Afghanistan Escalation

Photo – Huffington Post

US launches major escalation in opium rich province in Afghanistan. BBC story here

By getting side tracked with an "unjust" war in Iraq we have created or ignored a whole host of other problems – Our decline in credibility, loss of allies, Iran’s moving to fascism, Pakistan destabilizing, the rise of Hamas & Hezbollah, Lack of focus on N. Korea and deterioration in Afghanistan are just some of the problems that have emerged.

Health Care

• Wal Mart according to CNBC now backs Obama’s concept of a public health  insurance program here
• AMA (American Medical Association) now "open" to public health insurance program. This group can’t make up its mind. Story here
  
• While the two above indicate momentum toward a public heath plan program the major obstacle continues to be the huge amount of money the lobbyists against the bill give senators and congress. (see past Investors411)

Boycott EXXON

While other major energy companies are  running ads that encourage conservation and alternative fuels  Exxon is still funding groups that are putting out false and misleading info on climate change here

Many of you in the past have sent me boycott Exxon emails. Sometimes this was over high oil prices, sometimes they’re leading opposition to climate change. I still boycott EXXON

Employment Numbers for June

8:30AM EST – Job loss grows from 9.4% to 9.5% with greater than expected -467,000 jobs lost last month. .  Manufacturing was way down – probably duein large part to auto bankruptcies. Markets are going to take a  hit today because of this.

This report was @ -100,000 worse than May, but +100,000 better than the months before May. Jobs are a lagging indicator, but quite important if you have one. More here

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals and Fundamentals

All eyes on Unemployment numbers this AM Results =

Prices rallies, but volume dropped significantly/moderately for all major indexes. This is a bearish sign

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown.

These are important forecasting tolls, but secondary to volume .

BDI - The Baltic Dry Index measures the flow of goods (world trade) . BDI fell yesterday.  This index is winding up like a spring, within a consolidation pattern. Watch out! Long term Bullish rise from bottom, but coiling right now for next move .

$USD - The Dollar fell -0.64 % . The strong inverse correlation between the dollar and stocks has existed for many moons. Market. Dollar down = markets up. We are in a month long consolidating pattern after a multi month fall Long term Bearish pattern for Dollar that is consolidating pattern now (neutral) = Bullish for stocks This strong correlation may break down in future. (see yesterday’s update.

VIX – Measures Volatility in S&P 500.   The less volatility means the better investors are feeling. Yesterday the VIX fell a meager - o.49% yesterday.  Longer term 4 month trend down and we are near Sept. 08 lows. Bullish long term trend for stocks

Our Positions . -  Over the holiday weekend I’ll try to give you an in depth outlook for our positions, especially the new positions.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Climate/Energy, Cap and Trade, or Waxman-Markey Bill

photo from Treehugger /flickr

Tom Friedman here weighs in on the climate/energy bill that goes under the  many different names used in the above title

It’s easy to agree with Friedman who thinks that the Republican Party is becoming the party of “sex scandals and polluters.” Earlier this week Investors411 went over two significant reasons to back this bill – It fights global warming and reduces pollution.

Another fact on pollution smog increases the chance of premature births by 128% here

Here’s reasons 3 and 4

Changes Mindset and Produces Jobs .

Friedman-”if this bill passes. Henceforth, every investment decision made in America — about how homes are built, products manufactured or electricity generated — will look for the least-cost low-carbon option. And weaving carbon emissions into every business decision will drive innovation and deployment of clean technologies to a whole new level and make energy efficiency much more affordable.”

What all this innovation means is new industries and jobs, jobs, jobs.

Stops Groveling to Petroleum Dictators

This is one significant step toward alternative energy and away from dependency on oil. The USA has reached peak oil decades ago and our domestic oil production is more than 1/2 of what it used to be link here The era of cheap oil  is over. New technology will squeeze oil out of shale and dig miles beneath the ocean to make up some of the loss but this gets very very expensive.

Oil production is dominated by a cartel and dictators whose butts we have to kiss to get the supply.  Look how cautious the world is on condemning “Supreme Leader” & Iran because they have oil. We spend trillions on the military to fight oil wars and ensure oil supplies. Why not encourage alternative energy instead? It would save lives, save future trillions in military wars, promote democracy and lead us toward energy independence.

