Lights Going Out Across America

NYT’s/Princeton Nobel prize winning Paul Krugman editorial certainly not a rosy forecast.

This is My Lucky Day

Great Video sent in by E.R. Enjoy! Also from same site totally different but entertaining video from flixxy.com

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!

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

Same Mantra for the month -The Black Box/High Frequency Traders BB/HFT control the majority of trades. Paul R in the comments section has found a great source describing the BB/HFT traders and consequences of what they do.

Here’s a look ahead for Wednesday market.

The big news out of yesterday was the Fed meeting and suggesting Long Term Interest Rates can go even lower. That’s bullish for stocks.

Significant Indexes

• The Dollar had a huge rally but ended the day up only +0.11%. Rally (+0.85% higher) that collapses is usually bad news for dollar and good news for stocks , but we are still holding support.= Neutral/Bullish
• The Baltic Dry Index (BDI) kept accelerating its move  higher (+4.64%) = Bullish
• McClellan Index – (MO) [Basically longer term  - the rough guideline is over +60 = overbought market = sell or short stocks & -60 = oversold market = buy stocks.] MO fell to +7.68 = Neutral

Reading Tea Leaves

The BB/HFT traders because of their size, scope, & frequency are creating correlations across diverse markets. They trade futures in currency, commodities, stocks and other markets.  What this has done is create a greater unity in these markets. One prime example is the dollar going down for a few days almost always means stocks will go up.

While normal investors or traders can’t match the speed or size of the BB/HFT’s, the simple advantage we have, is we can watch their direction. Because of their big size hey leave footprints/trends.  Simply follow the trend.

Longer term – What’s growing the fastest is emerging markets and the US companies that export to them. If the dollar keeps falling, US exports will cost less and US stocks will grow.

Short Term – Nothing goes up or down in a straight line. There’s problems out there from a phony opaque financial system in the US to an overheated housing bubble in China. At sometime major problems like the two examples or others make noise and markets tumble.

The three indexes above are guideposts to what’s happening or will happen. Right now the major fight is over a key resistance/support level of the dollar and it looks like the dollar bears might win. This would be good news for stock bulls.

Our key forecasting tool is the MO is in Neutral. This gives us “wiggle room” both on the up and downside.(see above)

However, despite some potential good news in BDI & dollar, when you look at the chart of the MO you’ll see a series of lower highs and lower lows. This is NOT good. For those who know more about technical analysis the MO has also broken down through a “head and shoulders” pattern. Again NOT good.

Therefore, despite some encouraging news in the dollar & the BDI it looks like in short term we are heading lower.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

Current positions .

• EWZ (Brazil – Now 5% of portfolio position) Bought at 69.80. Currently at 70.50. Considering selling remainder.
• TYH (3x technology – 2% of portfolio position) Bought at 31.76 Sold yesterday at 31.08  for -2% loss

Mea Culpa – Investors411 has brought this up a handful of times yet failed to take action each time its happened. Buy GLD on dips.

The Bulls seem to be loosing control and the MO is in the middle of neutral territory.  Perhaps the MO will drop low enough to consider buying again.

Long Term Outlook – NEUTRAL

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

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Yankee Bob on Evil

Yankee Bob’s latest comments (yesterday) are today’s feature editorial.  Lots of you make really thought provoking and outside the box comments and you should always check out who is saying what about stocks, (see PaulR’s recent comments) economics and politics. Bob’s comments seem to flow from a statement by another blogger D. “I’m so sick of those who are blinded by their emotions and stereotype one side as all evil and the other as all good.”

There is a difference between personal behavior and institutional behavior. The individual s who brought us the financial disaster and needed bailing out are not necessarily evil. They just operate within an economic section that itself is dysfunctional.

The individuals play by the socially accepted standards of their small group in the financial world. It’s the standards of the group, the sector, the institutions of finance, must be changed before we see a change in the individual corporate officers. The institutions have been rigged to select those junkyard dogs who are able to game the system for the biggest gains,no matter how risky or dysfunctional for society. Then when they are successful at it,the junkyard dog expects his just due,..huge bonuses and is perplexed when the victimized taxpayers don’t like him because he did as his sector, his small group expected him to do and he was damned good at it.

That social sector, financial executives, looks at the public as sheep to be shorn, not helped. These people are not evil . They operate in a world that has different expectations then the public. The group dynamic has to be changed,…not the individuals.

See part 2 in the comments section of blog

* What Yankee Bob says holds for everything except the beloved saintly Boston Red Sox and the forces of Darth Vader & the evil empire the New York Yankees

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!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

See Positions , Strategy , and Overview for changes made over weekend. (No changes this weekend)

Volume was moderately higher as stocks advance yesterday. The Fed decision to basically leave the change in interest language alone was well received by investors and sparked the rally. How markets react to news is often a future indicator of short term market direction.  Since the Oscillator Investors uses is not yet overbought we have some wiggle room for stocks to move higher in the short term. See read of tea leaves below.

