What’s Up? – David Patraeus on torture and Gitmo – The Supremes sing in Spanish – Californification, Is the Golden State falling into the sea? Will the US join them – Women’s historic win in the Islamic state of Kuwait – Fearless market forecast.

Petraeus – Huffington Post photo

Torture

• Obama says – torture bad – closing Gitmo good – Right wing says NO
• McCain says the same thing – Right wing says NO
• Powell says same thing – Right wing says NO
• Admiral Mullin (chair joint of staff & a Bush appointment) says the same - Right wing says NO
• Sec. of Defense Gates says the same (another Bush appointee) says the same - Right wing says NO
• Now the hero of the right wing General Petraeus says Obama is right – what will Cheney, Limbaugh and the rest of the right wing now say  about torture and closing Guantanamo Bay?

Californification

California is up to its neck in quicksand. Its one of the leading states in foreclosures and unemployment. Will the US follow California? Previous posts over the years have brought up California’s two major problems

• Proposition 13 - This state taxes property at what you payed for it. So for example if you payed $50,000 for a property 30 years ago and it is now worth $1,000,000, you pay only a tax on$50,000. Someone who buys property now pays today pays a whole lot more – This has lead to a serious short fall in revenues.
• You need a 2/3 vote in the legislature to make any serious changes in tax structure.

In the USA we too have self interested people who want to pay almost no taxes & have to overcome a 60% filibuster in the Senate to make any serious tax changes.  Not as bad as California, but still a problem.

Want to learn more – See Nobel Prize winner Paul Krugman’s editorial California - A State of Paralysis. 

Sotomayor – AP Photo

Supremes

Front page of every newspaper – An “inspired” (obviously others might disagree) choice for the Supreme Court – Sonia Sotomayor. – - Impressive legal background, compelling life story, first Hispanic ever nominated to Supreme court. For more see NYT editorial

Aseel al-Awadhi photo – Boston Globe

Women in Kuwait

4 of the recently elected 50 members of parliament in Kuwait are now women. This begins to breaks the mold of how women are treated in Muslim countries and a first for the Gulf States. This is truly a historic move

STOCKS

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

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Technicals & Fundamentals 

Forecasting what markets will do is all about how potential investors feel about the  fundamental aspects of stocks and the economy. Technicals (looking at chart patterns) gives us some idea of where the traffic signals are. It all about predicting attitude.

Yesterday the US stock markets exploded higher as volume rose. However volume was below average and below the down days of both Wed. & Thur. of  last week. While the price move is encouraging and explosive, what natural for a sustained rally is increasing above average volume. This show buyers or potential investors are not moving back into stocks.

Yesterday is certainly not a bad day and it may be the start of another leg higher. However for right now it is a move from near the bottom of the consolidation pattern we’ve been in for the last three + weeks to near the top. Therefore, no big green light till volume confirms a breakout.

One interesting pattern is developing – The first trading day of each week recently shown a  a significant move higher and the rest of the week has given up those gains.

Good consumer confidence numbers were said to be the fundamental behind the market move. Never seen consumer confidence boost the markets this much. Very suspicious over lack of volume.

News this AM – GM bondholders say no and it looks like GM will go into bankruptcy.

XLF - The ETF that tracks financials (mostly shadow banks ) rose +3.26% . This index closed at 12.04. As stated in past updates for the last 3 weeks financials have been trading between @ 13+ and @11+ (more specifically support at 11.33 and resistance at 13.08) Any close above or below these support of resistance levels would turn confirm a longer term trend for bull or bears.

WTIC - Oil prices again closed over their $60 support level +1.26% at $62.45. Energy related stocks kept the rest of the US markets from loosing more ground. As stated before – Higher oil prices are an indication of economic recovery, but also hurt that recovery because it means energy prices will rise.

Reading The Tea Leaves - Yesterday we moved up within the consolidation range. (see above or chart of SPX) There has yet to be any breakout in any US or world indexes.(except Brazil) The formerly leading Financials (shadow banks) are now a bit behind the major US indexes. The NASDQ (techs) seems in the lead.

