Investors 411 Blog

GDP = + 3.5%

This better than expected number is obviously a positive . Its due to the Obama & Bernanke stimulus – Cash for clunkers, tax cuts, first time home buyers credit, low interest rates etc.

It’s the first positive growth in over a year . Since only 40% of the Obama stimulus has been allocated and interest rates should remain low -  the next few quarters should also be positive.

The question becomes when you take the stimulus away what will happen?

Globally the canary in the coal mine is Israel, Norway and Australia. We are a globalized world and these 3 countries have already started to raise interest rates. If their economies continue to grow with raised rates others will follow.

The US does have a specific unemployment problem that will anchor it down longer than other countries. (see below). However, we’re getting some real growth abroad, especially emerging markets. Hopefully, this growth will be strong enough to drag the US along with it.

Jobs, Jobs, Jobs

So far the recovery act has saved or created enough jobs to “shave @2% ” off the unemployment figures. You can get a breakdown state by state at Recovery.com LINK

You can debate their figures, but a jobs recovery is going to be harder than most predict because

• The financial shadow bank crisis created a much bigger hole than most people realize
• Globalization will send most new jobs abroad.
  
• Education of American workers/students has not kept pace with technology.
  
• Our huge deficit will limit stimulus needed to create jobs.
• Our manufacturing base has been seriously diminished.
  

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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

The Lon Term Long Term Outlook is back to CAUTIOUSLY BULLISH As mentioned yesterday – When the Long Term Outlook is changed we often go back and forth for a while as stocks move above or below key support levels

The discouraging part of yesterday’s rally is THE LACK OF VOLUME . Once again upside moves have little volume and downside moves greater volume. Volume has historically been the #1 confirmation factor of market direction. So this is a very bearish sign

However – The Dollar Rules. Yesterday the dollar moved above the previous days high and closed lower than its low (See chart below). Technical analysts get very excited about a reversal that “engulfs” the previous days move. It fell  over 0.50% which is a significant drop. Investors411  predicted this because it was approaching its  strong resistance level – its 50 day moving average.  As long as the dollar remains below this resistance level - Bearish for the Dollar & Bullish for stocks.

Monitors Question/statement (see comments section of blog)  Sorry I’m not being clear. Yes, I did recommend adding (nibbling) to Brazil and China yesterday (I did) & yes I did lower long term outlook. These ETF’s (FXI & EWZ) had dipped more than 5% & were “buy the dip opportunities.”

NEUTRAL -  Even though it is a downgrade it is still an overall environment that some ETF’s should do well. When  CAUTIOUSLY BEARISH becomes the Outlook – t hat its time to sell. Secondly, as mentioned we are on the cusp of change. Lastly, This market is very difficult to call because the old rules about volume have been cast aside and the dollar now rules.

The Dow is outperforming other major US indexes – This is probably due to the fact that these 30 giant stocks benefit most from the falling dollar (relative to other US companies most of more of their profits come from abroad)

Bottom Line – There are no universal rules in market analysis. Right now the Dollar is trumping volume and all other factors in predicting the direction of stocks and this is quite unusual.

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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 modest +27 points yesterday and closed at 3013. Exactly what it lost yesterday. A higher high price on its chart pattern has been confirmed The BDI has rallied almost 900 points since late September. =  Bullish for stocks & world trade right now

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The Dollar is currently the #1 forecasting tool . It would be a wild guess to predict he daily moves of the dollar, but longer term fundamentals are clearly negative – the trend of a falling dollar should continue.

$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 a SIGNIFICANT -0.67% yesterday. The dollar closed at $75.96 .  This is almost exactly on its support/resistance level of $76.00 . 

From yesterday – The next important resistance level for the dollar is the falling 50 day moving average (blue line on chart). This is at 76.78 this AM. It’s the line in the sand – Best read of the tea leaves is that it will hold. In fact, Investors411 will add to some positions  as we get close to this resistance level.

Past statements -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)

Positions

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

Outside the USA in Emerging Markets (especially China, & Brazil) are much better in the long run - Our problem is one of timing. We can’t get a 5 to 10% dip to invest. Looks like we will get at least our 5 to 10% dip now.  Investors 411 should have much larger positions in emerging markets .

