Investors 411 Blog

Ronald Reagan:

The Great American Socialist

All of you made outstanding public comments on Friday’s blog from a must see video of the Tea Bagger’s to an excellent editorial by economist Ravi Batra – “Ronald Reagan: The Great American Socialist. ” The far right is calling Obama a socialist because he wants to “redistribute the wealth” yet Ronald Reagan by this definition can be credited for a huge redistribution of wealth.

• Reagan’s 1981 tax cut was massive especially for the wealthy and corporations. This ” large reductions in income tax rates in 1981 were followed by abnormally slow growth” Source Wikipedia
• The rate fell from 70% to 28% 1980 to 1988 for wealthiest Americans. Check out changes starting in 1980 (when Reagan took office) Great chart of tax rate of wealthiest individuals and tax rates from 1903 to 2003 at TruthandPolitics.org LINK
• Batra continues – “deficit soared from 2.5 percent of GDP to over 6 percent, alarming financial markets, sending interest rates sky high, and culminating in the worst recession since the 1930′s”
• Reagan was in trouble so he “looted” YOUR savings in the Social Security system. To fix the massive losses YOUR Social Security trust fund (taxes you paid) were now used to pay for programs, stop inflation, fix the recession by paying down the deficit.
• By 2007 this totaled “$3 trillion dollars ” (including 1+ trillion in interest we would have had) and is a major reason why Social Security is in such trouble. But the reality is the fund is empty and used now to reduce the deficit.
• In fact “In 1986, Reagan slashed the top tax rate further. His redistributionist obsession led to a perversity in the law. The wealthiest faced a 28 percent tax rate, while those with lower incomes faced a 33 percent rate; in addition, the bottom rate climbed from 11 percent to 15 percent.”

So now we have Heath care/public option and are afraid to tax the wealthiest individuals to pay for it. Those that benefit from Reagan and Bush tax cuts and have accumulated millions in compounded tax savings to protect themselves from the lack of funds in Social Security or heath care problems.  Those millions/billions have been amasses since 1981.

45,000 Americans die each year because they do not have health care (700,000 go bankrupt each year because of lack of decent health care-figures quoted on Bill Mahr HBO show) That’s equal to the deaths of 15 world trade center attacks . All this happens in the only civilized country in the world that makes a profit off of breast cancer, heart attacks, leukemia, aids etc…

Heath care is one component of this wealth distribution. It would redistribute more funds to lower and middle class families.

Special Note – The Investment philosophy of Investors411 continues to be invest in countries with a growing working class of people NOT a growing oligarchy of wealthy individuals. This is why the ETF chosen are focused on India, China, Brazil, South Korea and other area where money flows because middle classes and those aspiring to the middle class spend money.

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Mea Culpa – Many of you sent personal and public emails or talked with me about Friday’s editorial “Why You Should be Afraid for America” One of you stated this is not a headline you’d find in the NYT and suggested , this is a fearful  “tabloid headline”  He’s right. I am an emotional guy who spent part of his youth marching for civil right, against the Viet Nam war, and income equality from the deep south to the infamous 1968 Democratic convention in Chicago. The headline was designed to attract your attention and in my heart I’m fearful for America’s future. I’ll try to watch it but please allow for the occasional over the top headlines.

Thanks to Paul R who sent inthe Batra editorial and all those other who make the comments section perhaps the most exciting part of this blog.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	-0.42%	down
NASDQ	+0.24%	down
S&P500	-0.34%	down
Russell2000	-0.31%	-

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals and Fundamentals

Volume was way down and that’s just what bulls want to see on a mildly bearish day for the S&P 500 and the Dow. Considering how strong the dollar was it is surprising to see the markets fall so little. (see below) The NASDQ even gained ground.

The Dollar is still the key index to watch right now. The inverse correlation between the dollar and stocks dominates the US markets

Fed meets today and makes announcement tomorrow.

Fearless Forcast = Rally continues. this week.

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Significant forecasting tools/Indexes for stock markets

(Besides #1 Volume & #2 Reaction to News)

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) .

2388 is support level/number to watch – Yesterday BDI fell -33 to close at 2357. This is not a big fall, but a major support level has been broken. = Bearish for worldwide stocks.

