Lord Vader/AKA Larry Summers

If their is one man to single out for the lack of coherent response to a massive destabilization of the worlds economy its Barak Obama’s now former economic chief Larry Summers.

Last Tuesday a mass of increasingly bitter, alienated and emotionally driven people voted for change. Few realize that Lord Vader and his oligarchy of Casino Capitalists won the election.

Summers stands at the apex of the triangle of “hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.”

Every Investors411 reader knows about the legion of lobbyists corrupting government and now the legions from academia who are bought by the shadows of casino financial capitalist.  Millionaire economists, Fed officials, and university professors who “refuse to disclose their conflict of interests”

See Charles Ferguson’s “Larry Summers and the Subversion of Economics” editorial (a must read) for a broader list or see Inside Job docudrama.

Perhaps the most damaging moment (and it is a hard call) is when the head of the International Monetary Fund, Raghuran Rajan in front of a field of world’s top economic experts (2005)  including Greenspan, Paulson,  Bernanke, & Geithner is shouted down by Summers for warning that the impending 2008 financial shadow bank meltdown is coming.

If you’re a true blue Democrat then Summers is Benedict Arnold. But I prefer to look at him in a battle between true transparent capitalism and the casino, opaque, oligarchy of monopolists  that is increasing their wealth and stranglehold over working Americans.Economist John K Galbraith opens his editorial on the election with the following paragraph –

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

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US stocks used to be controlled by normal investors and traders – If it still was I’d be ducking, covering & selling big time.

Employment numbers for last month on Friday +151,000 jobs rate (positive surprise) & a continued -9.6% unemployment rate More here

The more highly leveraged the ETF is the more it is a shorter term trade (days/weeks) instead of a longer term investment (weeks/months) DGP is the ETF most likely to turn into an investment.

One strategy has been to lock in 5 to 10+% profit on the trades by selling 1/2 the ETF when/if it reaches those levels.

Traders would need a dip in MO before nibbling some more.  Investors, preferably, would like an MO of near -60 or higher before investing. Traders anything close to zero (highest risk) to -30 on MO

However first concern for traders is to lock in profits or keep tight stops on stocks and highly leveraged ETF’s.

Personally – I’ll probably  be  selling today, hopefully into an AM rally, the rest of the leveraged ETF’s. and perhaps 1/2 gold. I know MO is not at +60, but, the Bollinger Band/over extended from 50 day moving average means a short term reversal/consolidation. .

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including ”YOUR Stock List.”

Announcements of purchases/selling can first be seen in the comments section of the blog and/or if you are on the private mail list. If you’d like to get on mail list send me an email – see HELP/EDITOR section of blog

The Problem/The Sky is Falling/The bailout

In 2008 it became apparent to many that shadow financial institutions had become over leveraged by placing bets on mortgages (credit default swaps).

• Our unaudited Fed engineers a deal to save mortgage giant Bear Sterns and it merges with JP Morgan. No one knows what $ the Fed promised to make this happen. JPM later gets big chunk of TARP funds. Other smaller mergers happen.
• Lehman Brothers goes Bankrupt in Sept. 2008. Lehman claims lots of assets, but by the time they fell apart they had $613 billion in Debt and could only raise $1 billion in cash.
• Lehman debt spreads throughout the world, people realize how over leveraged all the other shadow financials must be, housing prices plummet, and stocks begin to fall. SPX goes from 1500 to 666.
• Treasury proposes TARP. Treasury/US government (the only entity in the world with power to stop fall) proposes to buy up bad debt and sell it later.. Paulson/Treasury later changes this to loaning shadow financials money $700 billion. ($50 billion or less has not yet been repaid)
• Stocks keep falling and QE1 introduced. Fed prints and dumps a trillion plus more dollars into economy. Finally stocks stabilize and start to move up There’s more but lets take a look at what happens if these actions do not take place

What If Absolutely Nothing Was Done?

You lived through the panic after the Lehman collapse. Now add this – What if the second largest mortgage company Bear Sterns collapsed on top of that? Add perhaps 3 time larger insurance giant AIG collapsing. It’s debt all owned to other shadow financials who themselves were up to their eyeballs in over leveraged debt. They too collapse like Lehman.

