The Holy Grail of Stock Predictions

Goldman Sachs Prediction’s for 2011

Investors411 has an inside look at what GS sent its preferred clients on Dec. 30th about 2011. Each year the Chief analyst David Kostin, the chief economist Jan Hatzius and their staffs put together an outlook for 2011.

Why is it the Holy Grail of Predictions?

• Bias -I hate these bastards. No one firm shares more of the responsibility for the 2008 meltdown that cost a huge drop in housing prices, soaring unemployment and a worldwide Great Recession.
• Former GS CEO Robert Rubin was Sec. of Treasury under Clinton when investment banks (GS) were deregulated. His protegee was Larry Summers became the new head of Treasury after him and is now the outgoing Chief Economic advisor to Obama. Another CEO of GS, Henry Paulson, was Bush’s Sec. of Treasury from 2006 to 2009. He oversaw the massive over leveraged shadow bank buildup and the 2008 bailouts when the financial/housing bubble burst. All these men have profited enormously while working Americans and homeowners have suffered.
• NO other entity even comes close to GS in being tied to government finance and therefore understands the role of government (has access to inside information) in the markets. If you’ve been paying attention, Investors411 has reported how our Fed and Treasury Department are now manipulating stocks and bonds to the tune of trillions of dollars.
• CNBC popular analyst, Jim Cramer, was a mere hedge fund manager for GS. When GS speaks he listens.
• No other firm has an inside connection to the Fed & Treasury than GS.
• David Kostin’s 2010 predictions were so good he made Partner at GS & Jan Hatzius (Wikipedia calls him usually “bearish”) is one of the most respected economist on Wall Street. Once he speaks his views are parroted by everyone from Cramer to a bevy of lesser economists.

Does GS take advantage of its position as puppet master to government finance? – An old line from the 1939 movie Casablanca used by Claude Rains sums it up -“I would be shocked shocked to find out theirs gambling going on in Casablanca.”

Goldman Sach’s inside knowledge and ties to government give them an advantage that no one else has. This is vastly more important now because both the Fed & Treasury are manipulating far more than they have than they have at least in my lifetime. Therefore its the Holy Grail

Basically Goldman Sachs is bullish on almost everything from except the dollar and natural gas.

Here’s the Chart  GS is giving its clients that outlines their outlook.

They see a flat first 3 months, but a very strong finish to 2011.

Note – The Fed’s quantitative easing ends in 6 months. This has got to be factored in. If we have a QE #3 over the course of those months my read of the tea leaves is that the figures go up.  I think its nothing short of a minor miracle that the government/Fed has been able to stimulate the economy without  interest rates going significantly higher.

Barr

Happy New Year

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The Monster in the Room

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Investors411 believes in Transparency.

If there’s a monster in the room I want YOU to know about it. Governments, Big Business,the ruling Plutocracy, & others try to hide their actions supposedly in your interests. That, of course, is crap. They all want more power/money, usually at the expense of democracy and and your wallets.

So lets continue the Predictions for 2011 by looking at the three major economic blocks and some monsters

• European Union - They bought into the American over leverage crony capitalism and got smacked.  Germany is the gem with an unemployment rate of 7.5%, an exporting based economy, universal health care, and a GDP  better than ours. Ireland, Greece, Portugal, Spain and Italy are the weak links (monsters) in the European Union.  Predictions – Either they all become more like the Germans or some of these countries will leave the European Union. That means huge belt tightening in the weak links – Lots of bumps in the road in 2011 as the debt problems of weaker countries are worked out.
• Emerging Markets – For the most part they did NOT buy into our crony capitlalism. They’re also reaping the benefits of the mega trend of globalization –  booming job growth & GDP’s. The monster here is the problem of heating up too fast and growing too rapidly. There is also corruption and in some cases governments that are far less democratic.  Predictions – The bigger countries know how to play economic hardball. Their GDP is over 3 times ours. Those countries with an abundance of  limited natural resources will do better economically than others.
• USA - Our over leveraged, opaque, crony capitalism created the world wide “Great Recession.” In the early 2000′s we went to war, cut taxes and exploded our debt. We dug a hole. Our unemployment rate is 9.8%. Globalization & politics have created a systemic problem of jobs being outsourced and now consumers abroad are becoming more & more  important to American companies growth. We have tried to fix the problem with stimulus, quantitative easing, and bailouts OUR monster is in the fact that we run an opaque capitalism. Our real GDP is in shambles if you eliminate stimulus, quantitative easing and other factors. Predictions - It looks like we can keep blowing smoke (opaque capitalism) through at least the first 1/2 of 2011.