Bottom Line – Reality is this Bill is a small step and watered down. But we have to take the first step now

Iraq

Most recent polling data on Iraq withdrawal here

• 73% favor withdrawal 26% opposed
• 52% violence will increase, 32% violence stay the same, 15% decrease
• Almost 66% believe we should NOT go back if violence increases.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals and Fundamentals

Volume was still well below average. Up slightly for NASDQ & Dow, but moderately for S&P 500. Volume is still giving no clear sign of market direction.

How markets react to news is another significant forecasting tool. Yesterday consumer confidence numbers for last month came in more negative than expected and that according to most sent stocks down. Reacting negatively to bad news is a bearish sign

Of course this could get balanced by the markets reacting positively to good news. This would = a neutral market.

All this makes Thursday’s (I stated Friday earlier this week-number of different sources making conflicting statements – ) monthly unemployment numbers the major fundamental catalyst for the week.

Technically the consolidation pattern continues.

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown.

BDI - The Baltic Dry Index measures the flow of goods (world trade) . BDI up for second day in a row. Long term Bullish although consolidating right now.

$USD - The Dollar rose +0.39% . The strong inverse correlation between the dollar and stocks has existed for many moons. Market. Dollar up= markets down. We are in a month long consolidating pattern after a multi month fall Long term Bullish pattern that is consolidating (neutral)

This correlation pattern could break down in the future, because oil is bought in dollars and oil also goes up as dollar goes down.  Higher oil prices are a danger to fragile economic recovery

VIX – Measures Volatility in S&P 500.   The less volatility means the better investors are feeling. Yesterday the VIX rose 3.94% yesterday. This is a moderate move higher.   Longer term 4 month trend down and we are near Sept. 08 lows. Bullish long term trend for stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Iraq Fireworks

US troops are leaving Iraq cities today. Last night there was a different kind of fireworks in the skies in Iraq. (Huffington Post photo)

Here’s one big problem – The fascist government in Iran is a major backer of their fellow Shia in Iraq. This includes Sadr who fought US occupation and immediately recognized Ahmadinejad as President. Reasonable to predict the "Supreme Leader" in Iran will try to have the same fascist and militant influence in Iraq as they do over terrorist groups Hamas and Hezbollah .

Iran (week 3 )

Nico Pitney’s blog at the Huffington Post has broke and provided more info than any other US news outlet . here

Elections were certified by Supreme Leader’s government. More, but smaller (in thousands not 10’s of thousands+) demonstrations and increasing arrests. Iranian protesters are shouting Allah Acbar on their rooftops every night in defiance.

Climate Change/Environmental Legislation

Willing to bet that 75% of America’s population has no idea that this legislation is working its way through Congress. Yesterday Investors411 went over one reason why this legislation is important – to combat global warming . Let’s go over one more.

#2 Pollution

Close the garage door, turn on the car engine, open the car windows, go to sleep and you don’t wake up. Pollution kills

We are a carbon based economy and this has had a huge positive economic impact. But the cumulative effect of growing population and increasing pollutants has turned many Chinese cities days into nights where cars have to drive around with headlights on and use windshield wipers to view the road (massive pollution mostly from coal). Simply put, pollution kills by everything from cancer to emphysema.  Trillions in health care costs could be saved and life expectancy would grow with less pollution.

Realism is needed here . Carbon based energy is very efficient and transitioning to alternatives is going to take many decades.

Chevron has "human energy" ads that proclaims we are going to need to work on ways of creating new sources of energy – wind, solar, geothermal, natural gas and oil. They’re right. You simply can’t just shut down oil exploration without devastating the world’s economic structure. But we can take some concrete steps to more environmentally friendly solutions.

(to be continued)

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Your Market Questions (part 1)

Thanks for all the public and private comments on how well Investors411 did in the first 1/2 of the year .

See Positions section & last Thursday’s update . (click on calendar) The major question is will we do as well in the first 1/2 of the year in the 2nd 1/2. Also, a general worry over the long term viability of stocks and the economy .

These questions are  outlined and addressed  in the Strategy and Overview sections of blog. Most of those sections were first introduced at the beginning of the year, then added to a few months ago. Little has changed.

The long term economic problem is the huge hole that was dug by removing the regulations on capitalism and letting greed run wild.  When it takes decades (especially the last one) to dig an economic hole, you don’t climb out of it overnight.

