Investors 411 Blog

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

Note – This chart from Crooks and Liars is a bit misleading because its the 2008 projections & faulty accounting under Bush & Obama (see below) Bush #2 & Obama figures should be higher.

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!

Index	Percentage %	Volume
Dow	-0.32%	down
NASDQ	-0.09%	down
S&P500	-0.33%	down
Russell2000	-0.40%	-

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!