter bank lending rates (LIBOR) Both are bullish signs

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.

Dow now less than 100 points away from its 8500 support level. This support level is where we (shorter term traders) have been successful buying equities or lightening up on short positions in the past.

Earning usually over shadow everything else. However weekly jobs numbers (Thursday) are gaining in importance.

Caution – Oil price futures are down significantly this AM (about -6% to $38.50 a barrel) Oil prices are another proxy for the general economic outlook. Sharp declines in oil show a worsening economy and a 6% haircut before the US stock markets open is NOT good news. Expect a challenge of the 8500 support level today.

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

Jobs Jobs Jobs

The Jobs report comes out at 8:30 EST this AM. Right now there seems to be no end in sight for job losses MSNBC story .  Jobs are central to how fast and how deep the recession progresses. Current unemployment stands at 6.7% and consensus figures have this rate rising to 8% by years end. Layoffs are going to grow. Its one thing to know this and another to live through it. -525,000 jobs and 7% rate are the expected numbers

Waiting for announcement… and the number is -524,000 and unemployment rate at 7.2% – a huge 0.5% increase in just one month. Last two months revised down add to the +0.5 increase. Total job loss for 2008 was 2.6 million.

Bad, but could have been worse. Probably will not negatively impact stocks because the private ADP report earlier this week was much worse. (see previous Updates) Major question – will this 524k number get revised downward at the next report. Sure looks like we will reach 8% sooner rather than later.

Imagine This

What if Bush plan to tie social security to the stock market had passed? How much worse off we’d all be now – especially seniors.

23 Electric Cars of the Future

Treehugger.com has a photo and well referenced presentation of 23 electric cars. You can skim through the presentation or follow some of their links – LINK

Project Better Place

This Israeli company just keeps growing. Better Place has introduced an entire electric car system and its partners include Renault, Nissan and A123 Systems. They are launching systems in Israel, Denmark, Australia and Hawaii. A123 has applied for $1.84 billion in loans to build its lithium ion battery plant in the USA.

Good Economic News

Everywhere you turn you get the bad news – Let’s focus on some positives.

#1 Oil prices have fallen from $140 to $40 a barrel
#2 Mortgage rates are now at or near all time lows (30 year fixed – 5.01% and 15 year down near 4.70%)
#3 We have the mother of all stimulus plans about to be launched.
#4 An administration that is less likely to waste $ in Iraq and pork spending.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Job’s Report

Index % Change Volume

Dow -0.32% down
NASDQ +1.12% down
S&P500 +0.34% down
Russell2000 +0.91% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets were mixed yesterday as volume fell. Markets did well despite Wal Mart and Intel coming out with negative news. The Dow is at 8742 almost exactly midway between its consolidation range – 8500 to 9000.

Bottom Line – The jobs news is going to impact markets at 8:40 this AM (see above). However yesterday US markets held up pretty well despite some bad economic news.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – See above editorial. ADP numbers take investors by surprise. 8% unemployment seemed built into stocks, but the rapidness of the decline has caught everyone with their pants down.

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 in a week.

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 1.40% (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 fell to 0.04% and longer term 10 year fell to 2.44% (low yields show fearfull investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday it rose 4% yesterday. Almost 90% drop since June.

BDI chart

Strategy and Recommended Sectors (Listed below)

Buy the dips.

US Indexes (ETF’s) – Buy the ETF that go long when there is a 5 to 10% drop in the Dow and short of sell them when prices rise. Volatility is he recognizable trend and shorter term traders shout
use it.

Emerging Markets – China (FXI) technically is the best play. China is economically better off than the USA – Better growth and less debt. Brazil (EWZ) Solid economy – tied to oil and alternative energy (sugar cain ethanol). If/when the US recovers Brazil will outperform, but right now more volatile than US stocks.

Alternative energy – (GEX &PBW) These two market baskets of alternative energy stocks should outperform because of Obama’s economic stimulus plan.

Gold – (GLD) Technically still in a negative pattern, but fundamentally countries are devaluing their currencies and printing money. This should keep gold prices high. If gold can break out of its trading pattern is could explode higher.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets and trade markets
Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

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.

Best guess – We should again challenge 9000 next week.

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%+ 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

On Friday the government’s employment numbers for last month will be published. ADP National Employment numbers (a private group) yesterday released a figure of 693,000 jobs lost in December. This is way up from the 500,000+ jobs lost in November. There was a huge jump in the number of lost service sector jobs. After US markets closed Monster’s Online job’s Index echoed the ADP estimates. CNBC (financial channel) story on job loss figures.

8% job loss seems to be the figure economists are projecting for the future. The frightening aspect of the ADP #s are how fast the job loss is growing.

Jobs are perhaps the most crucial component of the whole financial mess. One significant result – The bigger the job loss the less the ability to pay mortgages = more defaults = lower home prices.

Economic Outlook 2009 and beyond

The Financial Times today has an editorial by Nouriel Roubini, the economist who definitively and accurately predicted the whole financial meltdown titled "Warning: More Doom Ahead "

The last 1/2 of this editorial clearly sets out the enormity of the problem and outlines the credit bubbles that have yet to burst. Roubini does end on a relatively positive note.

"Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be."