Current positions

EWZ (Brazil) – Bought at 69.5 (4% of portfolio)  Now = 20% of portfolio

FXI (China) – Bought at 42.75 (4% of portfolio) Now = 24% of portfolio

GDL = 11% of portfolio

SPX = 20% of portfolio

For traders also have positions in NVS & CSCO

• Going to sell some SPX -reasons – Free cash for other investments & take profits
• Need more diversity in emerging markets than just China and Brazil
  

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Why Are Stocks Rising?

• China – The Chinese stimulus package was directly aimed at infrastructure and was well over twice as large as ours (relative to GDP). China went on a buying spree of natural resources (they were cheap) and the BDI (see below) exploded higher over 600% in the first 1/2 of the year. China still has a large net surplus and can offer another similar stimulus package without going into debt. India and Brazil have helped, but China is the driver.
• The USA - The USA was at the epicenter of the financial meltdown. We built phony wealth (phony GDP) by trading Credit Default Swaps and it all exploded when housing prices fell. The consumer, and our government was in significant debt before the financial/economic meltdown. The consumer and banks (especially the larger shadow banks/institutions) have benefited from our stimulus package, bailouts, and printing money by Fed and government.
• Stocks  Moving Higher – The consumer is saving more and the government borrowing more. Robert Reich has a similar view LINK ( scroll down-thanks to one of you for referencing this) Problem here is we were already in significant government debt and had been running an unregulated financial market that created “Financial Weapons of Mass Destruction.” (Warren Buffett’s term for CDS’s) This unregulated capitalism is GROWING – up 14% from last year. LINK There has been almost no regulation or transparency imposed by government to solve the problem. In fact, we removed mark to market accounting, making less transparency.

So US financials (everyone who traded or still trades CDS’a from AIG to GE) have had (directly or indirectly* ) wheelbarrows of money thrown at them – their profits/stock prices have grown.  China and other emerging markets have maintained a positive GDP and helped move US markets higher. Its great that consumers are saving more. However, we do need consumers (70% of the GDP) to spend to get the US economy moving again.  US stocks can move higher on a falling dollar and selling more abroad.

Bottom Line – It’s the US economy or Main Street that is in deep trouble, not Wall Street.

* AIG was bailed out by US government. They in turned paid obligations to shadow banks & hedge funds, who paid GE Financial and/or big banks, who paid Fannie, Freddie, & smaller banks, who paid mortgage companies etc..  This order is not 100% accurate, but it shows how by paying money to AIG  others “indirectly” got money. Every TARP bailout recipient had its own domino chain of debtors.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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 and Fundamentals

Volume exploded lower and stocks exploded higher.  Volume is the #1, confirmation factor of a market rally and in no way did volume confirmed yesterday’s rally. The excuse given by talking heads was it was the a major Jewish holiday. Jews are less than 1% of the US population and they don’t control 50+% of US equities.

Long term – Even more significant is the fact that as this rally gets extended volume has declined. Check out the 4 key US stock indexes (listed above) longer term charts and what you will see is an overall drop in volume as the markets move higher. You’d think it might be due to seasonality – summers are usually slower, but after Labor Day volume historically rises. It has NOT this year.

This does not mean that markets will not move higher, at least temporarily, but it is reason for caution. When the #1 conformation factor of any price move decreases while prices flow in one direction (higher) you have to be skeptical.

A bubble is building. This is why you see me almost begging for a market correction of 5 to 10% sooner rather than later.  You combine this with the fact that the BDI (measurement of world trade) has fallen almost 50% since the summer began and this adds fuel to the fact a price bubble is building. If volume was building you could say new money was coming into the stock market. It’s NOT .

Big news for week is the jobs number fro the month of Sept. coming out Friday.

BDI seems to be temporarily turning higher = Bullish

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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) .

2388 is support now resistance level/number to watch – two days ago the BDI reversed direction and  BDI was up +20 . Yesterday the BDI gained +9 closing at 2192 . These are very small moves, but in the right direction.

The BDI is almost 50% 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 ) A 50% retracement from highs is a major support level. Therefore some stabilization is understandable.

What this means – World trade is in trouble – lots of ships are sitting in ports empty.  To some degree, China has stopped buying raw materials and/or the US consumer is not buying as rapidly as earlier in the year. Braking a support level is significant, but 2192 (current level) is still a long way from the Dec. 2008 663 low. = Storm clouds gathering

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$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

The dollar rose +0.27% yesterday.  Somethings up that raises caution flags. Both the dollar was up and stocks exploded higher. Usually there has been an inverse relationship.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

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

revised to reflect recent trades last weekend

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Ronald Reagan:

The Great American Socialist

All of you made outstanding public comments on Friday’s blog from a must see video of the Tea Bagger’s to an excellent editorial by economist Ravi Batra – “Ronald Reagan: The Great American Socialist. ” The far right is calling Obama a socialist because he wants to “redistribute the wealth” yet Ronald Reagan by this definition can be credited for a huge redistribution of wealth.

• Reagan’s 1981 tax cut was massive especially for the wealthy and corporations. This ” large reductions in income tax rates in 1981 were followed by abnormally slow growth” Source Wikipedia
• The rate fell from 70% to 28% 1980 to 1988 for wealthiest Americans. Check out changes starting in 1980 (when Reagan took office) Great chart of tax rate of wealthiest individuals and tax rates from 1903 to 2003 at TruthandPolitics.org LINK
• Batra continues – “deficit soared from 2.5 percent of GDP to over 6 percent, alarming financial markets, sending interest rates sky high, and culminating in the worst recession since the 1930’s”
• Reagan was in trouble so he “looted” YOUR savings in the Social Security system. To fix the massive losses YOUR Social Security trust fund (taxes you paid) were now used to pay for programs, stop inflation, fix the recession by paying down the deficit.
• By 2007 this totaled “$3 trillion dollars ” (including 1+ trillion in interest we would have had) and is a major reason why Social Security is in such trouble. But the reality is the fund is empty and used now to reduce the deficit.
• In fact “In 1986, Reagan slashed the top tax rate further. His redistributionist obsession led to a perversity in the law. The wealthiest faced a 28 percent tax rate, while those with lower incomes faced a 33 percent rate; in addition, the bottom rate climbed from 11 percent to 15 percent.”

So now we have Heath care/public option and are afraid to tax the wealthiest individuals to pay for it. Those that benefit from Reagan and Bush tax cuts and have accumulated millions in compounded tax savings to protect themselves from the lack of funds in Social Security or heath care problems.  Those millions/billions have been amasses since 1981.

45,000 Americans die each year because they do not have health care (700,000 go bankrupt each year because of lack of decent health care-figures quoted on Bill Mahr HBO show) That’s equal to the deaths of 15 world trade center attacks . All this happens in the only civilized country in the world that makes a profit off of breast cancer, heart attacks, leukemia, aids etc…

Heath care is one component of this wealth distribution. It would redistribute more funds to lower and middle class families.

Special Note – The Investment philosophy of Investors411 continues to be invest in countries with a growing working class of people NOT a growing oligarchy of wealthy individuals. This is why the ETF chosen are focused on India, China, Brazil, South Korea and other area where money flows because middle classes and those aspiring to the middle class spend money.

————-

Mea Culpa – Many of you sent personal and public emails or talked with me about Friday’s editorial “Why You Should be Afraid for America” One of you stated this is not a headline you’d find in the NYT and suggested , this is a fearful  “tabloid headline”  He’s right. I am an emotional guy who spent part of his youth marching for civil right, against the Viet Nam war, and income equality from the deep south to the infamous 1968 Democratic convention in Chicago. The headline was designed to attract your attention and in my heart I’m fearful for America’s future. I’ll try to watch it but please allow for the occasional over the top headlines.

Thanks to Paul R who sent inthe Batra editorial and all those other who make the comments section perhaps the most exciting part of this blog.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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 and Fundamentals

Volume was way down and that’s just what bulls want to see on a mildly bearish day for the S&P 500 and the Dow. Considering how strong the dollar was it is surprising to see the markets fall so little. (see below) The NASDQ even gained ground.

The Dollar is still the key index to watch right now. The inverse correlation between the dollar and stocks dominates the US markets

Fed meets today and makes announcement tomorrow.

