Investors 411 Blog

Afghanistan

The CIA has found a new way to win over Afghan warlords. Money may not work well since the lucrative opium trade flourishes in Afghanistan. These old warlords have found something that puts smiles on their faces and on the faces of their many wives – Viagra. Yes, blue lightning is is being used by the CIA as a bribe.

Mexico

This is another country with a massive drug problem and ironically just like Afghanistan we are the major end users of the drugs causing the problem. The drug war in Mexico is perhaps the most under reported war on the planet. Here is an old photo essay from Time mag. It’s getting worse not better.

Obama is meeting with the Mexican President to go over the alarming escalation.

Israel/Hamas

One of the most under reported aspects of the Israel/Hamas conflict is that Israeli elections are being held in February. This has to impact what actions Israel takes. Three major parties are all positioning themselves accordingly and these elections have to influence Israel’s actions. Strong support inside Israel (80%+) for war and even stronger support in US Senate and House who overwhelmingly back Israel in a vote (above 95%). There is growing support for Hamas on the Arab street, but most moderate Arab governments right now are also angry with Hamas.

This is turning into a wider – Egypt, Saudi Arabia and other more moderate Sunni dominant Islamic countries vs. Iran (Shia dominated and Hamas’s #1 backer) Ironically, Hamas itself is made up of Sunni fundamentalists.

Iran has warned Hamas NOT to accept any ceasefire and threatened the withdrawal of support according to Jerusalem Post. LINK

Neither Israel or Hamas has accepted any cease fire.

Stimulus Package

Focus of this weeks Updates is going to be Obama’s stimulus package. One of the most used sources is going to be a guy that lives in my hometown (or he used to). He writes for BusinessWeek and the occasionally for Boston Globe. Bob Kuttner is also the a founding editor of the American Prospect. LINK to his most recent editorials.

What’s most important about any stimulus pan is the bang you get for the buck you spend. Kuttner and others often quote the work of U of Md. Economist Peter Morici Here’s Kuttner quoting Morici

The lion’s share of stimulus should be public outlay. Economist Peter Morici calculates that a tax cut of $100 billion produces a net economic stimulus of $125 billion, when multiplier benefits are factored in, while $100 billion of infrastructure investment has the far more potent eventual effects of $350 billion. In a deepening recession, public spending delivers both more economic punch and more political benefit. Citizens once again experience the positive uses of government, not just the negative gains of government cutting taxes.

More tomorrow

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Job’s Report

Index % Change Volume

Dow -1.64% down
NASDQ -2.81% down
S&P500 -2.13% down
Russell2000 -4.13% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets were fell yesterday as volume fell. Markets did well despite really horrible jobs news. The Dow is at 8599 – within 100 points of its 8500 support level. (see chart)

Volume did NOT confirm the move lower. Volume fell and was below average.

Bottom Line – Technically we are not approaching the Dow 8500 and similar support levels for the other indexes with a head of steam/volume. Right now looks like support levels will hold.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – The rapidness of the decline in jobs has caught everyone with their pants down. The -524,000 was expected, but the significant downward revision of previous months that cause the jump to 7.2% was not expected. 7.2% is the headline that every American read in their news report. Considering that the markets held up pretty well despite the news.

Earnings season begins this week. It going to be really bad. Lots of this bad news is already built into stocks. We’ll have to wait and see how the first few major earnings reports and forecasts impact those particular stocks to get an idea of what will happen in the longer term.

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’s economic team & his proposed stimulus package.
Earnings season begins in a week.

Forecasting Future Trends

The following is a group of indexes that are all interrelated and strongly influence how stocks moves. At different times one index may be more influential than the other.

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.27% (good news for stocks)

LIBOR chart (3 month)

Treasuries – T Bills yields show how fearful investors are. The lower the rate the more the fear. Short term yields – 3 month fell to 0.02% and longer term treasuries were mixed. 10 year fell to 2.39% (low yields show fearfull investors flooding to Treasuries instead of stocks – Bad news for stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday it rose 6+% yesterday. Almost 85% drop since June. (short term good news a 4 and 6% gains in last two days)

BDI chart

We’ve seen a short term pop in international trade to go along with a solid bullish move in inter bank lending rates. Both are bullish signs. Panic still rules the credit markets. Prices of major banks are have again started to go south. Looks like at some time another chunk of bailout $ is going to be needed to fix banks in the future.

Dow now less than 100 points away from its 8500 support level. This support level is where we (shorter term traders) have been successful buying equities or lightening up on short positions.

Short Term Outlook/Strategy

Reading the Tea Leaves-

PANIC STILL RULES the credit markets
Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

Strategy – Shorting rallies to protect gains is working. (see below) Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend. Obama rally (stimulus package) is holding up equities right now.

We’ve seen a short term pop in international trade (BDI) to go along with a solid bullish move in inter bank lending rates (LIBOR) Both are bullish signs

Panic still rules the credit markets. Prices of major banks are have again started to go south. Looks like at some time another chunk of bailout $ is going to be needed to fix banks in the future.

Dow now less than 100 points away from its 8500 support level. This support level is where we (shorter term traders) have been successful buying equities or lightening up on short positions in the past.

Earning usually over shadow everything else. However weekly jobs numbers (Thursday) are gaining in importance.

