Investors 411 Blog

Illustration by Victor Juhasz

Note – No Updates for rest of week

Health Care

Democrats are touting unanimity on a health care proposal that will cover more people. LINK

A step in the right direction. However, this is a huge disappointment for those of us who see every other industrialized democracy have some sort of public health care option. The voters of these (a couple dozen)  countries have voted to KEEP this option because like public education it works .

Something is better than nothing, but this is a clear victory for capitalist greed (the kind that creates economic bubbles – in this case rising health care costs and not covering 50 million of our fellow American men women and children over what’s best for the common good.  Another win for Greed is good unregulated capitalism

Education – Yikes

"A report by the American Association of State Colleges and Universities indicates that the US is one of only two nations on Earth in which people aged 25 to 34 have lower educational attainment than their parents. " LINK Again, over decades we have cut funding for education relative to things like executive or CEO pay. Another win for Greed is good unregulated capitalism.

The Ugly Economic News

(continued from Good, Bad & …)

It simple – We have failed to fix the problem that created a meltdown or build further bubbles .

In underfunded education, not fixing Health Care, & and failure to fix our financial system – unregulated capitalist greed growing.  The overextended, nation building empire’s decline is accelerating.  Other countries have growing middle classes and ours is shrinking into a society of haves and have nots.

Tom Friedman & other more responsible capitalists have joined those of us who have been beating the drums of our crumbling structure and ways to fix it. But right now we are Married to the Mob of capitalist who simply put GREED first.

The Great American Bubble Machine – by perhaps the best economics reporter out there Matt Taibbi – LINK

Bottom Line in Investments – The reason Investors411 has a five year winning record in investments is in choosing countries and sectors that  are building their middle classes and by paying careful attention to the destructive (bubble building) aspect of US  unregulated capitalism/greed.

KISS & STOCKS

Keep It Simple Stupid

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage	Volume
Dow	-1.00%	up
NASDQ	-0.76%	up
S&P500	-1.03%	up
Russell2000-	- 0.97%	-

Investors411 record – 5 years of beating benchmark S&P 500

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals, Fundamentals & Analysis

The dollar rose a significantly Tuesday and stocks fell (see $USD below). Tuesday -  The fact that the dollar went no where and stocks went nowhere means the dollar’s inverse relationship to US stocks is back on. The dollar is still the #1 forecasting tool.

Volume – Our former #1 forecasting toll was up and at or above average. Rising, above average volume is a bad sign for bulls when the price move is above 1.00% . Yesterday was boarder line – but short term volume indicates momentum is probably with the Bears

The McClellan Index - is also a very significant tool in when to (more) safely buy and sell. Right now there is no clear signal either way, (see below)

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

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Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) .

The BDI a fell a significant  -134 points yesterday and closed at 3902. Technically  the BDI broke out through its major resistance level 4291 (this year’s high) over a week ago.  The BDI has rallied about 1700 points since late September.  Multi day moves in one direction are common. We are within 100 points of a support level. Breaking that level would be a short term bearish signal

What it means – Long term we created a higher high on the chart = Bullish. The BDI is far more useful as a long term indicator of not only world trade, but specifically China and growing emerging markets.

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The Dollar is currently the #1 forecasting tool .

$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar. Mantra – Dollar up = US stocks down & Dollar down = US stocks up US dollar was rose yesterday +0.58% . Anything close to or over +/- 0.50 is significant  The dollar closed at $76.22 . We have broken up through the 50 day moving average resistance level and the Oct/Nov high around $76,82 is the next important resistance level.

The whole dynamic  here seems to have changed – We now, at least for the short term, have a rising dollar

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$NYMO The NY Stock Exchange McClellan (EOD) Index measures how much the NYSE is oversold or overbought .

The index closed at -2.01 This is a Neutral Position . This chart is showing we seemed to have reached a plateau. It’s spilled over a little bit, but the McClellan index has moved between +25 & -25 .  There has been no clear buy or sell signal for over a month.  Oversold conditions (@ -60) = buy, Overbought positions (@+60) = sell

The closer we get to +/- 60 the better our chances of making money with a shorter term buy/sell signal

Bottom Line – There is no clear buy or sell signal. So its best to just stay put for a while.

Positions

The  Positions Section (top of blog) to see all the latest buys and sells

(again a little behind on latest moves)

We’ve had, and volume has confirmed, a quantum shift in markets. This may be temporary and it may be long term, but it necessitates major changes in positions. – looking for dollar to hold or add to gains . – This happened or was confirmed yesterday . Will wait to buy some ETF’s and stocks when McClellan Index says we are approaching overbought (@+60)

Recommended ETF’s and Trades

SELLING & BUYING

Waiting for a clear signal from MCellan Index to commit additional capital or sell existing positions. Have FXI (20% of portfolio), EWZ, (16%) MOO (10%) and for traders a very small position in BAC (1 to 2%)

Start small & Build your position – Buy the dip.

