Time for a Reversal!!!!!

It’s is interesting to notice the Chinese market is up 25% for the year while our markets are nearly down that much as both countries have huge stimulus packages. The pessimism in our country is at levels not seen since the 1973-4 recession. Can our markets get past the first 100 days of the Obama Administration without losing another 50%? The market will bottom this week. Dow 7145, Comp 1398 and SPX 741 will hold on a closing basis or may slightly be violated (3-5%). Next support is DOW 6,000 level, COMP 1295 and SPX 682. The ensuing rally could be up between 30-50% depending on the shorting and negativism at the higher levels. Longer term the market and our economic system are heading toward a disaster.

Our government wants to raise the value of housing in order to save the major asset of the people. Unfortunately in the long run housing could bring down the whole system if the government tries to manipulate it. Lower housing prices in free markets bring in new buyers that couldn’t afford the high prices. Higher housing prices forced by the government subsidies will keep housing prices stagnate for decades. It will cause the younger generation’s entry into a house harder to obtain. Even with lower house prices the affordability index is still 20-30% above its norm. As with most markets they tend to overshoot and undershoot when they crash. Housing will be no different.

There will be many stocks that go from $3 or $4 to $10-12 in the coming 3-5 months. It’s not saying much as they have come from the $30-$50 level. What makes me so bullish is not what’s happened but what’s going to happen in the coming months. The cost of money is zero to negative adjusted for inflation. Trillions of dollars around the world will hit the streets in the next few months. I wouldn’t be surprised to see the government buy S&P futures although they will never state they did buy or sell. The drop in oil prices will help stimulate the economy. The stock market looks forward not backward. Once the money grab peaks later in the year the realization of whom and how are we going to pay for it will mark the next leg of the secular bear market. The government will talk about fiscal responsibility on one side of their mouth while signing the check with the other. For now enjoy the rally. The old rule of never fight the FED still exists until proven otherwise. Look out your window not for Santa Claus, but Helicopter Ben Bernanke sending your tax dollars and future tax dollars floating in the air. The piñata has been broken in Washington. Just be careful with the person holding the bat.

This rally will be broad based. Stick with ETF’s or a basket of 9-12 stocks. Keep your stops 15% below the market. Insurers will bounce back sharply as their balance sheet is full of financial assets. Retailers, healthcare, materials and infrastructure stocks should outperform.