Fearless Forcast = Rally continues. this week.

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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) .

2388 is support level/number to watch – Yesterday BDI fell -33 to close at 2357. This is not a big fall, but a major support level has been broken. = Bearish for worldwide stocks.

The BDI is 44% off its high (early June) Before that it gained almost over 630% from its all time low of 663 (April high of 4291 )

What this means – World trade is in trouble – lots of ships are sitting in ports empty.  To some degree, China has stopped buying raw materials and/or the US consumer is not buying as rapidly as earlier in the year. Braking a support level is significant, but 2357 (current level) is still a long way from the Dec. 2008 663 low. = Storm clouds gathering

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

As predicted the $76 support level held.

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

The dollar rose +0.40% yesterday and guess which way most major US markets went – D__N.  ) 0.40 is a relatively large move up for the dollar.

Note that if you look at the longer term chart of the dollar that it has NOT been above its 50 day moving average since April.  The dollar is in a short,medium and long term BEAR market . Would buy stocks if the dollar got close to 50 day MA.

The two day rally in the dollar has also impacted oil prices that fell -3.53% yesterday. Right now this looks like a technical correction.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

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

Individual stock – One of you last week has asked me about MVIS (Microvision) See chart This chip company has exploded and broke out of its trading pattern even though stocks have been down/flat the last few sessions.  Would buy this on any dip. There are a whole bunch of traders out there ready to do the same thing.

Our swine flue play NVS and tech play AAPL are out peforming US markets – but it looks like we are in for some minor correction as the dollar rises.

NB – I just offering these trades because you folks asked for something other than ETF’s – I do NOT know enough about the fundamentals and a zillion traders know more. Also,its far easier for major players to manipulate these stocks than ETF’s which are huge market baskets of stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Obama’s Speech

Yesterday, the administration announced a major address on Health Care  for next Wednesday – Will he take a Stand or whimp out again? From all accounts the White House is still split on what to do. From Politco “High Risk High Reward” LINK & “Obama to Address Congress” LINK

Simple reality is that like in the last 7 to 10 years health care is going to double again. Medicare as well as Americans not on Medicare are in danger of going under unless something dramatic is done.

Will you, your employer, Medicare be able to keep up with another 100% increase? Why do we pay almost twice the cost of other industrialized countries who cover all their people and they get better results?

Jobs & GDP & Deficits

What happens in a recession is jobs get cut and when they get added back American companies choose cheaper foreign labor. This is one major reason employment has been a lagging indicator in recessions.

The back ended stimulus is going to mitigate the job loss – keeps jobs in education, law enforcement, construction etc. But this has its cost in increasing the deficit. The problem here is we already had a huge deficit when Obama took over and it is obviously growing. Not good news.

The other major problem is  growth is the USA over the last decade had a lot to do with phony financial transactions made by shadow banks. (phony accounting)  Therefore, real growth in the USA was a lot less than 3 or 4% over the last decade. Under Obama we longer use mark to market accounting.  Obviously, I’m no expert, but willing to bet this reduces our GDP by at least a few points under Obama & Bush.

One major fact – the huge increase in deficits under Reagan/Bush upset almost no Republicans.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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 and Fundamentals

Yesterday’s stock action confirmed the big downside move of the day before. Prices did not recover any of the losses and dropped further despite the fact that the dollar also fell. The dollar falling almost always translates into stocks rising.

A week ago I mentioned that Jim Cramer was wrong and we were due for a more significant correction. Yesterday failure to move higher on good news and marginal losses act as confirmation of a further decline.  The only technical point that is starting to swing in the bulls favor is that the Dow and S&P (SPX) have been down 4 days in a row and are a bit oversold. Would expect a rally today because of oversold positions

Support levels to watch on benchmark S&P 500. SPX currently at 995. The first is 980 . If that falls we could see a lot deeper correction .  Lots depends on the jobs data on Friday.

Lots of analyst look at this as a technical correction.  We came too far too fast. But there is a major underlying fundamental factor. The BDI shows worldwide trade falling. Much of this is due to China pulling back on buying commodities. China also has a technically overheated market. (see yesterday’s blog)

The big news for the month is the jobs report on Friday Right now we reacted so poorly to the good ISM (manufacturing) news, and yesterday’s dollar falling(which should have juiced stock prices), you have to worry about the employment news.