Caution – Oil price futures are down significantly this AM (about -6% to $38.50 a barrel) Oil prices are another proxy for the general economic outlook. Sharp declines in oil show a worsening economy and a 6% haircut before the US stock markets open is NOT good news. Expect a challenge of the 8500 support level today.

AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING

Long Term Outlook – BEARS RULE

Changes to Bottom Line Section Bolded

Technicals – Series of Lower Lows and Lower Highs = Bears Rule. Obama/stimulus rally phase 2 is underway. Technical Range for 2009 – 7449 (low) and 9654.- This is a wild guess. Any sustained move above Dow 9650 is bullish.

Fundamentals – Financial transparency problem is far far far far far far far far far bigger than anyone thought. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – Long Term Investors (up to 15 to 25+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY (use ETF’s that short major indexes) when stocks have a big rally

*5+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)

*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk and dependent on oil prices
FXI (China ETF) should outperform USA

*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area

*5+% Gold
GLD is the ETF for gold-

Chief Strategy – Buy the DIPS of trending sector – This is not your father’s buy and hold market – over the 8 Bush years the Dow has gone from 11,000 to 9000 and huge uncertainty clouds the future.

The major trend now is volatility.

Traders who have a strong tolerance for risk jump in on dips and invest more. Sell and/or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.

Shorting – Three ETF that short 2x what the major indexes do.

TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500

As Always Do Your Own Research Before Investing

Jobs Jobs Jobs

The Jobs report comes out at 8:30 EST this AM. Right now there seems to be no end in sight for job losses MSNBC story .  Jobs are central to how fast and how deep the recession progresses. Current unemployment stands at 6.7% and consensus figures have this rate rising to 8% by years end. Layoffs are going to grow. Its one thing to know this and another to live through it. -525,000 jobs and 7% rate are the expected numbers

Waiting for announcement… and the number is -524,000 and unemployment rate at 7.2% – a huge 0.5% increase in just one month. Last two months revised down add to the +0.5 increase. Total job loss for 2008 was 2.6 million.

Bad, but could have been worse. Probably will not negatively impact stocks because the private ADP report earlier this week was much worse. (see previous Updates) Major question – will this 524k number get revised downward at the next report. Sure looks like we will reach 8% sooner rather than later.

Imagine This

What if Bush plan to tie social security to the stock market had passed? How much worse off we’d all be now – especially seniors.

23 Electric Cars of the Future

Treehugger.com has a photo and well referenced presentation of 23 electric cars. You can skim through the presentation or follow some of their links – LINK

Project Better Place

This Israeli company just keeps growing. Better Place has introduced an entire electric car system and its partners include Renault, Nissan and A123 Systems. They are launching systems in Israel, Denmark, Australia and Hawaii. A123 has applied for $1.84 billion in loans to build its lithium ion battery plant in the USA.

Good Economic News

Everywhere you turn you get the bad news – Let’s focus on some positives.

#1 Oil prices have fallen from $140 to $40 a barrel
#2 Mortgage rates are now at or near all time lows (30 year fixed – 5.01% and 15 year down near 4.70%)
#3 We have the mother of all stimulus plans about to be launched.
#4 An administration that is less likely to waste $ in Iraq and pork spending.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Job’s Report

Index % Change Volume

Dow -0.32% down
NASDQ +1.12% down
S&P500 +0.34% down
Russell2000 +0.91% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Major US markets were mixed yesterday as volume fell. Markets did well despite Wal Mart and Intel coming out with negative news. The Dow is at 8742 almost exactly midway between its consolidation range – 8500 to 9000.

Bottom Line – The jobs news is going to impact markets at 8:40 this AM (see above). However yesterday US markets held up pretty well despite some bad economic news.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – See above editorial. ADP numbers take investors by surprise. 8% unemployment seemed built into stocks, but the rapidness of the decline has caught everyone with their pants down.

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’s economic team & his proposed stimulus package.
Earnings season begins in a week.

Forecasting Future Trends

The following is a group of indexes that are all interrelated and strongly influence how stocks moves. At different times one index may be more influential than the other.

LIBOR – LIBOR is the rate banks charge each other. It price has fallen from 3.4% three months ago to about 1.40% (good news for stocks)

LIBOR chart (3 month)

Treasuries – T Bills yields show how fearful investors are. The lower the rate the more the fear. Short term yields – 3 month fell to 0.04% and longer term 10 year fell to 2.44% (low yields show fearfull investors flooding to Treasuries instead of stocks)

Treasury Bonds chart

Baltic Dry Index – Measures flow of goods between countries. Yesterday it rose 4% yesterday. Almost 90% drop since June.

BDI chart

Strategy and Recommended Sectors (Listed below)

Buy the dips.

US Indexes (ETF’s) – Buy the ETF that go long when there is a 5 to 10% drop in the Dow and short of sell them when prices rise. Volatility is he recognizable trend and shorter term traders shout
use it.

Emerging Markets – China (FXI) technically is the best play. China is economically better off than the USA – Better growth and less debt. Brazil (EWZ) Solid economy – tied to oil and alternative energy (sugar cain ethanol). If/when the US recovers Brazil will outperform, but right now more volatile than US stocks.