Significant Indexes

• McClellan Oscillator rose to +44.11 yesterday. We still under +60 or Overbought territory and the recent high of over 75.  StockCharts has a better version of the McClellan chart ($NYMO) LINK. Two weeks ago week the NYMO reached a high of 75.33.

Positions

The  Positions Section = latest buys and sells – (Revised positions last weekend) - These are positions I actually own

Short term traders – To be a short term trader you have to realize just how much more the vast majority of investors/institutions know about the stock/ETF  you’re investing in than you. What you can do, because these sharks invest so much money, is follow their footprints.  What Investors411 hopes to do is educate on how to follow those footprints and see the direction they are headed. You have to realize the significant risk and potential leverage problem in holding high beta (volatile ETF’s and stocks) short term positions overnight. You have to have a better understanding of fundamentals behind any positions or ETF’s mentioned in Investors411. You also have to have an exit the position plan in advance.

Best Read of the Tea Leaves = The rally predicted for this week was reinforced by the Fed decision not to change language about leaving interest rates alone. I’m going to try to play TYH again on a small dip (if it happens) and sell it when markets get oversold. Again I’ll have a tight 3% stop.  The mistake was not to invest in a stock or ETF yesterday after it became obvious that US markets were reacting positively to what the Fed said at 2:15 EST.

Long Term Outlook = CAUTIOUSLY BULLISH

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Today - How many more bubbles have to burst before we take action? Obama’s getting hammered by the far left, far right, & reporters  - yet he pulls off another another press conference with grace, substance, and and purpose. YOUR comments bring up some different and provocative points of view.  The one chart or index that’s on the cutting edge of the rally .  IBM and Green technology. 

Meet The Press

You can read a full transcript of last night’s press conference here. American’s demands microwave solutions and turning around the economy is not something that’s going to happen overnight. The last 8 years built a massive deficit and a massive financial problem. What Barack showed was a command not only as a communicator but in the details of what he’s trying to accomplish.

Obviously, this blog takes its shots at his administration, but I truly hope he succeeds.

You

Three different comments bring up well reasoned and different points of view. See comment section on the side of blog. 

• Popeye – References a Bill Gross article (check out the graph in the editorial) on Shadow Banks
• Fred Mays – Seemed to know exactly what Obama would say in his press conference and called for patience and long term thinking.
• ewanapat - Also defended Obama and brought up his editorial that was published in 31 papers across the world.

The One Chart

Will the stock rally fizzle again? There’s one chart that’s on the cutting edge. See technical analysis section below.

IBM goes Green

IBM is helping to build high speed energy efficient trains in China, Taiwan and the Netherlands. Also this is going to mean a lot of new jobs for those countries. One wonders how much of Obama’s alternative energy proposals will get cut from the budget. Full story from CNET

Cyclical vs. Structural

There are those who think that all we have to do is do nothing, others believe the shadow banking system will fix itself, others think the only problem is toxic assets. These are all reactionary solutions 

Investors411 looks at economics structurally. Granted its hard to structurally solve economic problems like energy, education and heath care with the deficit we’ve built up.  But unless we structurally change the bubbles will keep bursting and America will keep sinking. For more see Overview section of blog.

How many more bubbles have to burst before we deal with the structural problems?

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AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING! 

A Stiff Upper Lip 

You’ve got to admire the Brit’s for their stiff upper lip. Across the pond they’re in a lot more trouble than we are from England to the Ukraine. Most of the emerging democracies of Eastern Europe bought into what they thought was the American dream. It turned into an over leveraged toxic asset bubble with banks/countries wobbling on the cliff of insolvency nightmare.  

But at least the Brits  have some degree of transparency. Here almost everything  except the amount of bailout and stimulus funds is a deep dark secret. Take the deeply troubled Bank of Scotland now all but completely nationalized by the Bank of England.

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Transparency

The Royal Bank of Scotland has put admitted to  $722 billion of “troubled assets” of over leveraged toxic debt and are trying to wind down those liabilities. This loss is staggering England with about 1/5th the gross GDP of the USA.  But, they are dealing with the problem in the open.  We don’t even know the staggering amount of over leveraged debt of AIG, GE, GM or any of our major/minor banks.  The only thing we do know is the near meltdown of the financial system when Lehman Brothers went belly up and its toxic debt brought the entire worldwide banking system to its knees.

Unfortunately we also know this problem is going to get worse. Because more defaults are on the way,  unemployment is growing, home prices declining, and esoteric mortgages will soon start charging higher rates of reurn.