The BDI is 44% off its high (early June) Before that it gained almost over 630% from its all time low of 663 (April high of 4291 )

What this means – World trade is in trouble – lots of ships are sitting in ports empty.  To some degree, China has stopped buying raw materials and/or the US consumer is not buying as rapidly as earlier in the year. Braking a support level is significant, but 2357 (current level) is still a long way from the Dec. 2008 663 low. = Storm clouds gathering

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$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

As predicted the $76 support level held.

Mantra – Dollar up = US stocks down & Dollar down = US stocks up

The dollar rose +0.40% yesterday and guess which way most major US markets went – D__N.  ) 0.40 is a relatively large move up for the dollar.

Note that if you look at the longer term chart of the dollar that it has NOT been above its 50 day moving average since April.  The dollar is in a short,medium and long term BEAR market . Would buy stocks if the dollar got close to 50 day MA.

The two day rally in the dollar has also impacted oil prices that fell -3.53% yesterday. Right now this looks like a technical correction.

Last year’s low was around $71, so there is a long way to go before the next major support level.

Positions

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

Individual stock – One of you last week has asked me about MVIS (Microvision) See chart This chip company has exploded and broke out of its trading pattern even though stocks have been down/flat the last few sessions.  Would buy this on any dip. There are a whole bunch of traders out there ready to do the same thing.

Our swine flue play NVS and tech play AAPL are out peforming US markets – but it looks like we are in for some minor correction as the dollar rises.

NB – I just offering these trades because you folks asked for something other than ETF’s – I do NOT know enough about the fundamentals and a zillion traders know more. Also,its far easier for major players to manipulate these stocks than ETF’s which are huge market baskets of stocks.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Ben Bernanke

The NYT reports this AM that the Obama administration will keep Bernanke as Fed chair LINK Investors411 praised the choice of Bernanke as Fed chair & think its not a good idea to change horses in mid stream.

Bernanke shares some of the blame for allowing the financial meltdown, but not nearly as much as much as Greenspan . Greenspan in front of congress admitted his error.  He thought that the free markets could regulate themselves. Boy was he wrong .

As stated before a combination of the Fed chair and the Obama administration’s stimulus and loans have pulled the back from the edge of the economic cliff.

Official announcement at 9:00AM EST this AM.

Medicare, Social Security,& Health Care

These programs on the whole have been decently run by the federal government.  The problem is that post World War Two we had a population explosion called “the post war baby boom” That population explosion in the late 40′s and early 50′s is reaching maturity and will be using the assets in those programs. Thank God Lehman Brothers or the Free Market is not running these programs

The best proven  justification for a public health care option is all the other industrialized democracies (dozens) have voted to have public systems and none have voted to remove them. However American’s are so egocentric, that what generally works in other countries has less meaning here.

Economics 101 & the Recession

What the Fed and the administration have done is stimulate growth.  What they are trying to do is keep the growth alive and hope shadow banks can wind down debt. At this point, using stock prices as a measurement, this is working.  This argument is a gross oversimplification, but rally right now confirms this outlook.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Index	Percentage %	Volume
Dow	+0.03%	down
NASDQ	-0.14%	down
S&P500	-0.05%	down
Russell2000	-0.22%	-

Investors411 record – 4 1/2 years of beating benchmark S&P 500

(see results for last 1/2 year – click  6/25 & scroll down)

• Brown = repeat statements
• Green = usually bullish statements
• Red = Usually bearish statements

Technicals and Fundamentals

This is a market that is overbought and ready to reverse itself.  The Bernanke news should be good news for stocks.  However markets that need a temporary reversal (overbought) and after the rally we should see some immediate selling.

Again, check out these financials – especially the huge volume. The one fundamental that is the driving force behind the stocks surging is financials – Lets take a look at the price charts worst of the worst.

• AIG
• C
• FNM

These are the companies (AIG, CitiGroup & Fannie Mae) that were among the leaders on the downside and the trend is clearly higher.  (See above editorial) The trend is your friend and let’s ride it.