Alternative energy – (GEX &PBW) These two market baskets of alternative energy stocks should outperform because of Obama’s economic stimulus plan.

Gold – (GLD) Technically still in a negative pattern, but fundamentally countries are devaluing their currencies and printing money. This should keep gold prices high. If gold can break out of its trading pattern is could explode higher.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets and trade 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.

Best guess – We should again challenge 9000 next week.

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%+ 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

On Friday the government’s employment numbers for last month will be published. ADP National Employment numbers (a private group) yesterday released a figure of 693,000 jobs lost in December. This is way up from the 500,000+ jobs lost in November. There was a huge jump in the number of lost service sector jobs. After US markets closed Monster’s Online job’s Index echoed the ADP estimates. CNBC (financial channel) story on job loss figures.

8% job loss seems to be the figure economists are projecting for the future. The frightening aspect of the ADP #s are how fast the job loss is growing.

Jobs are perhaps the most crucial component of the whole financial mess. One significant result – The bigger the job loss the less the ability to pay mortgages = more defaults = lower home prices.

Economic Outlook 2009 and beyond

The Financial Times today has an editorial by Nouriel Roubini, the economist who definitively and accurately predicted the whole financial meltdown titled "Warning: More Doom Ahead "

The last 1/2 of this editorial clearly sets out the enormity of the problem and outlines the credit bubbles that have yet to burst. Roubini does end on a relatively positive note.

"Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be."

Tomorrow

Will go over recommended ETF positions instead of focusing on credit and trade market flows (BDI & Treasury bonds)

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Jobs Jobs Jobs

Index % Change Volume

Dow -2.72% up
NASDQ -3.23% down
S&P500 -3.00% down
Russell2000 -3.42% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – Just when technical factors seemed to be on the brink of another upside move some sobering fundamental numbers on JOBS spoil the party. Technically volume was not a forecasting factor in the significant price drop. Volume figures were mixed and a bit below average.

Bottom Line – If we can hold onto gains this week, another leg higher is very possible. Next major resistance level is around Dow 9650. See charts.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals – See above editorial. ADP numbers take investors by surprise. 8% unemployment seemed built into stocks, but the rapidness of the decline has caught everyone with their pants down.

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’s economic team & his proposed stimulus package.
Earnings season begins in a week.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress is being made . LIBOR continues to fall 3.4% two months ago to about 1.40% LIBOR rates have fallen significantly and leveled off inthe last few days. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month T Bill fell to 0.07% Shorter term yields fell. Longer term rose yields rose. The 30 year T bond rate is just above 3%. .
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.47% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets PANIC STILL RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world. For better definition see LINK
Bloomberg data and chart LINK (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose yesterday (+almost 2%) to 789 We have had a significant rally off the lows of @660 three weeks ago week.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets and trade markets

Without credit (treasury bills/bonds) and goods (BDI) flowing, a long term stock rally is unlikely.

Strategy - Volatility rules and a 6+% move higher in the Dow is a big move in a week. Personally, will start adding some SHORT positions to protect the gains of last week. The higher we go the more short positions.

Shorting rallies to protect gains is working. Until we some light at the end of the recession tunnel VOLATILITY continues to be the most predictable major stock market trend.

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+3 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

2009 Call

This is not your father’s "Buy and Hold" market . 2008 huge losses and the unpredictability of the future shows no safe trends except volatility. Therefore, we can use volatility as an investment tool until some clear longer term patterns become established. This does mean you have to pay more attention. After stocks rally (Dow +5 to 10%) buy an ETF that shorts to protect your gains.

The range prediction in the Bottom Line section is between the 2008 low 7449 and the November high of 9654 . This is just a wild guess based on technical factors. Volatility could easily move stock prices above and below these levels.

Tomorrow we will go over specific sector (ETF’s) to invest in and why.

2009 Economic Problems

Investors basically look 6 months into the future and if they see signs or have confidence that the situation will improve then they will start investing again. This is not going to happen quickly because many have had close to 40% of their portfolio’s wiped out and there are some dark clouds on the horizon. Here’s a list of some of those clouds.

#1 – Financials/Banks are still over leveraged. There is easily over $10 trillion of over leveraged debt (credit default swaps) that has not been written off.
#2 – Transparency – There is none. TARP has thrown money at banks, but there has been no accountability.
#2 – Mortgages – The number of people defaulting on mortgages is going to grow and overall housing prices continue to decline.
#4 – Unemployment rises – It looks like the unemployment figures will reach 8+% this year.
#5 – This mess took decades to create, it will not be solved overnight.
#6 – Clearly recession is a worldwide problem. This could lead to more problems like protectionism and sink us further into a hole.
#7 – We entered this disaster with both a huge trade and federal deficit.

The good news is that stocks have fallen a long way and many of these factors are in some ways built into equity prices. Technically it does look like stocks have made a bottom around Dow 7500.

Like Tinkerbell believed in Pete Pan you have to believe in Obama’s economic approach and your fellow Americans for an economic recovery. The "free market"/Ayn Rand zealots that lead us into this disaster could easily again take control. Critical to all of this is a housing recovery. China relative stability and continued growth could help lead us out of this mess.