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Obama Pass/Fail

Let’s give the guy credit for a transparent budget. He’s getting some excellent reviews because he stopped hiding many items like the Iraq war as part of the overall budget. 

But on the other hand he’s getting clobbered with his rosy economic assessment of the future. Whose he kidding? The US GDP will be -1.2% this year and +3.2% next year. A consensus of Economists believes otherwise as Peter Goodman in NYT point out. (Many thanks to one of you who emailed me this article)

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“Geithner’s Folly”

Our new Sec. of Treasury has come up with something called a “stress test” for big banks.  Let’s get real. The vast majority of these toxic institutions invented the stuff that the Bank of Scotland has already admitted to. Big banks are broken. Wake up and smell the coffee – Geithner “is asking the wrong question. The question he is posing is: how can the government save Citigroup? The right question is: how can the government rebuild the banking system?”  Bob Kuttner, columnist for BusinessWeek, Boston Globe and co founder of the American Prospect on no matter how good the rescue plan is it doesn’t matter a lick if you don’t fix the banks.

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AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Stocks

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Technicals & Fundamentals

Just about every front page is covering the biggest ever quarterly loss - $62 billion by AIG. 

From Friday – “The Ugly news” would be - “The SPX ends closing  a bit below 741.  This would just establish a lower low (see chart on right side of blog) and further entrench the bears rule chart pattern.”  

The SPX ended up at 735 (A bit below its mother of all support barriers) and technically this along with no climax selloff  shows there’s more down side to come. Perhaps today we may see a climax selling panic today and a chance to nibble. To have a “climax” sell off you need both a big fall and big volume.

Big news of the week is the employment numbers for February come out Friday. 

Reading the Tea Leaves – How many Danger Will Robinson Danger Danger signals can there be?   – Hope you protected any long investments.

Long Term Outlook = BEARS RULE

See STRATEGY, POSITIONS, OVERVIEW  & ARCHIVES sections of blog for more

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

These two words were supposed to put the intended victim in a hypnotic trance in an old 60 or 70 comedy movie. For Barak Obama the two key words don’t rhyme – Afghanistan Iraq .

In the last few days a US predator drone killed @20 al Qaeda or civilians at the Afghan/Pakistan boarder (depends on which news account you believe in) and there is a promised surge of another 30,000 troops in the face of diminishing foreign support.

It is heartening to see increased diplomatic efforts in Afghanistan and Pakistan. However even US military commanders say Afghanistan "cannot be won on the battlefield" AP report .

Afghan/Pakistan/India is the center of Sunni terrorism. However, If like Iraq the focus is on guns and bullets instead of hearts and minds we’ll get the same results. We may be able to eliminate some despicable people like Saddam but the end result is worse. The level of violence that we created by "unjustly" invading has diminished but -

* 3 to 5 million refugees (mostly Sunni’s) displaced or killed
* a corrupt religious Shia government replacing a corrupt secular government
* Militia’s that rule throughout Iraq an infiltrate the army.
* Radial leaders like Sadr who hold sway over the Shia majority (60+% of pop.)
* a new pro instead of anti Iranian government – making Iran more powerful to export terrorism
* loss of our positive image throughout the world Abu Ghraib and Gitmo.
* a war simmering between Turkey and the 20% Kurdish minority
* cost of $3 trillion dollars to American economy
* deaths and long term wounds of American soldiers.
* an economic disaster in Iraq.
* a inspiration or factory for producing terrorists
* a deeply divided America on Iraq

Yes there is a quazi elected government in Iraq, but the terrorists of Hamas were also elected.

Geithner Genuflects

Yesterday Wall Street favorite Tim Geithner was appointed Obama’s Treasury secretary. In his acceptance he payed homage or genuflected to Larry Summers, Obama’s chief economic advisor. Geithner is a Summers protegee. Larry Summers, as reported several times before, was instrumental in deregulating the banking industry in 1998 under Clinton. The guys who played a role in digging this economic hole should not be the major players in leading us out.

Far preferable to this dynamic duo would be Nobel prize winning economists like Stiglets and Krugman. Hero’s like Former Fed Paul Volker does have a more minor role in the Obama administration.

Lifting Global Gag

One of Obama’s first act was lifting the Global Gag on giving funds to any organization that in any way supported abortion. Bravo. Several of you emailed me on this. Thanks. Story at LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Treading Water/Drifting Higher

Index % Change Volume

Dow -0.48% down
NASDQ +0.82% down
S&P500 +0.56% down
Russell2000 +1.28% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US indexes are treading water and foreign indexes are doing the same. Even though we are treading water major indexes are drifting in the right direction. The Dow closed at 8116 and is now 150+ points above its strong support level at 7950. We are a long ways from the 9088 Dow resistance level (see chart) established in early January.