MIT’s Simon Johnson sums up the situation and future as follows -

“Our leading bankers looted the state, plunged the world into deep recession, and cost us 8 million jobs.  And now many of them stand by with sharpened knives and enhanced bonuses – also most willing to suggest how the salaries and jobs of others can be further cut.  Think about the morality of that one.”

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KISS & Stocks (Keep It Simple Stupid)

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

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

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Index	Percentage	Volume
Dow	-0.14%	down
NASDQ	-0.15%	down
S&P 500	-0.15%	down
Russell 2000	-0.07%	-

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Technicals, Fundamentals & Analysis

Investors411 record – 6 years of beating benchmark S&P 500

• Markets were flat & volume abysmal AGAIN
• PMI, Home sales and weekly jobless figures all came in better than expected yesterday. Perhaps the reason stocks went nowhere is  because there was no POMO buying by the Fed.
• Big cap tech stocks are looking bullish. AAPL & CSCO have moved higher and have weak volume declines in last two days. IBM is on verge of breakout.
• Some details on today’s major events impacting markets from Seeking Alpha.

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Reading The Tea Leaves

A most indecisive week as many major institutional traders/investors are on vacation.

ICI (Investment Company Institute) measures the flow of money in/out of mutual funds.  After 33 weeks of funds flowing out of mutual funds the last couple have sen some inflow A week or two is not a trend, but the turn is= Bullish

Investors411 mantra – The reason stocks went up while money was flowing out of mutual funds was the FED’s quantitative easing boosting stocks. So we could see a money supply surprise for early January.

• The FED POMO program continues through April
• New year bonuses get invested
• Some folks are getting back into the markets

Repeat- AAPL the world’s #1 tech stock is the canary in the coal mine. If the General rolls over watch out.

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Positions

• #1 UWM - (2x small cap stocks ETF) – 1/2 position
• #2 UWM
• EUO - (double short the EURO currency) sold all at 20.51 for -1% loss
• UCO – (double long oil) sold all at 20.18 for -1% loss
• SLV - (Silver ETF) Bought Wednesday at (see comments section of blog.)
• DGP -(2x gold ETF) Bought yesterday at 41.86

Under consideration

UCO -(2x oil prices) Oil prices got over extended and a short term reversal is to be expected. The chart is bullish (series of 3 higher highs and positive slope to 20DMA) over Over the last six months each correction or consolidation seems to have been for about 10 days.

REMX (Rare Earth ETF) – Way too hot to buy now. Like a zillion investors who missed this initial jump we are waiting for a pullback. The story here is compelling. There’s a limited supply of this material and high demand. It takes 7 to 19 years to get a new mine up and running and China has almost a lock on existing supplies

EWZ (Brazil) & LBJ ( 3x Latin America – majority Brazil) Obviously the later is more risky. Both made significant moves higher in last few days. Probably due to move in rare earth metals and the fact that Brazil is rich in other needed natural resources.

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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.” (YSL#3)

Note – I have changed a lot of the Chart links to include the 17 Day Moving Average. (green line)

Nation Building Quagmire

Ronald Reagan was right

Once again Frank Rich’s Sunday NYT editorial is outside the American corporate media news box. It deserves your attention and is, in part, the basis for the points below. LINK

• We, getting out butts kicked in the war on terror – The call for a 3rd unilateral surge of troops (see Oct 25th post) is  a major example of failure – you don’t call for more troops when you are winning.
• The debacle or “unjust” war/nation-building in Iraq is the underlying cause of the trouble in Afghanistan. – While we fiddled with Iraq – Afghanistan, Pakistan and Iran all burned. This was predicted over and again since the Iraq war started by Investors411 and others.
• Pakistan (2 to 3 times larger than Iraq+Afghanistan and a nuke power) is deteriorating rapidly – All polls show the #1 party in the polls is now the Muslim religious party who campaign slogan is “Go America Go”
• Systemic failure of the military/pentagon to foresee the Hasan/Ft. Hood disaster.
  

Solutions fromthe far right and the military

• Of course right wing solutions blather fear and religious leaders like Pat Robertson are calling Islam “Not a religion, but a violent political system bent on the overthrow of the governments of the world.” Every Islamic terrorist is using Robertson’s (or some right wing American like him) quote to turn moderates into terrorist recruits.
• This right wing view is diametrically opposed to US military/General McChritstal’s call for 40,000+ more troops in Afghanistan   “The key to success – a strong personal relationships forged between security forces and local populations.” A worthy goal, but is it doable, what are the costs, and like Iraq will it just make things worse.