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Significant forecasting tools/Indexes for stock markets

BDI - The Baltic Dry Index measures the flow of goods by price (world trade) It looks like we could be forming another lower high and that would reinforce the mid term bearish pattern .  The BDI fell - 31 on Friday . We’ve again broken a support level and formed another lower low. The rat of decline is slowing, which means a reversal is coming. Unfortunately, we have created a lower low that confirms both the mid term trend. The mid term trend since early July is clearly bearish, with a series of lower lows and lower highs. @ 2298 is a major area of support and the BDI has fallen since early June from 4291 to 2468.  This is just 129 points away from a major support level.

In a nut shell the BDI is

• short term - Bearish pattern
  
• mid term -  Bearish pattern
• long term - Bullish pattern

Bottom Line – Mid term trend is not good for world markets, especially countries that rely on exports. exports

While this index does not have as immediate impact on stocks, as the Dollar does, it is very significant to long term worldwide economics.

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$USD - Check out the 6 month chart (to the left) or a multi year chart of the US dollar of the US dollar.

The dollar rose +0.25 % yesterday and, you guessed it, the stock rally stalled . The Dollar is in a range between $79.5 and $77.5 . A breakout to either side will seriously impact stocks. Dollar closed at $78.24. Its  major support level is @$77.5

Mantra – Dollar up = US stocks down & Dollar down = US stocks up

A gradual reduction in the price of the dollar is part of the solution to global worldwide recession

This is the index to watch because its impact is immediate.

Positions

The whole Positions Section has been revised (Click on “Positions” at top of blog). Check it out

Investors411 will become more involved in the financial sector. – ETF’s – XLF. UGY (2x financials) & FAS (3X financials) Investors411 will also be taking profits in some.  – Even though its not a dip lets start small and reopen the  position in financials…. Up to 20% of portfolio

The Hedge – At one point we had almost a 5% gain in this position that hedge the NASDQ 100 against the S&P.  The growing trend in financials has wiped that all out.  Investors411 is closing this position because it looks like financials will continue to drive the S&P higher. Yesterday there were massive trades (again) in those financials (shadow banks) that needed the biggest bailouts.

Closing position for zero gain.

One very important rule in investing is don’t lose money.  Fundamentally this trade is turning sour.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Note changes to Long Term Outlook

Social Security Fix

Remember Republicans, & Wall Street demanding lots of Social Security funding to should be tied to he stock markets. The Dow is now down 20+% and could go a lot lower if oil prices keep climbing. Can you imagine seniors panicking as their life saving evaporate. Several years ago this was a major topic in Market Updates. Security means the investment is secure.

The UN and Zimbabwe

One truly wishes the UN was strong enough to truly challenge the death of democracy in in Zimbabwe. However the UN has, in effect, lost its former leader the USA. The UN lost its moral pro democracy), economic (30% of worlds GDP) and military (50% of arms spending) leader.

The US went rogue or unilateral in its invasion of what the head of the UN called an “unjust” war in Iraq. UN weapons inspectors found no WMD . Scott Ritter The UN’s chief weapons inspector editorializes constantly about what’s happened then and now in Iraq. American corporate media ignores or censors the views of the man that was right about Iraq.

The Cheney/Bush administration relentlessly attacks/criticizes the UN and preaches the “You are either with us or against us” mantra. The rest of the world looks at the US differently now after Abu Graib, Guantanamo Bay, rendition & torture became our mantra not democracy.

Without the moral might, will or military backing (tied down in Iraq) of the US, the UN does not have the power or character it had before the Republicans took over the White House. The UN is still our best hope, but it has been critically weakened by the country that used to be “the leader of the free world.”

Big Oil

What Big Oil needs to do is become Big Energy today

In one sense Big Oil is ever so slowly changing – example Exxon admitting their working on solving the greenhouse gas problem. That is a move in the right direction. Unfortunately the change is happening at a slow pace. The Democrats/Obama threat of a windfall profits tax has light a fire under Big Oil and increased the rate of change.

Maybe its too optimistic or hopeful view, but Big Oil/Energy should be leading the charge in alternative energy sources. There are a lot of folks outside and within Oil companies that are trying to make this change happen at a far more significant rate. Keep pushing.