Volume did NOT confirm the drift higher.

XLF is the financial sector ETF Chart here. Financials declined – 1.78 yesterday. A relatively minor move considering some of the wild swings. Financials are the major reason stocks are in trouble. This is the index to watch.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

Stocks are down 8% in January. Old Wall Street saying – "as January goes do goes the year."

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

7 Major Companies announced 56,000 more layoffs yesterday, Earnings news continues to disappoint, and we have a huge expected-5.2 to-5.5% GDP loss expected to be announced on Friday. Despite this chorus of bad news major indexes managed to tread water and drift ahead. What do investors see that they remain slightly bullish in the face of a pie of bad news?

A stock market is after all just a market of stocks. If major companies like Caterpillar (builds major construction equipment) (chart link ) falls over 8% after a dismal earning report yesterday and is perilously close to breaking through its low (support level) are in trouble be very cautious. CAT stands to to be one of the companies that gains from Obama’s stimulus plan.

If Financials are the index to watch, then CAT is the stock to watch. If CAT can keep treading water and drift ahead there is hope.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.18% Its held steady in this area for about a week. (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 T bill flat at 0.07% yesterday and the longer term rates again rose a bit. The ten year rose 2.64% (low yields show fearfull investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again almost 1.5% . Almost 85% drop since June. (We’ve had a solid steady gain since the early December lows of around 660 to 995, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves – Strategy – Shorting rallies to protect gains is working. (see below) Until we see 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.

Technically, markets are consolidating despite some horrible economic news. That’s bullish news. Volume is not confirming or denying the bulls or bears right now. Secondary indicators (LIBOR Treasuries and BDI) are improving. The area around Dow 7950 has turned into one strong support level . It has bent but it has nor really been broken.

Therefore, Some sort of short term rally seems probable. Buying/nibbling close on dips at Dow 8,000 is much better than doing the same at 9,000. Protecting any purchased position as stocks rally (get closer to 9,000) seems to be working.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

This Section Rarely Changes
Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency/accountability problem is far far far far far far far far far bigger than anyone thought. Cleaning up this mess is going to take years and growth will suffer.

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 8000 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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

Obama’s first two days are "a burst of executive sunshine " and "transparency".

Here’s 10 of Obama’s orders and/or acts

#1 Closing Guantanamo within a year
#2 Stopping the unfair and unconstitutional trials there
#3 Directing federal agencies to err on the side of transparency and not the Bush delay/secrecy over public records.
#4 tough new limitations on power of lobbyists
#5 Countered Bush’s order that allows past Presidents and VP to keep potentially embarrassing order from the public.
#6 Barred anyone in his administration from leaving and becoming a lobbyists while he is in office
#7 No one can serve in Obama administration who was a lobbyist over past two years.
#8 Both Obama and his future AG declared waterboarding "torture" and prohibited.
#9 Appointed competent top level envoys to Mideast and Afghanistan/Pakistan (Mitchell and Holbrooke) as negotiators.
#10 Spoke to all Mideast leaders (minus terrorist group Hamas)

George Washington and company when confronted with a massive foreign army not only won the day but came up with the Declaration of Independence, the Constitution and Freedom. George Bush when confronted with a small band of religious terrorist – declared war on secular Iraq, denied some basic freedoms that Washington had won and created far more adversarial and confrontational world – "You’re either with us or against us."(I know you could add to this list)

Certainly Obama is going to make mistakes, but its heartening to see America move back in the direction of our founding fathers.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Major Support Level Cracking

Index % Change Volume

Dow -1.28% up
NASDQ -2.76% ?
S&P500 -1.52% ?
Russell2000 -3.05% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Sorry could not accurately read volume figures on charts. Looks like volume was above average and flat. Because there was no significant increase volume, the #1 confirmation factor behind a price move, tells us little. Stocks were much lower but recovered some losses by the end of the day.

XLF is the financial sector ETF Chart here. As the chart shows financials after two huge swings (down then up) lost -6.35%. While this is a substantial amount it is not close to the 15% swings of the previous two days.

The financial sector is currently leading the US and world markets. Overall even though we had a massive gain yesterday the XLF has a multiyear series of lower lows and lower highs (change setting on chart to weekly to see this) – Technically this chart is about as bearish as you can get. In the shorter term a major move like yesterday’s in big volume indicates at least a short term low.

The area around DOW 7950 to 8000 is turning into a strong support level. The more times its tested and holds the stronger it becomes. Of course, this also means if it breaks down we should have a major fall.