Iraq/Afghanisatan

• Maliki, our guy in Iraq, is one of the founding fathers of the Darwa party. The Darwa party is responsible for killing almost 250 American marines in a bombing in Lebanon. Reagan was smart and he got our troops out of the Lebanon quagmire
• The two major religious leaders in Iraq – Sistani refuses to ever speak to Americans & Sadr hates us worse than Pat Robertson hates Islam. They hate our occupation.
• Our invasion of Iraq has created the biggest refugee crisis in the world according to the UN. 4.2 million people have been displaces when the Shia just about destroyed the Sunni’s in Iraq. Sunni’s were responsible for most of the violence. LINK
• Maliki/current government along with Hezbollah and Hamas was the first to recognize (insert most negative adjective(s) you can think of here) Admadinejad election in Iran
• Iraq’s economy is rich with oil & Afghan’s rich with Opium. To create/nation build in Afghan means creating a whole new economy. Far more costly than Iraq.
• Our guy, Karzi, in Afghan, is corrupt, an election rigger, and his family directly related to the opium trade.

Solutions - Absolute worst solution is some form of  Obama compromise – (send in 20,000 troops)

If you’re going to commit to war/nation building in Afghan do so absolutely . Otherwise you’ll never win . If you do commit – Expect/be prepared for of tens of thousands of casualties, a lot more than 40,000 troops sent, many trillions in cost, a huge extended cost of occupation/nation building beyond Iraq, Afghanistan to other countries, our huge deficit to explode higher and the majority of Americans/world (already against the war) to grow in size and anger.

My choice – Ronald Reagan made a wonderful decision NOT getting us involved nation building in Lebanon after the bombing of the marine barracks.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-0.91%	up
NASDQ	-0.83%	up
S&P500	-1.03%	flat
Russell2000	-2.09%	-

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

Dollar fell  a  significant -0.60 so stocks rose The inverse relationship between the dollar and stocks is so strong it is easily the dominating factor in movement of equities. The other forecasting are distant seconds to the US dollar’s movement.

Monday’s since September have been historically very good for stocks. If the dollar is going to breakdown and stocks breakout higher it most probably will happen this Monday or next.

Major rally in most countries overnight.

KISS = Keep It Simple Stupid – The dollar rules

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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 @ 4% 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 VERY significant +155 points yesterday and closed at 4111. Up 12 days in a row . The BDI’s growth did slow down a little as it approaches its major resistance level at 4291 . (This years high)  The BDI has rallied about 2000 points since late September. =  Bullish for stocks & world trade right now. Especially good for our positions in FXI & EWZ

Like most major resistance /support levels expect 4291 to hold. Technically – Upward momentum slowing is a sign that the 4291 resistance level will hold and after being up 20 of the last 22 days the BDI is certainly overbought.

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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 down a  significant  -0.60% yesterday. The dollar closed at $75.23 . “ Usually a major support level at least temporarily halts any fall.” The $75 support level held and now the dollar is near the bottom of its range.

The next important resistance level for the dollar is the falling 50 day moving average (blue line on chart). This is at $76.20 this AM . The support level is a little below $75.00 . Both are EXTREMELY important lines in the sand. A breakout on either side will move US equities in the other direction and the world will follow.

There is a major squeeze play going on as the resistance level keeps falling as does a major trend line. Support remains flat at @ $75.  Only $1.20 separates the two. Which ever side the Dollar breaks out through will set the momentum for it and the opposite will happen for US ( and most world) equities.

CAUTION – The first breakout (up or down) is often false. Right now the momentum (since the long term trend is down) is with the Dollar bears and consequently stock bulls

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

The index closed at +5.83. This indicates stocks are just a wee bit overbought and moving is either direction is possible.

Key to chart – Zero  is roughly  neutral and roughly when you approach to @ +60 you are overbought and approaching -60 you are oversold . Buy at oversold and sell at overbought. Nothing is absolute in this chart. In fact using the moving averages as a central point is better than using zero. Nothing is absolute about the minus or plus 60 number either.

Oversold conditions = buy, Overbought positions = sell

Positions

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

Sorry have not had a chance to update Positions section in well over a week – see past updates

Investors

Comments – NOT the time to buy or add to recommended positions. (FXI, EWZ, GLD )  Enjoy the rally. Shorter term investors may want to sell part of the 3 major positions while they are at highs.

Going to add Indonesia & Vietnam ETF’s – but waiting for dips. Also going to add DGP (this ETF does about 2x what the GLD does) – More explanation later. As a trade like GS. Again, waiting for dips

Traders (short term plays) These are not ETFs, but individual stocks

Extra Note of Caution here – Even though I always warn you AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING! please note I’m far less confident in individual stock picks

Long Term Outlook – The dollar looks like it may break down through major support and the benchmark S&P 500 is on the verge of a yearly high – Outlook will change to CAUTIOUSLY BULLISH if/when this happens. But subject to further change back to neutral since breakout was weak.

Long Term Outlook = CAUTIOUSLY BULLISH