What’s happened is most savvy investors realizes that we almost had a complete world wide financial collapse last September and it now looks like we will survive. The major problems is getting banks to make loans, keeping loans affordable, and fixing growing unemployment.  Fixing these now could have long term negative impact.

China, India, Brazil simply have better balance sheets than the USA and in the case of Brazil more natural resources. They also did not did deep holes.

If we don’t develop alternative energy we will be stuck in a downward energy spiral forever. Cheap oil (the kind that bubbles out of the ground) is a finite commodity. Any recovery is going to be accompanied by rising oil prices.

Will the second half be as good as the first? I doubt it. Our core holdings should outperform, and if stocks do go higher in the USA our ETF’s should do even better . Investors411 biggest mistake is not being disciplined enough in buying dips.

(More later)

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown. Added the VIX back as a prediction tool .

BDI - The Baltic Dry Index measures the flow of goods (world trade) . If trade is diminishing through out the world then a worldwide recovery is in big trouble. BDI started back up yesterday Long term Bullish although consolidating right now.

$USD - The Dollar fell-0.72% Friday and -0 0.04% yesterday. Any move over 0.50 is significant. The strong inverse correlation between the dollar and stocks has existed for many moons. Neutral – we are in a consolidating pattern.

Long term momentum for dollar is bearish. Short term  mo is neutral, but we are closer to a bottom side breakdown than an upside breakout. Any breakout or breakdown would be significant.

VIX – Measures Volatility in S&P 500. Notice this chart is in almost a straight line down.  The less volatility means the better investors are feeling. Yesterday the VIX fell to the same level it was when Lehman Brothers collapsed and markets exploded to the downside.  Stocks still have not reached the level they were when Lehman collapsed. Long term Bullish for stocks

NB – The above are secondary indicators. Our mantra has always been Volume is the #1 forecasting tool – Right now volume is not giving any clear long term signal.

Reading the Tea Leaves .

This weeks fearless forecast – A rally, but one that does not get to new highs. Yesterday we had a mild to moderate rally in 3 of the 4 major indexes. Small caps(Russell2000) lost ground, but this is probably due to the annual rebalancing where some stocks are added and others kicked out of the index.

Short term – Volume dropped and markets rallied – you like stocks to go up, but when volume drops in a rally a reversal is usually around the corner.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Iran Week Three

Two points of view

More Optimistic – Andrew Sullivan here (above photo from his blog)

More Pessimistic – Jaun Cole here

Unfortunately, think Cole has better insight.

Photo to left – Your editor in the fabulous Summer of 1951

Why the USA Is in Such Trouble

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One of my left wing friends lamented that the Mark Sanford debacle didn’t get enough media attention this week. Sanford is a Republican family values governor who hypocritically had a torrid long term affair with an Argentina "firecracker," then likened himself to the biblical King David.

Farrah Fawcett (an actress who fought a courageous battle against cancer) and Michael Jackson (music icon with some strange behaviors) died and they sucked up all the news coverage. He wanted the Republican toasting to be the story of the week. All these events were secondary.

There was one big headline last week and these three events will have far less impact on your life and especially those of your children. - The US House of Representatives for the first time passed a major climate and environmental bill. As a society we just don’t get what’s important. That’s why this country is in such trouble.

There are 4 reasons why climate/environment legislation is so important, but today let’s deal with reason #1

Global Warming and The World Is Flat Society

In every society there are the flat worlders who for some reason (mostly self interest or emotionalism) want the opposite to be true. Example: Smoking doesn’t cause cancer or the CIA orchestrated the 911 attacks. Usually you will find a mix of these two groups in Flat Worlders – one that makes a profit and the other, close minded followers.

If you search through any relatively unbiased media source like Wikipedia you’ll find that "the Scientific community has reached consenus that global warming is man made" and "Since 2007 no scientific body of national or international standing has maintained a dissenting opinion." Link

Unfortunately, American culture is locked in the here and now of the Stanford of Jackson stories. Just like  smoking causing  cancer,  global warming will not kill me now and Stanford and Jackson sell.

Nobel prize winner Paul Krugman puts it bluntly -  those who think global warming is a hoax are committing "Treason against the planet" Unfortunately there are Republican members of the Flat World Society who voted against this legislation because hey believe global warming is a "hoax."

Research, the latest from MIT , (an evil scientific institution that the World is Flat Society hates and ignores) are seeing an even more rapid deterioration than expected. There are imperfections in the climate change legislation, but to vote against it because you think science is a "hoax" puts you in The World is Flat Society.

Reasons 2,3 & 4 tomorrow & apologies to Tom Friedman who has a totally different meaning in his book The World is Flat.

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals & Fundamentals

Big spike higher in NASDQ volume. Other major indexes up, but below average. NASDQ spiked probably due to rebalancing of the Russell 2000. So, no real help from volume in making a prediction.

Big events of the week

• Madoff Monday – The financier gets sentenced
• Consumer Confidence Numbers on Tuesday.
• Gov’t employment numbers come out Friday (Market closed on Friday)

Significant forecasting tools/Indexes for stock markets

Note - Repeated statements in brown. Added the VIX back as a prediction tool.

BDI - The Baltic Dry Index measures the flow of goods (world trade). You have to get out of the box and stop thinking just of the USA. This is a worldwide integrated economic planet and this Index is perhaps the best forecasting tool. If trade is diminishing through out the world then a worldwide recovery is in big trouble.

Look at the chart. (Click on the blue BDI above) You can adjust it from 5 years to one day.  You’ll see what looks like a recovery. Friday the BDI was flat and its started to trade in a range. This is better than the bearish fall over the previous four days. Right now the long term momentum is bullish and short term neutral

$USD - The Dollar fell-0.72% yesterday. Any move over 0.50 is significant. The strong inverse correlation between the dollar and stocks has existed for many moons.

Long term momentum for dollar is bearish. Short term  mo is neutral, but we are closer to a bottom side breakdown than an upside breakout. Any breakout or breakdown would be significant.

VIX – Measures Volatility in S&P 500. Notice this chart is in almost a straight line down.  The less volatility means the better investors are feeling.  This is clearly a long term bullish indicator .

Reading the Tea Leaves

Last weeks  fearless forecast – Another down to flat week. All indexes except the NASDQ were slightly down. NASDQ rose 0.6% .

This weeks fearless forecast – A rally, but one that does not get to new highs. Volume, the #1 forecasting tool, is not cooperating.   Its hard to have confidence in the prediction because volume is not confirming the price move. Secondary indicators are more positive than negative.

Our Positions

Let’s take the 5% loss on SDS and sell it. SDS was bought as protection against a big downside move. For Mid Year Results see last Thursday’s Post.

Our Hedge (SDS & QLD ) is starting to work.

Our other new position IFN (India) is also off to a good start.

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Since Health Care  is clearly part of the long term structural economic problems of the USA and 3 of the last 5 comments on the blog have been about heath care (see/click on right hand side of blog for your comments) today’s focus is health care.  But first one of the best adds ever happened to be recently contained in the Atlanta Journal’s personal section –  

Deer in the Headlight

Remember the Deer in the headlight warning two weeks ago ? We’ve gone over the short term problems that have caused the “Great Recession” But the deeper long term problems also need to be addressed  You can LINK to Part  One here

__________

Long Term Structural Problem 

(part 2)

What Made us Strong

Back after WW 2 President Eisenhower (from Wikipedia) led a major stimulus program that transformed Americans. He continued FDR’s New Deal programs, He massively expanded Health Education and Welfare departments, created a Interstate highway system, developed a GI bill to help returning vets own homes, and  the civil rights movement began.  Economically, only one member of a household usually worked, and a fortunate America whose infrastructure was not devastated by war flourished.

__________

The Decline

What happened is that the rich grew richer and the working class lost in its struggle to catch up and stay solvent.  Wages got hit in the 70’s “by a double whammy of globalization and technology.” Women went to work to keep up with the Jones. But this was not enough. In the 80’s to fix an over reliance on welfare we changed to a tax and government system that rewarded the wealthy and began to strip away the very regulations that were put in place to prevent the Great Depression.

_________

The Fall

The rich got richer. Other industrial countries provided health care for their citizens that not only helped their economic status and health, but gave their businesses a competitive advantage over ours who had to pay for health care. Both members of families struggled and were encouraged to go further into debt (credit card, college, mortgages etc) just to hold on.  The bubble burst with the fall of housing prices and the over leveraged greed of financial companies. Debt expoded.

__________

Solutions

All this reveals the fundamental economic flaws of the economy and the huge gap between the rich and the working classes of out economy.  While Obama has made some mistakes, he has fundamentally and structurally set us back on the correct path. Economist and former Labor Sec. Robert Reich has an excellent editorial on this The following and an above quote ate from his piece -

we have “failed to address — widening inequality, sagging median incomes, a broken healthcare system, crumbling infrastructure and global warming — are that much larger now, making the current crisis all the worse.”

__________

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!

Stocks

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Technicals & Fundamentals

Friday markets consolidated after Thursday’s big fall. (Sorry could not clearly read volume chart on Dow)  Last week saw a massive 6 to 8% drop on the major US indexes and lots of bigger falls abroad.  You’s think, because markets are sooooooo over sold hat technically we would have a least a small bounce higher.

Let’s take a look at perhaps the best two indicators of a bottom in a bear market – The VIX and the Put/Call ratio.

From Yesterday  - “The VIX (today’s quote) is out measure of fear for the benchmark S&P 500. Back in November it peaked at @90 interday and 81.48 as a closing high. it  need real fear to wash out nervous investors and  50 is a long way from 80.  Translation, the VIX is usually a reliable indicator in bear markets = More downside to follow.” Friday the VIX closed down 1.67 to 49.33.  Translation – The level of fear is not as nearly as great as it was in November when markets rallied for a few months.

The Put/Call ratio chart This is one difficult chart to understand.  But the bottom line is watch the close when it gets above 1.00 it shows as many traders are betting the market will go down than up.  This is usually considered by many analysts as the point where markets turn or a point when too many folks are throwing in the towel and you can get some quick rallies as traders rush to cover shorts. So focus on the closing number.  We are close to that level at 0.87.  But a sustainable Put/Call above 1.00 usually means a reversal.

The VIX is a bit better indicator because it focuses longer term.

Long Term Outlook = BEARS RULE

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

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

Turkey’s of the Year (Decade?)

This elicited a whole bunch of email responses from you – Thanks for the email. More economic TURKEY’S OF THE DECADE – from you

1. Most mentioned – 911 "Bush was caught with his pants down and stocks went up in flames."
2. The housing bubble
3. The internet bubble
4. The growing gap between rich and poor
5. Katrina’s "economic and human devastation"
6. Bailouts – "The $6 trillion amounts to $24,000 for every citizen" (bailouts = tax dollars, sovereign wealth funds, takeovers, mergers, & biggest – Fed printing $)
7. Trying to privatize Social Security and not fixing other future unfunded mandates.
8. Alan Greenspan and the Fed

Bailouts and Stimulus

Many of you are extremely frustrated at the way government and the Fed is dishing out the dough. – You should be – We failed to properly regulate the credit system and now we and our children will be paying for it.

First it is important to remember that the Fed is NOT a government agency, but a group of banks that work with the government .

The main rational behind these bailouts and stimulus packages is at the start of the Great Depression President Herbert Hoover did nothing and banks collapsed left and right. This and the lack of stimulus caused/intensified the Great Depression. Roosevelt took many actions that diminished the Great Depression and the ultimate public works/jobs program – WW 2 ended the Great Depression. The Bush and Obama administration are trying to prevent another Great Depression.

Not All Stimulus Packages Have the Same Impact.

1. Tax Cuts – Across the board tax cuts obviously benefit the wealthy more than everyone else (see countless past Updates). They do have a positive impact – the middle class goes out and spends the tax cut money and that stimulates the economy. During war you are supposed to increase taxes. During good economic times you are supposed to decrease deficits.
2. Rebate Checks – This is a one time tax cut and has the same stimulative impact. Great positive impact for politician who voted to give you money.
3. A Jobs Based Stimulus Program – Hopefully, Obama Stimulus Package – This is as close as you get to consensus among Economists.

According to a Univ.of MD. prof on ABC when you give a taxpayer cash he/she goes out and spends it and stimulates the economy. Not always the case with wealth individuals, but this economist put the true value of money given by the government at $125 for every $100 given. However, if you create a job, the true value of the same $100 dollars given becomes $325. – The worker builds a bridge and it has a much larger ripple effect from subcontractors getting payed, commodities being used to the fact that transportation flows better over the new bridge.

Economists might differ on the figure, but JOB creation is far more important economically than giving you your tax dollars. A second factor in this – unemployment compensation and lack of tax revenue from a jobless person. This increases the burden on those who hold jobs/pay taxes. Example auto makers and related industries loose their jobs it ends up costing you $200 billion in unemployment compensation, aid to the states involved & lost tax revenue. (see past Updates.)