Positions - (See positions section of blog for more)

•  EWZ - sure looks like it was a mistake to take our substantial profits (+26) in Brazil (EWZ) Brazil reached a new closing high yesterday. As stated Thursday looking for a dip (-5 to 10%) to get back in.
• Inflation – GLD (gold) is one of the hedges against inflation. As recommended last week I was able to add to this position as about $93. We sold some gold at $95 earlier this year. 
• There are ETF’s that also will move higher if/when inflation occurs. Considering TBT  (explanation later this week), but is has way too high a price right now.
• FXI – our major position here only rose +1.24% yesterday due to the proximity of China to the nuclear test in North Korea. 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING !

Let’s ignore the media and its crisis of the day.  Let’s focus on the reality of what happening or the major trend being established.  History  is repeating itself. You lean the lesson or you’re doomed to commit the same mistake again and again and ….  Simon Johnson, MIT prof and former chief economist at IMF  on history repeating itself - “The Quiet Coup”

Simon Johnson

History Repeats Itself

“The Quiet Coup” in the current issue of the Atlantic magazine demonstrates that we have seen the same kind of financial crisis happening over and over again. Let’s look deeper into Johnson’s editorial.

There is a coup. A  oligarchy takes over. They enrich themselves by plunging the country further into debt and what ends up is a explosive revolution or an outside entity – The IMF (International Monetary Fund) for which Johnson was the chief economist intervened to fix the problem.

The same thing has happened here. From 1975 to 1983, he points out that financials made up “16% of domestic corporate profits” and it rose “41%” in the USA.  As this financial oligarchy grew in power, it bought most major politicians from Republican  Senator Phil Graham who wrote the original deregulate the shadow finance industry in 98 to Democrat Chris Dodd who inserted bonuses for AIG executives today.

Perhaps there was a hidden conspiracy, perhaps it was pure greed, perhaps it was arrogant stupidity and perhaps some combination of the three.  What matters more than the cause is the solution. For the IMF the solution that worked was to break the oligarchy, temporarily nationalize the banks, insert regulations, turn shadow banks into much smaller institutions, spread the wealth and then allow smaller capitalist banks/ industries to grow. Tough medicine.

Right now in the USA the shadow institutions – corporate giants (example- GE), Shadow banks (Citigroup), Insurance Companies (AIG) & Former Financials (Morgan Stanley)- the oligarchy – is fighting any change. Their mantra is the world will fall apart if you don’t allow us exist and work in the shadows.

The Bottom Line - The oligarchy needs to be broken, these shadow industries need be separated, no company should be too big to fail, and regulations imposed.  All of this is going to hurt Wall Street in the short term and hurt our economy. But the IMF has shown in the long run it can and has worked. 

If your interested in the best primer out there of the financial meltdown that is going to significantly impact almost everything YOU do over the next few decades see Johnson’s The Baseline Scenario’s Financial Crisis for Beginners outline and explanation

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

STOCKS

Technicals & Fundamentals

Major rally sparked by increased profits of major shadow bank Wells Fargo announcing much better than expected profits. Volume again confirmed the rally over all major US and most world stock markets.

XLF - The ETF that tracks financials (mostly shadow banks) rose +15.54% in increased, well above average volume. Volume, therefore, confirmed the move higher.  Also significant was the fact that XLF broke out of a three week long consolidation pattern.  - Investors411 has predicted an upside move out of consolidation  for weeks

Baltic Dry Index – broke its 21 day streak of moving lower and actually gained 1%. Stabilization here is good news.  The downward slope was an ominous sign, but it looks like this measurement of world trade has stabilized for now. Good news for bulls. (see chart at side of blog) Since this has 

Technical Outlook – After a major rally what bulls want for a minimum is for volume to decrease and markets to hold onto over 50% of gains. Obviously preferable would be another rally day in big volume.

• For traders Friday and this rally is mana from heaven. 
• For long term investors this rally a “suckers” rally.

More on this later. 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING!