Four Bad Bear Markets – Understanding long term bear markets is critical and the following two charts will give you a relative idea what a bear market looks like.  The G 20 – rhetoric and results.  Israel – right wing takes control and spurns Obama/Clinton peace process. Stimulus & Budget. Employment #’s. Why the current rally may continue – “Rotation” and volume.

 

 

 

 

 

 

 

 

 

 

Click on either chart to see bigger chart. Charts from dshort.com

 

 

 

Four Bad Bears

These charts graphically put in perspective where we are relative to 3 other major bear markets starting with the Dow from 1929 to 1932  The first chart is over 34 months and the second is over 10 years.  The second includes the often never mentioned 9 year long NASDQ bear market.

You can draw you own conclusions, but notice how far we’ve fallen and how close we are to the Dow 1929 to 1932 crash. Each bear market is different, and we are fundamentally moving a lot quicker than they did in 1929 to fix the problem.

 

G – 20

The rookie, Barak Obama, didn’t hit a home run but he certainly was a hit. He translated his world wide star power into results from refereeing a France/China verbal spat to getting a trillion for emerging markets. You can read the NYT editorial  the G 20 here More came out of G 20 than almost everyone expected. Obama message – “the world is in this together” – resounded.

This AM (EST) Obama is speaking to an packed audience in France and tying the failure of a mortgage in Florida to the failure of a bank in Iceland.

Israel

My closest Israeli friend absolutely hates the newly elected Netanyahu government. It’s like giving American neocons complete control of Israel. Netanyahu has already told the Obama  “Stop Iran or I Will.” 

Netanyahu picked an extremist as his foreign minister – a former Moldovan night club bouncer named Avigdor Lieberman, who like Iran’s Ahmadinejad has made some outrageous threat. He immediately  “spurned” the peace process started by Bush and supported by Obama/Clinton.

Stimulus & Budget

Although many Republican’s voted against Obama’s stimulus plan the last Republican (South Carolina) holdout governor caved in and will accept the stimulus for his state to keep teachers in the schools and cops on the street.

House and Senate have passed basically the Obama budget.

 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

 

 

Index	Percentage %	Volume
Dow	+0.04%	down
NASDQ	-0.18%	down
S&P500	-0,10%	down
Russell2000	-1.33%	-

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News

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Nationalization

It’s here. The concept of nationalization has come out of the closet and now even Bernanke and Greenspan are using the term.  Worries over nationalization have caused a meltdown in stocks, but it seems to be better choice than the systemic chaos of bankruptcies or the taxpayers continuing to to be the major shovel throwing money at the problem.

Now the big boys  Bernanke and Greenspan are  using the N word. At Investors411 (see archives) you watched this significant trend develop from a whisper to a market mover that will significantly change our governments response to the financial crisis.

Learning lessons from India

India has been terrorized by multiple terrorist attacks that have originated from inside Pakistan. Yet they have not gone to war with them unlike the Bush administration who went to war with a country that had nothing to do with WMD’s or 911. The significant Muslim population of India has rejected the Mumbai terrorists. For more see Tom Friedman’s editorial – No Way, No How, Not Here.

Helping Mortgage Holders

Finally a plan to keep the rate of foreclosures from growing. All he Paulson TARP plan did was shovel money at banks. Obama has announced a plan to help possibly 9 million threatened homeowners.  The ripple effect of not helping would bring down a lot more financial institutions and further devalue home across America. Many comments on this are like those on the stimulus plan – while significant it is not enough – NYT editorial

Israel Elections

The vast majority of elections analysts see the right wing gaining power in Israel. To most Israeli’s and Americans the war against Hamas had a far better outcome than the war against Hezbollah. Of course there are many worldwide angered by both wars. While the centrists  did barely win the most seats in Israel’s parliament the  divided right wing parties picked up a substantial majority. 

Bottom Line – The peace process has become a whole lot harder

Stanford, Another Madoff

Another this time smaller $8 billion dollar Ponzi scheme has come to light.  Seems investors thought nothing of  investing in 10% to 14% yielding CD’s controlled by the Stanford Group. Mr S is on the lamb.  

Bottom Line - Once again the understaffed, incompetent SEC is caught with its pants down. When all you had under Bush (really since Reagan) was cut cut cut government and don’t you dare dare dare regulate free markets – Stanford/Madoff and an over leveraged financial catastrophy is the result.

 

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

 

Short Term Outlook

Major US markets took a breather yesterday. Foreign markets have rebounded somewhat overnight. CNBC, the most popular financial channel (they are right wing cheer leaders corporations) has a decent morning compilation of how markets are setting up for the day.

Momentum is still with the bears.

Long Term Outlook = Bears Rule

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See STRATEGY POSITIONS & ARCHIVES sections of blog for more

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