(More to come on this)

Note #1 – The big downside of all stimulus and bailout plans is it adds to the deficit and/or long term inflation.

Note #2 – The only entity betting on America is YOU (the government/taxpayer) – If this all works we actually make money on all these loans. We need luck, new paradigms, new regulations, and enough people to believe Obama can walk on water to pull it off.

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Happy Thanksgiving!

Index % Change Volume

Dow +0.43% down
NASDQ -0.50% down
S&P500 +0.66% down
Russell2000 +1.46% –

US Market & Foreign Markets

Technicals

US markets held onto their huge gains of the previous days yesterday and the benchmark Dow inched forward. Holding onto gains is a technical bullish sign.

Technically the volume behind the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9337 is the next. 9654 is the major resistance level (see chart of Dow below) There is also a technical resistance level at around 8550 to 8600. This is the midpoint between the last high and low of the Dow. If you want to learn more about this 50% technical retracement theory (Fibonacci retracement ) being a resistance level.

What resistance levels are barriers that hinder the movement of prices going higher. They are called support levels as prices move down.

What needs to happen is for us to break the series of lower highs and lower lows that began over a year ago. Dow 9654 is that line in the sand.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Jobs data is going to get worse and this in the short and long term will drag markets down. This economic downturn is going to get worse before it gets better.

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. The credit spreads are tightening and LIBOR has fallen from 4.8% a four weeks+ ago to @2 .20. LIBOR inched higher yesterday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses.

The 3MTB fell from 0.13% yesterday and closed at a rate of 0.10% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is still dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart) It eased a bit last two days

3 MTB chart

LIBOR chart (3 month)

New added spread sheet listing all the Treasury bonds traders of last 15 days. This gives a broader picture of the panic or lack of panic over US financial systems. This We will use the 3 MTB as a benchmark, but notice the 1 month MTB is down to 0.04% Not good.

Daily Treasury Yield Curve

Bottom Line – LIBOR (Interbank lending rate) falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. But by no means is credit back to normal.

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

Reading the Tea Leaves – italics = same comments as yesterday

Overall strategy remains in place – buy big dips, sell of short into major rallies. The current two day rally, while impressive has a ways to go before reaching a major resistance level (see above) The rally has a strong base (big volume) to build on.

Remember, more often than not new lows are tested

Short term – We are nearing the midway point of the technical trading range and this is often a resistance area. We do have at least a bear market rally that seems to be based on a more competent administration solving the greatest financial crisis since the Great Depression.

Best guess – Rally looks to have legs to take out some minor resistance levels.

Long term – Bears Rule Trend is still firmly in place. When it looks like the sky is falling nibble a little. Even if you think Obama can walk on water this is one hell of a mess and there is NO quick fix.

The established technical trend is Bears Rule – A long term series of lower lows (in price) and lower highs. Until this pattern is broken, Shorting (See ETF’s suggested below) as markets get closer to old highs is recommended.

NB – Will be adding GLD (gold) on dips to recommended sector. (More Later) Technically its chart has broken out of a trading pattern and fundamentally investors are thinking of it as a hedge against inflation. Market Updates held GLD for years and its time to bring it back.

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

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) is far far far far far far far far far bigger than anyone thought.

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s beginning to looks like the recession might 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 – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY.

*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
FXI (China ETF)

*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 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 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

Turkey’s of the Year (Decade?)

In honor of the upcoming Thanksgiving holiday – there have been two major blunders that easily qualify for Turkey of the year and also could make it into the top five economic blunders of the decade.

1. Failure to Bailout Lehman Brothers – This spread $365 billion dollars of toxic debt (credit default swaps) throughout the world and shook financial markets to the core.
2. The Paulson Bit and Switch – We were told that the financial system would meltdown unless we spent $750 billion to take "toxic debt" out of the financial system. Instead the money was used to bailout financial companies History will tell if this was the right move. However bait and switch destroyed any credibility that investors had that the Treasury and the Fed knew what they were doing or had some sort of coherent long term plan.

Three major economic blunders of the last decade do overshadow this.

1. The massive growth of the unregulated and over leveraged credit in the USA
2. The huge growth of Federal and trade deficits.
3. An unnecessary "for profit" (Iraq) war that will end up costing tax payers $3 trillion dollars.