• The weekend before TARP, a run on AIG had started across the world. AIG who insured the shadow banks goes down then one bank collapsing after another because their collateral is no longer solvent. People panic and media adds to the frenzy. Everyone realizes. Lehman was just the tip of a giant iceberg of debt.
• Belly up goes AIG, BAC, Citi, Major European banks, GE, Fannie and  hundreds/thousands other major/minor financial institutions. No one knows which bank has how much debt, so people take their $ out of all banks. Fear grows hyped by the media.
• Stock market goes far lower than SPX 666
• Bonds of these banks collapse. Even with just Lehman’s collapse BAC bonds went from 100 to 82 before recovering. (An institution I am treasurer for owned these bonds)
• Financials, Fannie & Freddie bonds were the backbone of many money market funds (Think Fidelity, Vanguard etc) They or their insurance agent go belly up as the bonds become more worthless. You may have received a negative return on your money market fund depending on how are the panic had spread.
• Home prices plummet way way way way down.
• Not knowing which banks are shadow banks panicked investors pull their money from all banks. You know how suseptable your fellow Americans are to fear and fear mongering. Worldwide run on banking results. – a financial armageddon.

So a worldwide financial meltdown was averted.

That’s the good news now for the bad.

• How deep is the shadow financial hole? Fed engineered Mergers, TARP, QE1 now QE2, POMC and an UNAUDITED Fed who can had loans money at their discount window and/or use some other opaque means to fill the over leveraged gap of the opaque shadow financials.
• All of this cash used to fix the problem creates imbalances in the economic system that magnify the trillions gone into filing the shadow bank hole. Beyond my understanding, but nobel prize economists like Joe Stiglets and others get it.
• By 2008 we had already created a huge debt by going to war, cutting taxes, pork spending etc. So this new debt was built on more debt.

The UGLY

• There is no regulated financial derivatives exchange.
• We did not return to the old laws that prevented over leveraging in the past or end too big to fail. Congress passed are weaker measures.
• Dopamine When you get high the dopamine centers of your brain are activated. You get addicted to this pleasurable feeling. Sometimes like running its a heathy addiction. But with drugs or greed you keep needing bigger doses to obtain the same high. Physiologically those that run the shadow banks are not going to change their ways unless there is enforcement.

I left out stuff and will be back to Obama’s negatives next week

Mantra - “Not making any specific move until dollar breaks out of its range. I would look at a breakout higher for the dollar, and a corresponding fall in stocks and the MO to oversold as a buying opportunity for long term investors.” Looks like next Wednesday Fed meeting is the big event.

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including ”YOUR Stock List.”

“The Comeback Country.”

America’s Back - Is the front cover headline from April 19th’ Newsweek.

The stock market chart below sure shows the US stock market is back. This issue of Investors411 is going to go over why stocks NOT the economy (a different story although since Obama took office we have gone from -700,000 jobs to +100,000 jobs a month) have recovered and one major point on technical analysis

LINK to bigger representation of above chart by dshort.com

CAUTION – While this two year chart (we are the blue line) does look good if you take a 10 year perspective the chart shows that stocks are in the 3rd worse bear market. The US stock crash of 1929 and the 1989 Japan stock crash the other two worse bear markets.

Why Stocks Recovered

1. The Paulson/Bernanke Bailout - You can also give credit to Bush, Obama, McCain, Geithner and every member of congress that voted for this flawed plan. We stood at the precipice of well over a dozen of the world’s largest banks, its largest insurance company all failing. This would have easily have cascaded us in panic into another Great Depression. Many many big foreign banks were also bailed out.
2. Worldwide Stimulus – Obama’s stimulus plan cut taxes @ 10%, kept state governments solvent, provided new jobs, new focus on alternative fuels, and gave tax breaks to small companies. You can argue the merits of the Obama plan vs. the other world wide stimulus plans, but combined they made a difference.
3. Low Interest Rates – Our Fed and other central banks cut interest rates dramatically and gave insolvent or near insolvent banks the money at close to 0%
4. Changed Accounting procedures - We virtually eliminated “mark to market” accounting. This allowed banks to less transparency in accounting and not to value assets at what they are worth at the present time.
5. Speed - Unlike the 1929 Great Depression and the 1989 Japanese stock crash, action was taken within a year to fix a worldwide economic problem.
6. Emerging Markets – China, India, Brazil and others never entered recession. Partly because their banks did NOT get over leveraged. Their economies kept right on growing.