For those of you who like to invest in individual stocks internet advertising and education stocks are doing well.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals -

MSFT fell over -11% yesterday (poor earnings report). When you consider this and the bad unemployment/housing figures and slowing +6.8% China GDP growth, the markets did a bit better than expected.

The emperor of internet advertising Google beat earnings expectations last night and was up 4+% in after hours trading. Now up +1.3% 9:22 EST

Another giant GE earnings met expectations (a loss of 44%) Analysis of their troubled financial unit. So much of GE’s business comes from financial part of business and it is way over leveraged. GE is down this AM.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.16% Its held steady in this area for about a week. (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 T bill fell to 0.07% and the longer term rates rose a bit. The ten year rose 2.58% (low yields show fearful investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday ir rose again 5+% . Almost 85% drop since June. (We’ve had a solid gain since the early December lows of around 660 to 945, but we fell from pre recession figures of around 12,000 – That’s along way to go)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves – Strategy – Shorting rallies to protect gains is working. (see below) Until we see 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.

All three forecasting indexes are beginning to indicate a positive move for stocks.

LIBOR has fallen significantly and even mortgage rates have fallen. Treasuries while low are starting to rally and we have seen a significant move higher in worldwide trade (the BDI) Looks like a stock rally is possible. Overall PANIC does still rule the credit markets, but it is easing.

Financials are the problem and will be until the toxic debt question is resolved. Could take years for this to happen. But now with a new administration there is hope. Hope of future transparency, accountability and rules in this area are vital for the economic health of the US and the world.

The other major negative is the employment numbers.

The Dow is hanging in at 8123. Still above its major support level. Even though there are some positives out there, Financial Companies and Employment numbers are overwhelming investors. Bad earnings reports like MSFT led to an 11% decline. This means that bad news is NOT built into market prices. The strong 7936 to 8000 Dow support level is in danger of collapsing today. You can feel a major downside move building.

Financials/Banks are in a lot of trouble with no resolution of their toxic assets in sight. Dow 7449 is last year’s low and the next major support level.

Long Term Investors who can handle risk and are less than 10% invested in stocks – Nibble a little on any major dip. Shorter term investors keep protection (short ETF’s) for now. You may want to drop some as we get closer to 7449.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency/accountability 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 Cleaning up this mess is going to take years and growth will suffer.

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 8000 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.

SDS – ultra short S&P 500
DXD – ultra short Dow – (Both small caps and tech stocks are outperforming the DOW and S&P)
SKF – ultra short Financials (this is the sector that’s most broken)

As Always Do Your Own Research Before Investing

The overwhelming crowd in Washington was certainly uplifting. However, at our hotel far more Jamaican’s than white American’s on holiday joined together to watch Obama take the oath of office. Tears flowed freely in the room. Obama’s inauguration has had a major impact on Jamaican’s and others throughout the world. At least now there is hope, but hope alone in not enough.

Another interesting point is that the resorts and plane flights were packed with people = what recession.

Banks

Updates has warned over the impending meltdown in financial/bank stocks. (see below) Bank prices collapsed yesterday and the FLX (see below) reached new lows. Now Bank of America and Citi group, two huge financials loaded with credit default swaps, are again melting down. Will the Obama administration, like the Bush administration just throw money at these and other institutions without any accountability or transparency?

One major concern – It was Obama’s new chief economist Larry Summers (as Clinton’s Tres. Sec. Clinton) who enthusiastically supported the deregulation that opened the door for most of the problems are swamping financial companies.

Few banks made any loans with the cash they were given in part 1 of the TARP. England and other countries have nationalized trouble banks that were "too big to fail" and are forcing these institutions to make loans instead of buying other banks, paying dividends, & handing out bonuses. Obama’s administration this AM halted the regulatory process pending review.

Bottom Line – Over the last few decades we have cut government so that it became too weak to regulate big business. Mega companies from CitiGroup to General to GM proved that left to themselves they were incapable of self regulation.

The absolutism of "free trade" and "free markets" have let greed run wild. Combine this with no real central planing and an eviscerated government. The result is a stock market, country and world facing the largest economic crisis since the Great Depression.

Remember – You should be very critical of TARP part 1, but it did prevent a worldwide run on the banks. While major banks are in trouble there is currently no run on the banks.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Financial Meltdown

Index % Change Volume

Dow -4.01% down
NASDQ -5.78% down
S&P500 -5.28% down
Russell2000 -7.03% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major meltdown led by financials. The Dow broke through its major support at 8,000 and ended the day at 7949.

XLF is the financial sector ETF Chart here. As the chart shows financials fell another -16.53% yesterday to new lows. Financials used to be the largest sector of the market and may no longer hold that distinction. But, they are certainly capable of leading all major indexes lower. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bank Sector is collapsing. Volume did NOT increase (probably because of the inauguration). However this sector could easily drag the rest of the American and foreign markets with it.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

IBM – Had a very positive earnings report.

Both Citi and BAC are leading financials and the rest of stocks DOWN. State Street Bank and others are also getting clocked.

Forecasting Future Trends

LIBOR – LIBOR is the rate banks charge each other . It price has fallen from 3.4% three months ago to about 1.12% (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 T bill was falt at 0.07% and longer term treasuries were basically fell 10 year rose to to 2.38% (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 remailed flat . Almost 85% drop since June. (short term good news are the gains over the last two weeks)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

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.

Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Both these levels have broken and the Dow is at 7949. The 8000 level is the line in the sand. If the Dow can regain 8000 today there is a chance we could rally.

The short term Obama inauguration rally has been OVERWHELMED by the financial meltdown.
We could stabilize today, but confidence in banks seem shattered. Economist Nourille Roubini yesterday announced that banks are basically insolvent. Any extended rally is impossible without a solvent banking sector.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

Technicals – Series of Lower Lows and Lower Highs = Bears Rule.. 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

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 8000 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

No Updates till Wednesday – Short vacation to somewhere warm.

Green Investments

You can make a positive return on your investment within a year on the following three item’s for your home
* Programable thermostat
* Power strips
* Compact fluorescent bulbs

For more details and why they are cost effective from Daily Green .

Green Stocks/ETF’s – GEX and PBW have been the two green ETF’s Updates has recommended in the past

Tom Friedman controversial editorial on Gaza

This editorial has created a lot of buzz because of its focus on collateral damage.

War is hell. We dropped atomic bombs on Japan to hasten the end of WW 2 and the Allies firebombed/obliterated Dresden Germany in order to hasten the end of WW 2. In both cases there was a huge loss of civilian life. Friedman believes, contrary to most, that Hezbollah actually lost its 2006 war with Israel because Israel inflicted so much damage on Hezbollah’s infrastructure. This is what Israel is now doing to Hamas.

LINK to editorial

Also in NYT is a depressing and different point of view on how the war is marginalizing moderate Palestinians. LINK

The Bottom Line – Always happens after the fighting stops. Do the fundamentalists gain or loose from the results.

Osama Been Forgotten Speaks

Osama for the first time in 8 months spoke. He issued an audio tape urging jihad against Israel. LINK

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Reacting Badly

Index % Change Volume

Dow -2.94% down
NASDQ -3.67% up
S&P500 -3.35% up
Russell2000 -4.35% –

Brown = same comments as yesterday.

US Market & Foreign Markets

Technicals – As predicted major indexes all have broken down through their support levels. This fall is being led by financial stocks. Volume slightly declined on the NASDQ, but up and above average on the other major indexes. As you know – Volume rising with prices falling is a bad combination for future prices.

XLF is the financial sector ETF Chart here . As the chart shows financials fell another -5.77% yesterday and XLF is close to its November low. Financials used to be the largest sector of the market and may no longer hold that distinction. But, they are certainly capable of leading all major indexes lower. Other banking indexes are approaching or have broken through November lows. Mega banks Bank of America and Citigroup are leading this deterioration. The problem is all their over leveraged debt. (credit default swaps)

Bad news is priced into markets, but as exemplified by the retail numbers published yesterday the bad news was worse than expected.

American stock indexes are technically oversold – you can only have so many down days in a row without some kind of bounce. However we have not had the big volume climax volume that usually shows capitulation by investors and indicates an end to stocks falling.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – All the talk of passing the second 1/2 of the TARP ($350 billion) is focusing investor attention on the problems of the markets.

JP Morgan beat earnings expectations LINK . but unfortunately prices are slightly down on this good news. The big news this AM is the poor health of Apple’s chief Steve Jobs. Apple was down over 10% in post market trading yesterday. LINK

Nobel prize economist (Phelpes) on CNBC this morning is calling for TARP 2 and possibly Tarp 3. Another Nobel Prize winning economist (Spense from Stanford) on same show is echoing negatives. Mainstream economist do NOT see a recovery in 2009 that some investors still do.

The bottom line – Many thought bad news was built into market prices, but the news is coming out worse than expected. If good earnings (JPM) cannot lift a major financial stock price, stocks are still in trouble. Stocks are REACTING BADLEY Good news should mean prices move higher and bad news gets ignored/absorbed in bull markets

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 this week. However, Citigroup remains the stock to watch. Citi reports on Friday.

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 1.09% (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 T bill was falt at 0.07% and longer term treasuries were basically fell 10 year fell to 2.19% (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 another 1% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, 2, 2, & 1% gains in last 6 days)

BDI chart

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

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.