Therefore , FEARLESS FORECAST – is for a down week .

A major correction is underway many in some major exporting countries (China – see past Investors411), and importing countries (USA) seem to be following the downtrend.

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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) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . The BDI has leveled off over the last 5 days, -10 yesterday

Unfortunately, since early summer we have created  lower lows and lower high that confirms both the mid term bearish trend .@ 2298 is a major area of support and the BDI has fallen since early June from 4291 to 2413. This is just 115 points away from a major support level.

“Remember almost every country has based their recovery on exporting their way out of this mess” (Source – seeking Alpha)The infotainment financial channels and analysts used the BDI when things were going well and are now ignoring it. The #1 factor behind the BDI’s retreat is China seems to have stopped or seriously slowed down buying of commodities.

The BDI is 41% off its high (early June)

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

The dollar was fell -0.44 % yesterday. Dollar closed at $78.74. Its  major support level is @$77.5 & it has 2 major resistance levels – a falling 50 day moving ave. at @$79.20 and the August highs of @ $79.5 .  If it breaks down through support stocks should rise, if it breaks up through resistance stocks should fall.

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

The fact that the dollar fell a relatively significant -0.44% and stocks did NOT rise is another Bearish sign

The dollar is also reversed direction 9 days in a row. So today its probably going to go up and stocks down.

European Central Banks left interest rates unchanged this AM – Bearish for dollar & Bullish for stocks

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

Sold 1/3 (or 6% total stock) position in FXI (China) yesterday This position was bought on 3/12 (listed incorrectly in Positions as 3/20) Gain @+55% This will probably be the biggest gain of any position this year. The remaining 12% – 2% was purchased 3/12, 8% was purchased in April and is up almost +20% and the recently  2% is down perhaps -5% (Did not have time to accurately check these last 2 figures)

Right now, this is NOT some huge reversal, but a correction of an overheated market. If the BDI continues to fall from current levels, we are much deeper trouble. Plan to get back into FXI ASAP, hopefully at a lower price

Refuting all this is the credible Organization for Co-operation and Development OEDC that headlines “the worldwide recession may already be over.” LINK Sorry think the 41% fall in the BDI is cause for concern.

Those traders with guts may look at a fall to SPX the 980 support level as a buying opportunity or a chance for some quick money.  Right now, the best read of the tea leaves is for a 5 to 10% correction . If world trade prices collapse further through support then things could get worse.

My bias – I will be away at an art show this weekend & I tend to get conservative when I’m not near my computer. – Too scared of bad jobless figures on Friday.

Your Comments

Both privately and in the comment section of the blog you are asking for individual stock recommendations. OK I have a few. Stay tuned. Yes I’ve chosen them – NVS (Novartis)-  a swine flu play and Apple computer. (details when I have more time)

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Investors411 Has Returned from Summer Hiatus

Economic Outlook /Stocks

Late last week the US GDP figures came in better than expected, a -1.0 %. The expected number was -1.5% . This number while not positive should be compared to the previous quarters -6.4 % and the loss in the quarter before that of about -5.7% .

Clearly back  in September it looked like the US and the world’s economy was headed over a cliff. That no longer is the case. “In short, the recovery act turned this quarter’s economic performance from disastrous to merely bad.” See data/story here

The economic stimulus that the Fed and the Obama administration delivered has turned the tide. The economics have improved dramatically. Since our government’s stimulus plan is back end loaded and only @ 25% has been allocated, the economic picture should stabilize or improve in the coming quarters.

Consensus outlook is for moderate growth next quarter/year that should turn positive.

China’s GDP has also rebounded. Their economic low was a +6.1% in the first 1/4 of 2009 and is now at a better than expected +7.9% in the latest quarter.  Remember their stimulus package was far greater than ours when measured against GDP ( from memory something like $585 billion on a GDP of 4 trillion vs. UA 780 billion on GDP of $13 trillion.) Businessweek story here

So the world’s two most important economies are rebounding.

Apologies to the European Union whose combined countries have a slightly larger GDP than the USA. On the whole they are on par with the US. There expected to have a loss in 2009 of -1.8 % and a relatively minor rebound in 2010 of +0.5% These figures/projections are obviously far more consistent with the USA than China.