This is all truly great news for Wall Street. Of course for every on Main Street this Simply Sucks

1. We’ve privatized the Gains and Socialized the Risk - Untold trillions have gone into fixing our over leveraged, unregulated markets (shadow financials that caused the crisis). The government money printing presses (later this means you pay with inflation) and tax dollars (bigger deficits) have added new burdens on Main Street.
2. We’ve done NOTHING to fix the problem. Alan Greenspan had his OMG moment in front of congress when he exclaimed he was wrong – “Free” (unregulated) market can not fix themselves.  There is something called GREED that emerges on Wall Street if you have little or no transparency and rules.  In fact, we’ve made things less transparent by removing mark to market accounting.

Technical Analysis

I love it that so many of you who have my personal email send in stocks for consideration on YOUR Stock List. Again Thanks – I will give you a short technical analysis of each stock. Two new stocks sent in over the weekend CKEC (3D theater stock,but over extended) & MSPD (chart looks great!) are worthy of consideration. One stock on YOUR list ICON “raised guidance”

One request - Almost all of you send me some stocks that  are too small to consider. These small companies are too easily manipulated by Wall Street Sharks. Please send in stocks that do over $5,000,000 a day in trades. More than that is even better. Multiply Volume X Price

Over two decades I’ve watched /owned way too many of these “thinly traded” stocks that exploded.

Here’s how they fall in an analysis of ERES – Chart shows @200,000 shares a day traded and price at $7.27 = @ $1.5 million a day.  Thats chump change to hedge funds, big investors, brokers, institutions.  Its too easy for them to “pump and dump”

Example-someone acquired 1,000,000 shares around 6 to 6.5. over time. They pumped up the stock by buying more shares as it comes close to its technical breakout point. Knowing other investors would then jump in as the stock broke out, they pump it up by buying more. ESRS goes higher and then they dump the million (plus say 50,000 to 100,00 extra shares it took to pump up the stock) ERES prices go down big time but they make a killing.

This obviously does not mean ERES is getting pumped then will be dumped. But the lower the volume & price the greater the potential for manipuation

Don’t worry if the above explanation makes your eyes glaze over. Just stay away from thinly traded companies.

AS ALWAYS DO YOUR OWN ANALYSIS BEFORE INVESTING

140+ Dead in Demonstrations in China

You’ll here a lot more about Iran, but the Muslim minority has demonstrated or rioted (depends on which side your on as to which term is correct) in a far western Chinese Provence. The BBC headline story here

China owns a huge part of our debt and we need her cheaper goods. Will condemnation here be as great as Iran or hypocritically silent?

Biden – We “Misread”  Problems

Photos – Huffington post

Since last fall Investors411 has continuously repeated “The problem in the financial sector is far far far far far bigger than fist imagined. Impact of this mess is going to take years to resolve.” See positions section of blog.

Investors411 continually cited a significant group of economic thinkers who clearly demonstrated just how bad the economic problem was. Investors411 also criticized Larry Summers and the economic crew of the Obama administration.

The only good news is they finally woke up and smelled the coffee . Tax cuts good, Stimulus plan good but way too back ended (only 10% spent so far) The same problems that led to the financial meltdown are still out there. Yes, we’ve moved back from the edge of the cliff and everyone starting with Paulson, Bernanke and Geithner do deserve some credit by throwing the car they were driving into reverse as we approached the cliff.

However Greenspan, expanding deficits, wars, housing and unregulated capitalism have created a massive economic black hole. Short term stimulus usually worked as a solution in the past. The problem here, besides the holes massive depth, is the accumulated debt was already humongous. Biden’s admonition of misreading economic crisis here

For in depth previous prediction and solutions see Overview section of blog.

Iran (Week 4)

Huffington Post’s Nico Pitney’s daily blogging on events here

There has been one group of cleric’s come out in support of demonstrators and he wonders what’s happened to the head religious leader in Iraq – Sistani. He supported democracy for Iraq, but has remained silent on Iran

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

Investors411 record – 4 1/2 years of beating benchmark S&P 500 (see results at 6/25-scrolldown)

Technicals and Fundamentals

A huge price decline, but again in weak declining volume Friday. How markets react to news is just behind Volume as a prediction tool. In this case it was the Unemployment figures that sparked the fall are lagging indicators.  Therefore, the huge downside reaction is way more than expected = Bearish.