Tomorrow

Will go over recommended ETF positions instead of focusing on credit and trade market flows (BDI & Treasury bonds)

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Jobs Jobs Jobs

Index % Change Volume

Dow -2.72% up
NASDQ -3.23% down
S&P500 -3.00% down
Russell2000 -3.42% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Just when technical factors seemed to be on the brink of another upside move some sobering fundamental numbers on JOBS spoil the party. Technically volume was not a forecasting factor in the significant price drop. Volume figures were mixed and a bit below average.

Bottom Line – If we can hold onto gains this week, another leg higher is very possible. Next major resistance level is around Dow 9650. See charts.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – See above editorial. ADP numbers take investors by surprise. 8% unemployment seemed built into stocks, but the rapidness of the decline has caught everyone with their pants down.

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 in a week.

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 is being made . LIBOR continues to fall 3.4% two months ago to about 1.40% LIBOR rates have fallen significantly and leveled off inthe last few days. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month T Bill fell to 0.07% Shorter term yields fell. Longer term rose yields rose. The 30 year T bond rate is just above 3%. .
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.47% for a ten year treasury bond.

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

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world. For better definition see LINK
Bloomberg data and chart LINK (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 yesterday (+almost 2%) to 789 We have had a significant rally off the lows of @660 three weeks ago week.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets and trade markets

Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

Strategy - Volatility rules and a 6+% move higher in the Dow is a big move in a week. Personally, will start adding some SHORT positions to protect the gains of last week. The higher we go the more short positions.

Shorting rallies to protect gains is working. Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend.

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+3 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

2009 Call

This is not your father’s "Buy and Hold" market . 2008 huge losses and the unpredictability of the future shows no safe trends except volatility. Therefore, we can use volatility as an investment tool until some clear longer term patterns become established. This does mean you have to pay more attention. After stocks rally (Dow +5 to 10%) buy an ETF that shorts to protect your gains.

The range prediction in the Bottom Line section is between the 2008 low 7449 and the November high of 9654 . This is just a wild guess based on technical factors. Volatility could easily move stock prices above and below these levels.

Tomorrow we will go over specific sector (ETF’s) to invest in and why.

2009 Economic Problems

Investors basically look 6 months into the future and if they see signs or have confidence that the situation will improve then they will start investing again. This is not going to happen quickly because many have had close to 40% of their portfolio’s wiped out and there are some dark clouds on the horizon. Here’s a list of some of those clouds.

#1 – Financials/Banks are still over leveraged. There is easily over $10 trillion of over leveraged debt (credit default swaps) that has not been written off.
#2 – Transparency – There is none. TARP has thrown money at banks, but there has been no accountability.
#2 – Mortgages – The number of people defaulting on mortgages is going to grow and overall housing prices continue to decline.
#4 – Unemployment rises – It looks like the unemployment figures will reach 8+% this year.
#5 – This mess took decades to create, it will not be solved overnight.
#6 – Clearly recession is a worldwide problem. This could lead to more problems like protectionism and sink us further into a hole.
#7 – We entered this disaster with both a huge trade and federal deficit.

The good news is that stocks have fallen a long way and many of these factors are in some ways built into equity prices. Technically it does look like stocks have made a bottom around Dow 7500.

Like Tinkerbell believed in Pete Pan you have to believe in Obama’s economic approach and your fellow Americans for an economic recovery. The "free market"/Ayn Rand zealots that lead us into this disaster could easily again take control. Critical to all of this is a housing recovery. China relative stability and continued growth could help lead us out of this mess.

Back to Politics Tomorrow

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally Part 2

Index % Change Volume

Dow -0.91% up
NASDQ -0.26% up
S&P500 -0.47% up
Russell2000 -0.16% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – After a rally, when markets basically go nowhere and volume increases, the end result is usually a reversal of trend. Technically what’s happening is the bulls and the bears are having a big fight at the Dow 9000 resistance level and one side is going to run out of troops (the increased volume) More often than not the trend reverses because the (in this case) the bulls used up so many troops (buyers) to get to the resistance level.

Bottom Line – today is significant because it will probably set the pattern for the next few days. We have in the last month established a range between @ Dow 8500 and 9000. Both the 8500 support and 9000 resistance have held.

If we can hold onto gains this week, another leg higher is very possible. Next major resistance level is around Dow 9650. See charts.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

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 in a weak or two and usually the next week or two warnings impact 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 is being made. LIBOR continues to fall 3.4% two months ago to about 1.42% LIBOR rates have fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month T Bill fell to 0.04% Shorter term yields fell. Longer term rose yields rose. The 30 year T bond rate is back above 3%. Slow but moving in right direction.
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.48% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = 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. For better definition see LINK
Bloomberg data and chart LINK (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI flatted yesterday (-1) to 772 We have had a significant rally off the lows of @660 three weeks ago week.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets.

Without credit and goods (BDI) flowing a long term stock rally is unlikely. However, Dow 9654 is a possibility. That is the number the Dow reached on around election day. The Obama stimulus plan (hope) dominates the investment news. "Buy the rumor and sell the news" is an old Wall Street axiom. Despite a technical breather the tea leaves indicate that we rally till the stimulus pakage becomes apparent.

Strategy – Volatility rules and a 6+% move higher in the Dow is a big move in a week. Personally will start adding some SHORT positions to protect the gains of last week. The higher we go the more short positions.

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

*5-10% +% 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