Citigroup’s Second Bailout

Obviously, some sort of bailout was needed or else the mother of all financial company’s meltdown would have caused financial markets across the world crash and burn. You (your tax dollar) have again bailed out and international company. Remaining questions:

1. Citi still has an unknown and huge amount of over leveraged debt. Will they need another bailout?
2. What other major banks and companies that traded CDS’s will need bailouts.
3. Where is the transparency? Where’s the plan that this failed company is going to have for the future?
4. Why did Warren Buffett get a better deal than US taxpayers?

Some decent editorials with more positives and negatives -
Another Crisis, Another Guarantee NYT
Citigroup Flop Exposes Folly of Empire- Building Bloomberg
Thumbs Up For Citigroup Bailout WSJ

Stocks

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Headline – Obama Rally

Index % Change Volume

Dow +4.93% down
NASDQ +6.33% down
S&P500 +6.47% down
Russell2000 +7.44%–

US Market & Foreign Markets

Technicals

As predicted. the Dow support levels fell and all major US markets made a lower lows last week. (see charts) We have had a very significant two day "Obama" rebound The two day rally has had strong volume behind it. Therefore volume confirmed the move higher and we could see the rally get extended.

Technically the volume behind the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9337 is the next. 9654 is the major resistance level (see chart of Dow below)

What needs to happen is for us to break the series of lower highs and lower lows that began over a year ago. Dow 9654 is that line in the sand.

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

Fundamentals

- Obama rally – In the last 1/2 hour of Friday US markets staged a major rally on the news that NY Fed Chair Tim Geithner would become Treasury Secretary. News that Obama’s news stimulus package would be bigger than expected, the announcement of his economic team, and another bailout for Citigroup added fuel to the rally.

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. The credit spreads are tightening and LIBOR has fallen from 4.8% a four weeks+ ago to @2 .17. LIBOR inched down yesterday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses.

The 3MTB bounced back some from 0.02% yesterday and closed at a rate of 0.13% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is still dismal.

Sure looks like PANIC has returned to the credit markets again (check out chart) It eased a bit last two days

3 MTB chart

LIBOR chart (3 month)

New added spread sheet listing all the Treasury bonds traders of last 15 days. This gives a broader picture of the panic or lack of panic over US financial systems. This We will use the 3 MTB as a benchmark, but notice the 1 month MTB is down to 0.01% Not good.

Daily Treasury Yield Curve

Bottom Line – LIBOR falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. But by no means is credit back to normal.

OIL

Chart of oil (WTIC)

The Dollar

Chart of Dollar

The VIX

The VIX (measures amount of fear/volatility in S&P) .

Chart of VIX

Short Term Outlook

Reading the Tea Leaves – From last update – "Perhaps this week, maybe next week, maybe later but the major Dow support levels (8000 or 7800) are in trouble" The support levels did fall last week to 7449

Dow rebounded inhuge rally. Dow at 8443 – a little less that 1/2 way back toward the major resistance level at @ 9650 We have a another 500 points on the upside before we reach the first resistance level.

Overall strategy remains in place – buy big dips, sell of short into major rallies. The current two day rally, while impressive has a ways to go before reaching a resistance level (see above) The rally has a strong base (big volume) to build on. Remember, more often than not new lows are tested

Short term – We are nearing the midway point of the technical trading range and this is often a resistance area. We do have at least a bear market rally that seems to be based on a more competent administration solving the greatest financial crisis since the Great Depression.

Best guess – Rally looks to have legs to take out some minor resistance levels.

Long term – Bears Rule Trend is still firmly in place. When it looks like the sky is falling nibble a little. Even if you think Obama can walk on water this is one hell of a mess and there is NO quick fix.

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

Reading tea leaves – Look for range between 7449 and 9654 for rest of year.

Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) is far far far far far far far far far bigger than anyone thought. New worldwide rescue plan offers hope, but this rally is going to be a bumpy ride because retail investors trust has been shaken. Hopes of a more competent Obama administration have rallied stocks.

We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s beginning to look like the recession might last through 2009 – perhaps longer

Asset Allocation/Recommended Sectors (long term)

50% to 90% Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY.

*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)

*10%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
FXI (China ETF)

*5%+ Alternative Energy
GEX(Alternative energy ETF) (If Obama wins you will see this sector flourish)

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 8,000 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 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 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