As predicted Support levels have broken for all major indexes. Dow at 8200 and has a minor support level at 8148 (see chart) and the psychological 8000 number. Oversold conditions exist (6 down days in a row). This could temper any downside move. However the short term momentum is still with the bears

Dow 8200 within 800 points of last years low. Long term investors who can handle risk better might want think about nibbling just a little in any further dip (Obviously the bigger the fall the better). The Obama administration should get a honeymoon and perhaps stocks will get the same. This would be Obama/stimulus rally part 3. However, you should also be prepared to add a short ETF in any rally. (see below)

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded and in Plum or crossed out

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

FDR and Stimulus

President Herbert Hover eighty years ago offered no stimulus or loans to a crumbling economy. As a consequence bank after bank failed Unemployment rose above 25 % and by the time Roosevelt (FDR) took over in 1932 we were already in the Great Depression . But, FDR made progress and consequently Americans overwhelmingly re elected him to office in 36. By 1937 he had through a massive government stimulus program reversed the growing unemployment figure and reduced it to under 15 %.

Unfortunately FDR, tried to balance the budget too early in 1937 and the recovery slowed. Again Americans showed overwhelming confidence in FDR and reelected him in 1940. American’s vote again confirmed confidence in his stimulus program. WW2 was in itself one big government stimulus program as was the post WW 2 GI bills and other economic measures. We emerged from all this government stimulus far stronger.

Basic economics teaches you to stimulate faltering economies and when times are good you don’t stimulate, but lower deficits. Many ultra right wing zealots are now trying to re write FDR’s historic economic actions and leadership. These are the same voices that believed "free markets" need no regulations, and lead us into the current crisis.

Undoubtedly, the government has done a poor job in transparency and accountability in the current stimulus and loans packages. However, we have not had the cascading loss of banks and insurance companies (AIG) that would have led to other industries collapsing throughout the world. This is NOT a plea for blanket bailouts. Poorly managed companies have to be allowed to fail. But it does clearly show government stimulating and regulating a faltering economy works.

Bill Cosby and Education

Bill Cosby last Sunday on Face the Nation came up with some interesting statistics on why we should be offering more funding for inner city schools. It costs us $41,000 a year to incarcerate a prisoner and only $8,000 educate a child. You pay now or pay later. Add to this that incarcerated prisoners and welfare moms pay no taxes vs someone who enters the work force and pays taxes.

Funding education should be a priority. (more later)

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Citigroup, AA & Retail #’s -Bad news.

Index % Change Volume

Dow -0.30% up
NASDQ +0.50% up
S&P500 +0.18% up
Russell2000 +1.06% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets "churned" yesterday. That’s the term Wall Street uses for high volume days where the market went nowhere.

XLF is the financial sector ETF Chart here. As the chart shows financials rose +1.37% yesterday after loosing over -5% the day before. While any gain is positive, a +1.37 gain is not enough to put the bulls back in charge. Financials used to be the largest sector of the market and may no longer hold that distinction. But they are certainly capable of leading all major indexes lower.

The major indexes are at their major support levels (just above or below). Volume is starting to pick up. This is never a good sign as we start to move lower. Foreign markets are following the US lead.

AA is the symbol for Alcoa Aluminum, the first Dow company to report. It went down again another 5% in massive volume yesterday. Early indications are negative earnings and outlook are not built into markets and investors are beginning to realize there is going to be no second half recovery. (Bad news for stocks)

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – What’s happened is the Bush administration has asked congress for the second 1/2 of the poorly administered bank/financials (and auto) bailout/loans. The Obama administration will oversee the use of these funds. This has spooked stocks – especially financials. CitiGroup, the mother of all banks, broke support levels and fell 17% in huge volume. City has already twice received bailout funds. Citi is in the too big to fail category and its failure would mean a run on suspect banks worldwide. Citi did recover +5% in reduced volume yesterday. Problem – Citigroup is up to its neck in credit default swaps.

The bottom line – Just the knowledge that the government thinks the bank/financial needs more financial help is enough to make worried investors panic and sell. This time the Panic is a bit more orderly, but with no transparency and no accountability its pretty hard to invest in a financial stock. You know they’re in trouble, especially Citigroup, but who knows which ones will go belly up and what criteria the government is using to hand out loans.

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 this week. However, Citigroup remains the stock to watch.

Retail sales numbers out this AM are far worse than expected.

Treasury Secretary Geitner, who Wall Street likes, nomination is in trouble.

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 1.08% (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 rose to +0.07% and longer term treasuries were basically flat. 10 year fell to 2.29% (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 another 2+% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, 2, & 2% gains in last 5 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. However, 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. Bush yesterday announced he’s going for the second chunk of bailout/loan money.