The lack of volume still troubling factor. – One things for sure-money on the sidelines is staying here. Its hard to make a long term forecast with volume as a confirming factor. Weakly forecast below.

Earnings season begins next week. Historically, this week companies that are not going to do well warn – this is bearish

Oil futures are way down this AM trading at $63.88 at 7:15 EST. = Bearish

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown.

These are important forecasting tolls, but secondary to volume .

BDI - The Baltic Dry Index measures the flow of goods (world trade) . BDI fell sharply Friday.  This index is winding up like a spring, within a consolidation pattern and is close to a downside breakout (3452 is breakdown point and index closed at 3529)  See chart  Watch out! Long term Bullish rise from bottom, but coiling right now for next move . Potential bearish breakdown possible this week

$USD - The Dollar rose 0.74 % . The strong inverse correlation between the dollar and stocks has existed for many moons. Market. Dollar up = markets down. That’s just what happened Friday Long term Bearish pattern for Dollar that is consolidating pattern now (neutral) = Bullish for stocks

Fearless Weekly Forecast – Last week Broke Investors411 winning streak of forecasts for the week  as US markets fell on some bad consumers confidence and unemployment data. Momentum is with the Bears as we enter earning season. Check out all the red bearish signs above.

The S&P resistance level (@875 & SPX now at 896 )  should at least get challenged, especially in the beginning of the week. Watch BDI. Forecast – Bears Rule

Back to CAUTIOUSLY BEARISH outlook. This is in anticipation of a further breakdown of the BDI and S&P 500.

NB – Volume has confirmed nothing. So confidence in above predictions is a bit shaky.

Our Positions . -  China, Brazil, & India (FXI, IFN & EWZ )(Partial list)

Unlike the USA that has seen two economic bubbles burst housing and financials these growing countries have been relatively less impacted. The decline in trade with US is going to impact all 3.  China and India have positive GDP’s predicted for the year and resource rich Brazil’s GDP is predicted to be close to zero. The World Bank predictes a -2.9% loss of GDP for the rest of the world..predicts a-2.9% loss of GDP for the rest of the world.. For more see Positions section of Investors 411.

Recommendations – Investors has a very big position FXI a very small position in IFN , and a closed position in EWZ .  Again see Positions section of blog. Short term traders might want to take some profits in FIX and both traders and investors  should look at possible “buy the dips” opportunities that should emerge this week or next in IFN & EWZ .

More tomorrow

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Iran Day 11

Iranian protestors – Photo from Andrw Sullivan blog

Neda Agha-Soltan has become the hero of the Iranian revolution from American media (LA Times here ) to Arab media here In fact al Jazeera has a whole section devoted to "Iran in Crisis" here Al Jazeera is an outlet for mostly Arab Sunni’s and Iran is Persian Shia’s. No love lost between these two groups. You heard and saw Neda’s story at Investors 411 3 days ago.

More of the same in Iran. Less on street demonstrators and more violence. Previously listed best  sources are still telling the story to the world. Some predictions from BBC – What’s next for Iran here

One issue that many on the far left are not going to like to hear. Israe l has certainly made mistakes in its two recent wars with Iran and her proxies (Hamas & Hezbollah). But seeing how the Iran’s "Supreme Leader" treats his own people you can see how hard it is to make some peace with him or his clients. Of course, the first the recognize and lavishly praise Ahmadinejad’s & "Supreme Leader’s" victory was Hamas (here) and Hezbollah (here )

Barack "Hoover" Obama?

Yesterday Abby posted an article by Kevin Baker on Obama from Harper’s magazine. Unfortunately you have to be a subscriber to reference the article. You can view some excerpts here The focus is that Obama has not and may not be able to change the strong intrenched interest that created the economic mess we are now in. President Hoover (his picture above) did nothing and the Great Depression grew.