Bottom Line – China is once again going to outperform the other major economies of the world. Those countries like South Korea, Singapore, India and Brazil (see Positions section of blog) will continue to outperform the USA. All these countries benefit from the mega trend of globalization . (Will fill in details in upcoming updates.)

Jobs/Jobs/Jobs

In the up coming year or two the employment picture should like the economy brighten because of the stimulus .We are now losing jobs at the rate of about @ 400,000 a month (compilation of May & June) vs. @ 700,000 (Jan & Feb.) The overall figure will grow. However, as more of the stimulus kicks in this figure should fall.  Most estimates have unemployment going up to 10% this year, however the rate of unemployment is dramatically declining. The figures for July come out  Aug. 7th.

Like the small recession in the beginning of the Bush administration it will take a long time for the jobs picture to improve . What happens is that companies lay off US workers and tighten their belts in a major recession.  When it comes time to hiring back workers they do it where they find the cheapest labor – abroad. This is one result of the mega trend globalization (See Overview section of blog)

The “Giant Sucking Sound” (Ross Perot’s term) is middle class and working jobs going abroad. However, for a year or two the stimulus will help. It’s NOT all roses and sunshine but –  American companies will do far better than American workers. Foreign countries will continue to outpreform the USA.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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 and Fundamentals

The S&P 500 joined the NASDQ in significant multi day volume confirmation of its price move last week

Off had, I do not remember US markets being this over bought. Just from a pure technical point of view it looks like rally has run out of steam. But there are an army of investors still waiting to buy the dip.

Big news is jobless figures for July come out on Friday.

Significant forecasting tools/Indexes for stock markets

BDI - The Baltic Dry Index measures the flow of goods (world trade) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern . 2975 is the major support level and the BDI closed at 3320 – down last two days. As long as we hang in above 2975 stocks should do well.

In a nut shell the BDI is

• short term – Neutral (perhaps bearish trend starting)
  
• mid term -  Bearish pattern
• long term - Bullish pattern

.

$USD - The Dollar went down and tested its major support level all last week . The last remaining support level is the June lows at @78.4. . Breaking this support would be very bearish for the dollar and bullish for stocks. We broke that support on Friday and dollar now at 78.29. Bullish for stocks

Fearless Forecast

The FF did not get its “stabilization week” as stocks moved moderately higher. Technically conditions are still way overbought .

The dollar slipping (closing) below major support on Friday is bullish for stocks. Even though markets are overbought and oil prices rising to yearly highs (in large part because of dropping dollar) it looks like another rally week.

Buy the dips of trending sectors.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

Buy the dips of recommended ETF’s (see Positions)

Adding to QLD , FXI and EWY (Korea) on dips.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

WHAT’S UP – A Republican defection: Republican’s embrace the far right and shrink – Specter & Sebelius; First US death from "Swine" flu – Your comments- "The Critic" and Abby Gold. GDP comes in worse than expected for 1st 1/4 = -6.1% ; Shadow Baks stocks slipping: Trade (BDI) between countries start to slip again – swine flu?

Senator Arlen Specter -Alex Wong/Getty Images

Republican Defections

Republican Senator Arlen Specter (PA) is switching from Rep. to Dem. Here is some Links – WaPo , & Politico

BottomLine – It’s not just Specter and the fact that he brings the Democratic Party closer to a veto proof 60 vote majority. (It is now 59 votes and Franken (Dem) looks like he will win in MN.)

What’s happening is as the Republican’s become more extreme (embracing the far right – example Limbaugh) they are loosing supporters.  Most polls show Democrats gaining slightly or remaining flat. Independents are the group that’s growing the fastest . Yahoo story

Kathlene Sebelius

When it Rains it Pours – Republicans

Republicans voted against putting in $900 million for flu pandemic protection into the stimulus package. Big mistake. Obama now is proposing a $1.5 billion supplemental to handle the growing crisis.