Back to Politics Tomorrow

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally Part 2

Index % Change Volume

Dow -0.91% up
NASDQ -0.26% up
S&P500 -0.47% up
Russell2000 -0.16% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals – After a rally, when markets basically go nowhere and volume increases, the end result is usually a reversal of trend. Technically what’s happening is the bulls and the bears are having a big fight at the Dow 9000 resistance level and one side is going to run out of troops (the increased volume) More often than not the trend reverses because the (in this case) the bulls used up so many troops (buyers) to get to the resistance level.

Bottom Line – today is significant because it will probably set the pattern for the next few days. We have in the last month established a range between @ Dow 8500 and 9000. Both the 8500 support and 9000 resistance have held.

If we can hold onto gains this week, another leg higher is very possible. Next major resistance level is around Dow 9650. See charts.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’s economic team & his proposed stimulus package.
Earnings season begins in a weak or two and usually the next week or two warnings impact stocks.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress is being made. LIBOR continues to fall 3.4% two months ago to about 1.42% LIBOR rates have fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month T Bill fell to 0.04% Shorter term yields fell. Longer term rose yields rose. The 30 year T bond rate is back above 3%. Slow but moving in right direction.
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.48% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world. For better definition see LINK
Bloomberg data and chart LINK (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI flatted yesterday (-1) to 772 We have had a significant rally off the lows of @660 three weeks ago week.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Short Term Outlook

Reading the Tea Leaves-

PANIC STILL RULES the credit markets.

Without credit and goods (BDI) flowing a long term stock rally is unlikely. However, Dow 9654 is a possibility. That is the number the Dow reached on around election day. The Obama stimulus plan (hope) dominates the investment news. "Buy the rumor and sell the news" is an old Wall Street axiom. Despite a technical breather the tea leaves indicate that we rally till the stimulus pakage becomes apparent.

Strategy – Volatility rules and a 6+% move higher in the Dow is a big move in a week. Personally will start adding some SHORT positions to protect the gains of last week. The higher we go the more short positions.

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

*5-10% +% 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

Going to London and Paris over holidays. May be able to send abbreviated Updates from Europe. Otherwise no Updates till Jan 5th.

HAPPY HOLIDAYS!

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Santa is Applying for a TARP Loan

Index % Change Volume

Dow -1.18% down
NASDQ -0.71% down
S&P500 -0.97% down
Russell2000 -1.35% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

The Dow fell for the fifth day in a row and took out its support level of 8500. Dow at 8419 The other indexes are still above their respective short term support levels. Volume was weak/decreased and therefore did not confirm the fall.

Historically light trading for this and next week. Still if the Dow drags the other indexes along with it we are looking at challenging last years lows.

Foreign markets are reflecting the fall in the Dow.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Holiday’s – Bah Humbug

From Reuters a consensus outlook . US GDP down 6% in this quarter. Down 2% next quarter and a weak recovery at the end of 09.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress is being made. LIBOR has fallen from 3.4% two months ago to about 1.47% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month has basically flatlined at 0.01% Longer term rose yeilds rose slightly. The 3 year fell slightly.
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.17% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI fell about 2% yesterday to 784. We have had a significant rally off the lows of @660 two weeks ago week, but again have started to fall again.

Long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Dollar Falling

Dollar was flat again yesterday.

Wild ride over the last three weeks- especially last week. Basically, the dollar has gone from a high of $88 to low of $78 and at the end of the last two days setteled at $81. Chart of the dollar .

The dollar is falling because of the low US interest rates and it looks like the Fed will bee printing a whole lot of $ to keep the financial system liquid. Other countries are doing the same thing. This collective devaluation of currencies can lead to a worldwide deflation if it continues. This is not what we want to have happen.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. Long term stock rallies simply do not have the money supply to exist as long as the credit panic continues.

Dow 8500 support has been broken. However in the short term the Dow is a bit oversold. The other major indexes are still hanging in above support. However the uptrend has been broken in the Dow.

How markets react to news is out #2 forecasting tool after volume. Bad news seems to be impacting stocks more that it has a week ago. Then bad news had little impact a week or two ago. Therefore, the shorter term uptrend is showing some signs of cracking.

Another major dip would be a buying opportunity

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 may be starting to fade

Look for range between 7449 and 9654 for rest of year.

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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 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

Going to London and Paris over holidays. May be able to send abbreviated Updates from Europe.

"Recession Plagued Nation Demands New Bubble to Invest In."

The above headline is from "The Onion" Sometimes humor tell the truth better than analysts. After an internet and housing bubble American’s are looking for the next Ponzi scheme.

Nobel prize winner Paul Krugman expects "were in for months, perhaps a year of economic hell ."

Paulson and Bernanke as Heroes

In the past few month Updates has spent a lot of time punching holes in the TARP bailout and other financial moves. The government loans/bailouts have been termed "Not accountable," "did not fix the lack of regulation problem," "not transparent," "arrogant" and "what looks like Paulson giving $ to cronies (banking buddies like Rubin)" While there is a clear negative side the actions taken it does not necessarily add
up to failure.

Herbert Hover failed to act. He let bank after bank go under and the end result was the Great Depression . When Lehman Brothers failed this year the almost $400 billion of bad over leveraged debt shook countries and banking systems worldwide.

Twice the entire world economic/financial stood on the brink of the abyss.

1. The AIG bailout. The world’s largest insurance collapse would have taken down the entire insurance industry. AIG was/is overloaded with credit defaults swap obligations. – just like Lehman.
2. The TARP financial/bank bailout and the second bailout to the world’s largest bank Citigroup. Again Citi and banks are over leveraged with obligations like credit default swaps.

Paulson and Bernanke have not fixed the problem - but they have kept the entire world’s financial system ticking . The ships been hit by an iceberg, but it is still afloat. Bernanke and Paulson do deserve some credit.

Solutions

There are many. Some of the more obvious ones

1. We need laws to regulate financial companies, – free markets and especially Financials (credit default swaps etc.) need some structure or else they go wild.
2. The over leveraged situation needs to get reduced.
3. Temporarily stop building houses or find some other way to stabilize housing/foreclosure market.
4. Stimulus – This worked for FDR until he tried to balance the budget too soon in 1937. Then he needed the a huge stimulus package (WW 2) to ultimately fix things.

"What Me Worry" Alfred E Neuman

Huge financial entities (domestic and foreign) knees are trembling with worry.

1. Banks are not loaning money – they are probably over leveraged and need the cash just to stay in business.
2. Big money is all hiding in Treasury Bonds. – the Yields are ridiculously low
3. Corporate bond yields are ridiculously high – this means a whole mess of defaults should happen in the future.
4. Check out the drop in the Baltic Dry Index (see below)
5. We’ve entered this mess with an already huge deficit.

Hope Krugman is right and "we are in for months, perhaps a year of economic hell" and not something worse.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Still Consolidation
Index % Change Volume

Dow -0.69% down
NASDQ -2.04% down
S&P500 -1.83% down
Russell2000 -2.30% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

This week and next have historically had light trading. Also the next three weeks have historically been positive.

The shorter term mojo is still with the bulls until stock’s close below their opening price on last Tuesday. This area just above 8500 held for three days in a row (last Friday, Mon. and Tues.) and is a short term support level – 8500

The Dow fell below 8500, but rallied to close above it at 8517 So technical support while threatened, held yesterday.

Today again will be a test of this level.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Lots of down grades of companies by brokers was most cited reason stocks fell yesterday.

Here’s about a disastrous an outlook as I can find from a self described Dr Doom and Gloom .

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress is being made. LIBOR has fallen from [MISTAKE 4.8 is the European LIBOR rate high 3.4% is the US high] two months ago to about 1.46% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

The 3 month has basically flatlined at 0.01% Longer term rose yeilds rose slightly

Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.17% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. Low Yields = There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI fall more than -2% yesterday to 801. We have had a significant rally off the lows of @660 two weeks ago week, but again have started to fall. Big long term picture The BDI had seen an almost 90% loss since June. It seems, a least for a week international trade has picked up but has again begun to slowly fall. These shipping figures confirm world wide recession.

Dollar Falling

Dollar was flat yesterday.

Wild ride over the last three weeks – especially last week. Basically, the dollar has gone from a high of $88 to low of $78 and at the end of the last
two days setteled at $81. These are historically big moves for the dollar. Chart.

The dollar is falling because of the low US interest rates and it looks like the Fed will bee printing a whole lot of $ to keep the financial system liquid.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. Long term stock rallies simply do not have the money supply to exist as long as the credit panic continues.

Dow 8500 is the technical support level that’s closest and 9000 is the upside resistance level.

Historically the markets turn before the economy, however fundamentally its hard to see signs of any long term economic turn.

Hedges

As I’ve discussed with many of you, personally I am long (bought lots of) FXI (the China ETF) and I’m hedging it with a short position in US equities – SDS or others listed below. The higher FXI gets the more I hedge. The lower it goes the less I hedge.

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 part 2 seems to be taking hold. Look for range between 7449 and 9654 for rest of year .
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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 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

Thanks to one of you who sent this very funny video of Robin William’s on American Politics (Obama to President Jack Nickelson) and more. PoliticalIrony.com is a great humor site.

"Scam of the Century"

Yesterday Tom Friedman called the Madoff scandal the "cherry" on top of the whole financial mess.

Today Nobel Prize winner Paul Krugman echo’s Friedman – "How really different is Mr Madoff’s tale from the story of the investment industry as a whole."

Bottom Line – Many of you have talked about investments in the financial sector. Your reasoning – After all financials are so beaten up and the government is not going to allow this sector to fail – Citigroup the prime example. You’re right but -

The other side to this coin is that – we do NOT have transparency in this sector, We have not enforced a new restructuring, we do not know how much "toxic" debt each company has.

In the end financial companies are all going to have to de-leverage. They made their profits from huge risks (leverage like credit derivatives) and you the taxpayers are now subsidizing that risk. Financials, therefore, will not be as profitable as in the past unless we continue to allow them to run unregulated Ponzi schemes. So, as a long term investment the financial sector’s outlook does not seem as bright as other sectors.

Since financials used to be the largest sector of the market it is hard to see stocks(especially financials) recover significantly in the upcoming years because their earnings are going to shrink.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Consolidation

Index % Change Volume

Dow -2.49% down

NASDQ -1.71% down

S&P500 -2.12% down

Russell2000 -1.52% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Major US stock indexes took it on the chin in weaker volume Thursday. Volume did NOT confirm the move lower, but the last two days have seen the four major indexes erase almost all of Tuesday’s big gains. That’s not good news for bulls.

All the major indexes have failed to breakout through their 50 day moving averages (see charts – the blue line) and the highs established two weeks ago. This makes the area around 9000 on the Dow a stronger and significant technical resistance area. Two failures to break it and the fact that the 50 day moving average is close to this level all combine to make it a line in the sand resistance level for stocks.

The shorter term mojo is still with the bulls until stocks close below their opening price on Tuesday. This area just above 8500 held for three days in a row (last Friday, Mon. and Tues.) and is a short term support level.

Dow now at 8605 with the first resistance level at 9026 and major resistance at 9654. The Technical aspect of US equities has been very solid since the late November lows. Short term the momentum is still with the bulls . Downside support level just above 8500 is in danger of falling. Today’s test of this level is relevant to the Santa Clause/Obama rally continuing.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Mea Culpa – Several of you caught a mistake the company mentioned was another Financial giant Morgan Stanley and not BS. (Thanks for the emails) Bear Sterns had a bad earnings report yesterday, but this had little impact on overall markets. After volume, how markets react to news is the #2 confirmation factor. The lack of a major fall in stocks despite the Bear Sterns and continuing Madoff see yesterday’s Update) fallout is bullish.

GE – The mother of all conglomerates was the reason for yesterday’s fall. GE finance is loaded with "toxic debt" and as mentioned in the past negatively impacting this stock.

GM and Chrysler – Yesterday Bush said he had not made up his mind on loan/bailout and auto stock got toasted – Today Reuters says agreement near. Toyota has first loss in 70 years of operation. Bush speaks on this at 9:00 AM.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress is being made. LIBOR has fallen from 4.8% two months ago to about 1.52% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news. Some credit cards & mortgage rates are tied to Fed prime rate.

LIBOR chart (3 month)

Treasury Bonds

All the yields fell. The 3 month has basically flatlined at 0.01%
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks. Investors are willing to pay an unbelievably low 2.08% for a ten year treasury bond.

Yields keep falling = Continued deterioration of credit market. There is simply
NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose almost less than -1% yesterday to 828. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling (more later)

Yesterday the dollar rose and oil prices declined significantly. Weak oil prices are also a sign of worldwide recession is going to get worse before it gets better.

The dollar is falling about as fast as it ever has for the last week. Chart of the dollar .

The dollar is falling because of the low US interest rates and it looks like the Fed will bee printing a whole lot of $ to keep the financial system liquid.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates. Long term stock rallies simply do not have the money supply to exist as long as the credit panic continues.

Fundamentally the market reacted negatively to the GE news (see above) US stocks had been ignoring bad news. How markets react to news is an early indicator of a reversal, so the technical support around Dow 8500 is in trouble.

Best guess is that 8500 will 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 part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 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

Obama’s Cabinet

Remember Republican’s fear mongered that Obama was going to be a "socialist" – "the most liberal Senator" out there who would "surround himself with ultra left wingers" (Bill Ayers).

The exact opposite has come to pass. Left wing blogs who were the original supporters of Obama have now openly started to openly attack Obama over his cabinet choices. Latest example – choices for Interior and Agriculture – an ex Iowa governor and Colorado Senator are certainly not the environmentalist that the left expected to fill these positions.

Secretary of Education was also a questionable choice – Arne Duncan . What makes the lawyer who runs the Chicago school system a good choice? Does Chicago have such a great school system? One of you sent in a reference to the following editorial. (Thanks)

A Republican for Secretary of Transportation .

Perhaps the most flack is over anti gay televangelist Rick Warren to lead the invocation at his inauguration.

The jury is out on if these choices will be the agents of change Obama promised, but the questions surrounding these and other choices are legit.

"Scam of the Century"

CNBC, the financial channel, is running a special this evening with the above title on the Bernard Madoff scandal. This 50 billion dollar Ponzi scheme is going to have many after shocks. How many other are there out there who will blow up like Madoff? Why is there no huge cry for regulations and enforcement that will protect investors?

Tom Friedman calls the Madoff scandal "the cherry on top of the national breakdown of financial propriety, regulations and common sense."

Mortgage Market Meltdown

Foreclosures are rising, housing values falling and unemployment rising. This is not a good combination. Add to this – in the longer term – Alt A & Open Arm mortgages are going to be recalibrated at a higher rate over the next few years. There are more Alt A and Open Arm mortgages subprime.

Bottom Line – Almost nothing has been done about the housing problem and it is going to get a whole lot worse before it gets better.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Consolidation

Index % Change Volume

Dow -1.12% down
NASDQ -0.67% down
S&P500 -0.96% down
Russell2000 +0.77% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Most major US stock indexes retreated slightly in weak volume after Tuesday’s massive rally. Technically low volume pullbacks are just what bulls like to see if stocks have to retreat. The shorter term mojo is still with the bulls.

Technically, this looks like a consolidation after a rally. Sort term technicals still positive.

Dow now at 8924 with the first resistance level at 9026 and major resistance at 9654. The Technical aspect of US equities has been very solid since the late November lows. Short term the momentum is clearly with the bulls.

Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

Point of interest for CNBC Jim Cramer fans on his picks for Obama based stocks. Some of these stocks have had a nice two day run higher. GEX is the alternative energy ETF that Market Updates recommends and yesterday it broke out to a new short term high (would have liked to seen stronger volume) -  GEX chart . Cramer’s choices .

Financial giant Bear Sterns had a bad earnings report yesterday, but this had little impact on overall markets. After volume, how markets react to news is the #2 confirmation factor. The lack of a major fall in stocks despite the Bear Sterns and continuing Madoff (see yesterday’s Update) fallout is bullish.

CAUTION – US equities have Short Term positive momentum.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress WAS being made. LIBOR has fallen from 4.8% two months ago to about 1.58% LIBOR rates are on their second leg down and have again fallen significantly. LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news.

LIBOR chart (3 month)
Treasury Bonds

Yields on the short term Treasuries rose slightly and the long bonds fell (10 & 30 year) The 3 month has basically flatlined at 0.01%
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

Yields keep falling = Continued deterioration of credit market. There is simply NO confidence in the credit markets. PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose almost +1% yesterday to 836. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an over 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling (more later)

The dollar is falling about as fast as it ever has. Chart of the dollar .
This is due to the fact that the Fed has already lowered interest rates as low as they can go and now they are going to sell Treasuries and print money to stimulate the economy. This is potentially an inflationary and very dangerous situation if the fall continues.

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.
A Santa Clause/Obama rally seems in the works. However, announcement of an auto bankruptcy would have an immediate negative impact.

All the recommended sectors are doing quite well.

FXI (China) is clearly out preforming the USA. Chart of FXI .

EWZ (Brazil) chart is not as good as China, but again outperforming USA. Chart of EWZ . Caution – Brazil s tied to rising oil prices and will under perform on the way down.

GEX (Alternative energy) chart is basically forming a base. Chart of GEX. Will rally with US equities. Broke out to new short term high yesterday This is a play that the Obama stimulus package contains a lot of green energy proposals.

GLD (Gold) weekly chart is not quite as good as major US indexes – then again gold did not fall as much as the US indexes. Gold is a play that inflation emerges at the other end of the recession. Chart of GLD .

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 part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 and 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

How we got into such a huge financial mess.

Nobel Prize winner Joe Stiglitz has a comprehensive piece on just how this economic meltdown began. He traces its roots all the way back to Alan Greenspan becoming Fed Chair. Some of the incidents he mentions have already been covered in Updates. History can repeat itself unless we do something to change it. His basic premise is what Alan Greenspan already admitted to – that free markets are not self regulating entities.

You can read about the 5 major causes that made us "Capitalist Fools ."  More on this later.

Flying Shoes

Thanks to one of you who sent in the following video. Got to admit Bush is fast and for the first time he moved to the left.

Green – An Electric Car Bailout?

We all know Detroit is in trouble, but the falling oil prices and world wide recession has meant major set backs for emerging electric car companies . Even Prius is cutting back. LINK

Peak oil is a reality. Our dependence on foreign sources for oil is another reality. So is global warming and the pollution that burning fossil fuels create. Now that prices drop in a worldwide recession so does the desire for green energy.

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Fed Cuts = Big Rally

Index % Change Volume

Dow +4.20% up
NASDQ +5.41% up
S&P500 +5.14% up
Russell2000 +6.69% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Therefore, both the primary (volume) and #2 factor (how markets react to news) seem to be bullish right now.

As predicted we had a rally yesterday. It was one of those big time bear market rallies (were still not out of the woods) in increased average volume. Volume up is a good sign and there was a significant increase in volume, but in total the volume for the major indexes was average. All in all a very good day , but, it sure looks like there are a whole class of investors unwilling or unable (not enough $) to invest large amounts of capital in stocks.

Dow now at 8924 with the first resistance level at 9026 and major resistance at 9654 . The Technical aspect of US equities has been very solid since the late November lows. Short term the momentum is clearly with the bulls.

Chart of the benchmark S&P 50

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

The auto bailout/loan is in limbo. Will Paulson and Treasury act?

Major action taken by US Fed lowering interest rates more than expected. They lowered rates 0.75% to 0.25%. That’s the lowest they’ve ever been. Great one day news for the markets, but there is little the Fed can do to lower rates any further.

Some credit cards and mortgages are tied to US Fed interest rates.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress WAS being made. LIBOR has fallen from 4.8% two months ago to about 1.8% LIBOR rates are on their second leg down started to fall . LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news.

LIBOR chart (3 month)

Treasury Bonds

All the yields kept falling – relative to last year. month, week and day. The 3 month has basically flatlined at 0.01%
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

Yields keep falling = Continued deterioration of credit market. There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose over +3% yesterday to 823. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an over 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling and Therefore Oil Prices Rising (more later)

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.

A Santa Clause/Obama rally seems in the works. However, announcement of an auto bankruptcy would have an immediate negative impact.

Same outlook holds Santa Clause /Obama rally is chugging along. Shorter term traders should buy the dips. Rally looks like it has enough technical juice to make it close to 9654.

All the recommended sectors are doing quite well.

FXI (China) is clearly out preforming the USA. Chart of FXI .

EWZ (Brazil) chart is not as good as China, but again outperforming USA. Chart of EWZ . Caution – Brazil s tied to rising oil prices and will under perform on the way down.

GEX (Alternative energy) chart is basically forming a base. Chart of GEX. Will rally with US equities. Broke out to new short term high yesterday This is a play that the Obama stimulus package contains a lot of green energy proposals.

GLD (Gold) weekly chart is not quite as good as major US indexes – then again gold did not fall as much as the US indexes. Gold is a play that inflation emerges at the other end of the recession. Chart of GLD .

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 part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

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 20 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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 and 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

China, Buffett and the Electric Car – Green Technology

China has just launched its first home grown electric/hybrid vehicle – the F3DM. BDY co. which Buffett own 9.9% of just announced the new car. If or when American auto companies collapse, we will once again be sending boatloads of money abroad to buy cars like the F3DM that will be manufactured in China. Story LINK

Fox in Charge of the Old Hen House.

The feature story since Friday in financial news has been the $50 billion lost by those investors who trusted Bernerd Madoff and his Investment Company. The SEC is supposed to govern folks like Madoff, hedge funds, financials and anyone who trades stocks. Since Greenspan took over as Fed Chair in 87 we have lived by the philosophy of free market zealots (like Ayn Rand) who believes any almost regulations on capitalism was unnecessary. One again we are getting hit over the head with another example of lax or non existent enforcement and regulations.

It was all a big Ponzi scheme and there is no silver lining – the money is gone. It makes you wonder about all those big unregulated hedge fund. How many more Madoff’s are there?

Bank Robbers Get Jail Time.

But what happens when the banks or financial institutions rob you? You bail them out with your tax dollars and watch as confidence in the American financial system crumbles. Of course other industries Insurance, Auto’s and others get sucked down with the implosion of over leveraged banks. Transparency, regulations have not been put in place to prevent this from happening again. We don’t even know which financial/banks are in trouble.

Flying Shoes

Throughout the rest of the world (from China to Mecca) the headline has been the story of the Iraqi news reporter who threw his shoes at President Bush. al Zaidi who called Bush "a killer of children" as he threw the shoes has become a hero throughout most of the world. Foreign news sources quote his family as saying he had become depressed after watching/covering the destruction of Iraq neighborhoods and the loss of "innocent" lives.

You can google almost any foreign news source and you’ll find al Zaidi almost universally depicted as a hero. For a starting point on sources outside US mainstream media on this -  al Zaidi .

Stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow -0.75% down
NASDQ -2.10% down
S&P500 -1.27% down
Russell2000 -3.39% –

italics = same comments as yesterday.

US Market & Foreign Markets

Technicals-

Over the last few trading days stocks have moved lower in decreased below average volume. Monday’s volume was the lightest since the 1/2 day’s trading after Thanksgiving. Falling markets increased volume is just what bulls like to see.

The news has been pretty negative and its surprising to see stocks holdup as well as they have. Seems most of the bad news is already factored into the markets.

Therefore,Both the primary (volume) and #2 factor (how markets react to news) seem to be bullish right now.
Chartof the benchmark S&P 500
Chartof the Russell 2000
Chartof the NASDQ
Chartof the Dow

Fundamentals-

Obama Rally = HOPE A whole bunch of stimulus that has already been thrown at stocks, plus the composition of Obama’ economic team & his proposed stimulus package.

The auto bailout/loan is in limbo. Will Paulson and Treasury act?

Some major financials are announcing earnings results today. Goldman Sachs just announced bette than expected earnings.

Fed meets rates today. Lower (0.50%) interest rates expected. They could lower rates to zero.

Three Month Treasury Bill & LIBOR

Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.

Real progress WAS being made. LIBOR has fallen from 4.8% two months ago to 1.85% LIBOR rates have again started to fall . LIBOR is the rate banks charge each other, not businesses. Some credit cards, loans and mortgages are tied to LIBOR so this is good news.

LIBOR chart (3 month)
Treasury Bonds

All the yields kept falling – relative to last year. month, week and day. The 3 month has basically flatlined at 0.01%
Fearful investors are putting their money in Treasury bonds for 3 months to 30 years, they are NOT investing in stocks.

Yields keep falling = Continued deterioration of credit market. There is simply NO confidence in the credit markets PANIC RULES

Baltic Dry Index

The Baltic Dry Index is a forward looking indicator that measures pre production materials that are shipped around the world.

Bloomberg data and chart (If the link does not work Google – bloomberg baltic dry index) Set range indicator to one month and you will see this chart.

BDI rose over +5% yesterday to 803. We have had a significant rally off the lows of @660 in the last week. The BDI had seen an over 90% loss since June. It seems, a least for a week international trade has picked up. This is very good news for bulls.

Dollar Falling and Therefore Oil Prices Rising (more later)

Short Term Outlook

Reading the Tea Leaves-

PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.

Other indicators covered above are all showing short term signs of life. A Santa Clause/Obama rally seems in the works. However, announcement of an auto bankruptcy would have an immediate negative impact.

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 part 2 seems to be taking hold.
Look for range between 7449 and 9654 for rest of year.

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 15-20+% 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 fathers market – over the 8 Bush years the Dow has gone from 11,000 to 8,500 and 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