Context We tore down the regulations on "free" markets and developed a massive credit debt over the last decade that has exploded. Yes, Paulson, Bernanke (more the previous Fed chair Greenspan) and Bush were leaders in creating this mess, but late last year when we stood on the edge of economic catastrophe they (PB & B) instituted a plan and prevented world economies from falling off a cliff. Bernanke, Geithner & Obama have followed through and added to that plan

Remember Lehman Brothers cause over $400+ billion dollars of debt to spread throughout the world when it went bankrupt. People were lined up in panic at insurance companies and banks. What if AIG, CitiBank, Merrill Lynch Fannie, Freddie. AIG and so many others had followed Lehman. The end result would have rippled through out the system and economic catastrophe would have been the result.

How Obama handles the economy is priority #1. Because it is the world’s economy and he is easily the most important/influencial figure. Unlike Hoover whose inaction significantly added to the Great Depression Obama has acted. But its those entrench interests that have dug in. Time will tell.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals & Fundamentals

US markets took a major hit on a bad economic forecast from the World Bank.

The volume was again below average. It hard to be sure about making a forecast when our #1 forecasting tool – volume – gives no indication of which way prices will flow.

Major event – Fed Meets today and issues statement on Wednesday

Yesterday’s major event was The World’s Bank lowered its outlook for the world’s economy this year from -1.7% to -2.9% .  This is some truly bad new s for long term investors.

Since volume is out as a forecasting tool right now, today’s price move will act as a confirmation of yesterday’s move. Do we fall further (bearish) or rebound (bullish)?

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown

Right now, there are two indexes that are significantly influencing stocks in the USA & world. The US dollar in the short term and the BDI in the longer term

$USD -  The dollar is the index to watch. Dollar went up +0.57% yesterday. Any move over 0.50 is significant.  It looks like the dollar may be establishing a short term bullish pattern (see chart)  of higher highs and higher lows. Still to early to tell.

All together now -  our mantra – when the dollar goes up stocks go down . This strong inverse correlation has existed for many moons.

BDI - The Baltic Dry Index measures the flow of goods (world trade). 24 up days in a row, 6 down day in a row,  a 6 day rally and the BDI fell minimally on Friday and significantly yesterday. This is a very important chart that has just rolled over. It usually moves in one direction for an extended period of time.  If it moves past and creates a lower low than it had eight days ago it would be a serious sign of trouble Right now, the momentum is with the bears.

If trade is diminishing through out the world then a worldwide recovery is in big trouble.

You can play with the chart and create different settings to get a better idea of what’s happening, (the same with all other links to different charts)

Reading the Tea Leaves

Still think this market has moved too high to fast and is a technical rebound. As stated two weeks ago we may see a 5 to 10% technical fall or consolidation. This week fearless forecast – Another down to flat week. The benchmark S%P 500 has already broken through support and fallen 6 to 7% from its high to  893. Next significant support level is 875 to 880. As stated above volume is NOT confirming (or has yet to confirm) the downside move. So far this still is a technical correction of a market that went too high too fast.

Both the dollar and the BDI have started to trend in the wrong direction (If you’re a bull on stocks) Add the World’s Bank prediction and you have lots of reason to hear the bear’s growl.

Got burned with this the last time I did this, but buying a little protection on any minor rally. Adding small position in SDS (ETF that does 2X the opposite of the S&P 500)

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Got stuck in a massive traffic jam late last night. A major wreck on the CT/MA border. So this Investors411 is short and sweet.  

One editorial to bring to your attention is by American Prospect editor Bob Kuttner.  He sees team Obama’ – Rubin +Summers+ Geithner = Paulson = AIG = Wall Street.  The good news in all this – the stock markets in the short run should move higher. The bad news is the taxpayers are going to pay for Wall Street mistakes. 

What, Summers and Geithner have done is “double down” on the Paulson/Bush plan and the recent AIG debacle is just the latest example of this.  He’s disappointed with new TARP plan and offers an alternative that seems to “winning converts through out the political spectrum. 

Kuttner concludes “Barack Obama is a president of great promise, reassurance, and political skill. In the next few weeks, we will learn how he performs in a crisis that is being worsened by his own appointees.”

Long Term Outlook = CAUTIOUSLY BEARISH

See Changes in STRATEGY, POSITIONS, & OVERVIEW sections of blog 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!