The Cost of Waiting for Big Oil To Do the Right Thing editorial by Robert Kennedy II and William Achtmeyer

Stocks

Index % Change Volume

Dow -1.46% down
NASDQ -2.32% down
S&P500 -1.82% down
Russell2000 -2.78% –

US Markets

Oil Prices are trumping all other aspects of the market. Technically markets had a significant meltdown in reduced volume. The lighter volume is usually a decent technical sign, but Oil Prices are in the spotlight. Whatever they do US and worldwide equities will move in the opposite direction.

Chart of benchmark S&P 500 S&P reached a new closing low and like the Dow is almost certain to enter ear market territory.

Chart of oil (WTIC) Oil rose 1.84% After a three week consolidation oil broke out of its trading pattern and is on the rise again.

Earnings season begins next week.

The VIX

Chart of VIX The VIX rose 9.60% to 25.92. The bad news here is that the VIX which measures fear in the market is no where near the levels it was when we had out other reversals in stocks. The VIX (measures fear through volatility in s&P 500) needs to pass 30 and the last three reversals happened when the VIX inter-day went to 35.

Reading the Tea Leaves – OIL RULES – Nothing else seems to matter and a worldwide stock and economic meltdown is getting more likely each day. The oil supply/demand equation is the leading factor. The US is where this breakdown began. US credit /transparency problems, falling housing prices and lack of consumer confidence are all spreading negatives to the rest of the world.

The Dow has failed to hold its major support levels, the S&P has just broken through its major support and the NASDQ and Russell 200 seem like they are going to get dragged down too. The rest of the world is on the same train and eventually will follow.

Long Term Outlook Changed to Bears Rule – The lowest of the 5 categories Market Updates uses.

Recommended Sectors (Long Term)

OUTLOOK (results for June and outlook for July and Beyond)

Gains and Losses are approximations from looking at charts

USO - Chart – Gain +14% USO is the ETF that tracks oil prices. No explanation needed.

UNG – Chart – Gain +13% UNG is the ETF that tracks natural gas prices.

EWZ – Chart – Loss -9% EWZ is the ETF for Brazil.

RSX – Chart – Loss -10% RSX is the ETF for Russia.

TRAMX – Chart – Loss -4% TRAMX is a mutual fund whose main focus is the oil rich Mideast.

Tomorrow Updates will cover the outlook for these 4 ETF’s and 1 mutual fund.

Changing the Asset Allocation. – Reasons

1) Dow has broken support and officially entered bear market territory.
2) The level of fear (VIX) has a long way to go before reaching a point where the s&P will reverse itself.
3) Consumer confidence numbers are horrible and the media is spreading bad news.
4) Oil prices (daily chart) show no sign of a climax buying where they go elliptically higher
5) unemployment numbers should continue to rise

If everyone was throwing in the towel, you could call a bottom, but the VIX does not show this. So there is more pain and volatility to come. I really hope I’m wrong

Note changes in BOLD

Steel (SLX) has been combined with other commodities and this whole section reduced. Cash allocation has grown 5%. The + is for more conservative investors. If you do not like wild and bumpy rides cash and to a much lesser extent gold is the place to be.

Bottom Line

Long Term Outlook BEAR’S RULE 

Dow at low of the year, gushing high oil prices, record low consumer confidence, growing US unemployment, declining US housing prices vs. a government rebate check and hope that global growth will hold up in China/India. Looks like the good guys are outnumberd. (Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

The question for Wall Street is not whether there will be a recession or not, but how long will it last.

Asset Allocation/Recommended Sectors (long term)

* 45 +% Cash
* 35% Energy-
EWZ, (Brazil) & RSX (Russia) two energy rich countries. TRAMX – mutual fund for oil rich Mideast
PBW and GEX (alternative energy).
XLE (energy companies) OIH (oil services)
USO (oil prices) UNG (natural gas prices)
KOL (coal companies)
* 15% Commodities – MOO Agribusiness, XME (mining & minerals) SLX (Steel)
* 5 +% Gold – GLD (Gold)

Chief Strategy – Buy the dips of trending sector
Changes to Bottom Line Section Bolded
As Always Do Your Own Research Before Investing