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets

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.

There are some positives out there but -

Add a falling financial sector, AA news, & now the miserable retail #’s = the Dow 8500 support and other major index support level will NOT hold.

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

Stimulus Package

Cutting taxes for Business – You cut taxes for business and what do they do? CEO and Board members get raises, dividends get increased, corporate jets get bought, stocks get bought back, esoteric derivatives get bought, or a lavish weekend party at a spa/resort/penthouse are held. OK some of the money may go for research and development or worker’s salaries, but obviously there is not much bang for the buck or accountability in cutting taxes for businesses.

The Obama stimulus plan plans to give tax cuts to those businesses that hire new workers. However, would not this money be better spent by creating demand for a product. By creating demand business would grow and new workers would be hired. This benefits both consumer and business.

Cutting Your Taxes – Sounds good and the impact is almost immediate. Bush did give us a tax cut and it did keep GDP positive for one quarter – but had no longer lasting impact and GDP for the 4th quarter is going to be something around -4.00%.

What happens to the (especially working middle class) tax cut. Some of it is used to pay down debt and some of it is saved. Commendable behavior, but that does not stimulate the economy and therefore it does not have a big bang for the buck. It’s better than cutting business taxes because it helps middle class consumers who spend on business products. The middle class spends and the economy grows.

Creating Jobs/infrastructure – Government creating private jobs through infrastructure projects. This has the biggest bang for the buck. Take building a bridge or a school. You create a job that turns an individual into a tax payer instead of a welfare recipient. What you build increases demand for businesses products – they grow. Example all the different contractor and materials that are needed to build a bridge/school are also helped. Once you have the bridge/school it benefits the individuals who use them. Example helps the flow of goods – bridge or provides a better educational environment – schools.

The problem with this is that infrastructure projects take time to get started. Red tape bureaucracy & politics get in the way. What Obama is proposing will not really have an impact till 2010.

Green Jobs – Right now hundreds of billions of dollars each year goes to petro dictators who we have become dependent on. This is an added benefit to infrastructure jobs – the money will be staying here. Of course pollution problems and global warming problems will decrease. This puts infrastructure green jobs at the top of the list.

Economist Peter Morici (see yesterday’s updates) and others have done work on how stimulus impacts markets. For more on Morici LINK

Nobel prize winning economist Paul Krugman offered his formula for stimulus yesterday LINK

Another $350 Billion

Bush has asked for another $350 billion – The Obama administration will spend this $. More on this below in "Fundamentals" section.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – $350 Billion

Index % Change Volume

Dow -1.46% up
NASDQ -2.09% down
S&P500 -2.26% up
Russell2000 -2.60% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets fell and volume especially in the financial sector rose.

XLF is the financial sector ETF Chart here . As the chart shows financials fell -5.26% yesterday in increased volume and clearly broke through support levels (11.33 see chart) XLF closed at 10.95. Financials used to be the largest sector of the market and may no longer hold that distinction. But they are certainly capable of leading all major indexes lower.

The major indexes are at their major support levels (just above or below). Volume is starting to pick up. This is never a good sign as we start to move lower. Foreign markets are following the US lead.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – What’s happened is the Bush administration has asked congress for the second 1/2 of the poorly administered bank/financials (and auto) bailout/loans. The Obama administration will oversee the use of these funds. This has spooked stocks – especially financials. CitiGroup, the mother of all banks, broke support levels and fell 17% in huge volume. City has already twice received bailout funds. Citi is in the too big to fail category and its failure would mean a run on suspect banks worldwide.

The bottom line – Just the knowledge that the government thinks the bank/financial needs more financial help is enough to make worried investors panic and sell. This time the Panic is a bit more orderly, but with no transparency and no accountability its pretty hard to invest in a financial stock. You know they’re in trouble, especially Citigroup, but who knows which ones will go belly up and what criteria the government is using to hand out loans.

Some of these financial and other institutions have to be allowed to fail. They have to fix the accountability, transparency problems that the first bailout/loan package contained. Lot’s more on this later.

Institutions that are too big to fail need more government oversight – Ben Bernanke just said something like this AM at London School of Economics. Also expects more job losses in at least 1st 1/4 of 09 and turning this around will take time.

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 this 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 1.16% (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 flat at 0.02% and longer term treasuries all fell. 10 year fell to 2.30% (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 2+% yesterday. Almost 85% drop since June. (short term good news a 2, 4, 6, & 2% gains in last 4 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. However, 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. Bush yesterday announced he’s going for the second chunk of bailout/loan money.

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 . BINGO – Bush/Obama asked for the second half of the $750 billion bailout package.

Add a falling financial sector to the mix and the Dow 8500 support level will probably NOT hold.

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