Long Term Outlook = CAUTIOUSLY BULLISH

On Education

Imagine if your were president/dictator of USA. What would you do with education? I would give teachers massive tax cut/eliminate taxes on the first $50,000 they earn and raise taxes on the top 1% of individuals in the country to pay for it. (see yesteday’s Tom Friedman editorial)

Waiting for Financial Reform

Monitor has some excellent comments (see comments section on right side of blog). The long term picture for the USA is certainly one of decline relative to the rest of the world. A fall that is going to hit Main Street harder than anyone else.  We built a huge deficit under the Bush administration & created the worst financial crisis since the Great Depression.

But, we are still waiting for some kind of financial reform.  Add to this we are still spending trillions nation building overseas and stimulus, the usual cure for a recession, is puling us further into debt.  No wonder volume is NOT growing as stocks advance and the dollar  falls. People are loosing confidence in the USA.

One of the  most troubling in all of this is where is the financial reform? Obama was all about “change we can believe in” and aside from a few minor adjustments, where’s the change?  Where’s the transparency? Where’s the accountability? Where are the new laws to prevent corruption?

The reforms that fixed Wall Street after the great Depression were removed and capitalism was left without checks and balances. Look what happened – A massive financial meltdown.  Author Ron Chernow concludes his editorial in today’s NYT  entitled “Everyman’s Financial Meltdown.” as follows ” [we] still await a new season of financial reform.”

More Pay Cuts for Shadow Banks

From yesterday – Obama administration is forcing pay cuts on top executives of 7 bailout firms. Good first step. Now we get step two. Fed is proposing review of pay at 28 of the largest shadow banks . LINK Two steps in the right direction, but we need a whole lot more.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	+1.33%	down
NASDQ	+0.68%	down
S&P500	+1.06%	down
Russell2000	+1.37%	-

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals, Fundamentals & Analysis

This is a US stock market dominated by professionals and traders .  We had another significant rally in weaker volume. The Dow was close to even in volume. Historically volume has always been the #1 confirmation factor of an equity move in price.

Oil prices fell LINK to chart -0.22% to $81.19 . Obviously oil prices above $80 is going to hurt ma and pa consumer in any recovery.  Sure looks like some entity or group is manipulating oil prices. Up 9 of last 11 days and going parabolic (up too far too fast) Oil prices like stocks usually move inversely to the price of the dollar.

The BDI rose significantly again = Bearish for stocks stocksandand world trade.

Reading the Tea Leaves – from yesterday -  There is no specific fundamental(s) that you can point to that says yea that’s the reason stocks tanked in big time volume at in the last hour of trading.  Obviously “the Pro’s” know something us common investors do not. Earnings season has been much better than expected with companies beating on both TOP and bottom line. The dollar fell. The BDI is rising.  Stocks should be rising . Perhaps yesterday’s rally was a delayed reaction to the overall drop in the dollar, rise in the BDI and some better than expected earnings reports.

However, BE CAUTIOUS volume has in no way confirmed the move higher. If you look at the beginning of the bull run (March April and May)(check out weekly charts of a major US index) there was huge volume behind the move higher. You expect some slower volume in the summer, but volume has not returned to the markets.

Best guess is for rally today.

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Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) .

The BDI is @ 30% off its high (early June) Before that it gained almost over + 630% from its all time low of 663 in Dec. of 2008 (April 2009 high of 4291 )

The BDI rose a significant +84 points yesterday and closed at 3001. A higher high price on its chart pattern has been confirmed and it sure looks like a bullish run could be starting. =  Bullish for stocks & world trade right now

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The Dollar is currently the #1 forecasting tool .

$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

Mantra – Dollar up = US stocks down & Dollar down = US stocks up

US dollar fell -.09% The dollar closed at $75.05 .  Perhaps yesterday’s rally was a delayed reaction to the significant 0.55% decline in the dollar the day before-the two day total drop is -0.64% Bullish for stocks

Last year’s low was around $71,(March 08 ) so there is a long way to go before the major and very crucial support level is reached . The dollar does have a support level around $74.00( a high from about a year ago – see long term chart)

The falling dollar is getting a lot of PR. A lot of this is politics and fear mongering. However the dropping dollar does show a growing weakness in America economically and the potential for higher inflation. The real test for the dollar lies in the March 2008 lows around $71+

Positions

The  Positions Section (top of blog) to see all the latest buys and sells

Trades made this week are updated at the end of the week. -  Sold 50% of position in EWZ and all of EWY. – This sure looks like - a big mistake – Should have been adding instead of subtracting – especially EWZ – Still no one ever went broke taking profits .

Monitor’s comments are right on (see comments section of blog)-Investing outside the USA in Emerging Markets (especially China, & Brazil) are much better in the long run - My problem is one of timing. We can’t get a 5 to 10% dip to invest. Investors 411 should have much larger positions emerging markets.

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