Republicans have also blocked the nomination of KA Dem. governor Kathlene Sebelius to the top health position and a whole lot of other positions in heath care remain unfilled. So we have a potential major crisis and the party is caught with its pants down. Tides go in and out. But, the tide is certainly going out for Republicans now. Sebelius finally gets the job CNN story link

First US Death from Swine Flu

A 23 month old child in Texas has died from the flu – The first US casualty. NYC has the most cases and the disease is being transmitted by humans. Link to CNBC story on Flu

Both "The Critic" (Who is traveling from a foreign country to the USA) and Abby Gold have very relevant  comments.  They stress the over hype of the media and plummeting pork prices. See comments section on right side of blog. (photo credit – AP)

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

Technicals & Fundamentals

USA GDP Numbers for 1st 1/4 = -6.1% (breaking news 8:30 EST) Worse than expected number. But this is not a forward looking statistic. There was better than expected consumer spending numbers in this report.

No real movement yesterday in US equities. The fact that US indexes were flat despite the possible flu pandemic news is bullish for stocks .

Possible Flu Pandemic (See yesterday’s Updates)

From yesterday – As always – don’t make huge massive moves (all in all out) – But  both FXI and EWZ have had a great run over the last six weeks and some protection seems prudent .

If the outbreak continues to grow - Link to what happens to Oil prices and Commodities

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XLF - The ETF that tracks financials (mostly shadow banks ) rose -3.09 % Friday in decreased volume .  Financials have lead this rally and if they  collapse so will almost all other sectors (see Positions section of blog on XLF)

The XFL is consolidating between @ 9.4 & 11.3. XFL closed at 10.43 .   9.4 and 11.3 is the support  & resistance levels all Wall Street is watching.

BDI – The Baltic Dry Index (measures trade) has started back down again after establishing a technically bearish lower high. BDI down - 2.67 % (see chart at side of blog) Too early to call a trend, but troubling.

Fed meets today . Release of interest statement at 2:15 EST today – No dramatic changes expected.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTIN G !

China 中國 -  The Trend.  It almost seems inevitable that our children are going to have to learn to speak  Chinese unless there is a dramatic shift in the major economic trend  - China - The Good , the Bad, and the Ugly.   Its Exchange Traded Fund- Ticker Symbol FXI has been the #1 Investment recommendation of Investors411.

China from Google maps

The People’s Republic of China 中國

For some basic information see

• Positions section at top of blog (scroll down to FXI) – contains  reasons to invest.
• Wikipedia will give you a more comprehensive overview

GDP –  China’s GDP numbers have just been published for the last quarter – +6.1% See BBC story. China (@$7 trillion per year GDP) is getting hurt by the worldwide recession. However compare it to the USA 4th quarter GDP -6.3% (@ $14 trillion per year GDP)  

China’s figures are the lowest since they started keeping figures in 1992. They are down 0.7% from the previous quarter, obviously because of the worldwide recession.  The economic trend is also obvious. China’s economy is growing far faster than the USA’s. It may only be a matter of years rather than decades before they become the #1 economy in the world.

Recent Headlines

• China moves into Latin America – Today’s NYT
• China moves to become #1 in the electric car – NYT
• China’s Shopping spree – Time magazine

China has over a $2 trillion dollar surplus compared to USA’s $11 trillion dollar deficit  

Note – all these figures are suspect. China’s even more so than the USA’s.

The Bottom Line – The economic trend is clear. China is economically rising and the USA is sinking. Right now, the economic gap between these two counties is closing at an accelerating rate.. You may not like this trend – but if you have kids or grandkids teach them to speak Chinese.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

STOCKS

Technicals & Fundamentals

Major US stock markets (and most foreign markets) rose yesterday in decreased below average volume. 

XLF - The ETF that tracks financials (mostly shadow banks) rose +4.83% in decreased, below average volume.  Financials have lead this rally and if they  collapse so will almost all other sectors. The loss in volume (the #1 confirmation factor of a price move) is troubling for the bulls.  This could be the first sign of a correction.

Short Term Outlook - Similar forecast to yesterday – First technical chink in the bulls armor appeared Tuesday.’s big volume sell off. A small gain yesterday in decreased volume is not bullish.  

Too early to make a call, but short term traders should pay attention. The Danger signs to watch for - another big price/volume decline probably led by financials and/or stocks moving lower on no news or good news.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!