Here Comes the Helicopters
Tomorrow the Federal Reserve will probably change its wording to include that they will do everything possible to avoid any deflation or slowing of the economy. With rates at almost zero it seems the FED has nothing left in the cards? No, they can print MORE money and buy everything in site with the money they print. They have been buying mortgages, treasuries and probably S&P’s futures (but this will never be confirmed) over the past few years as their balance sheet has swelled by just a trillion. Helicopter Ben is in his final panic mode that will send the markets reeling just like Japan did in the 1990’s. Our government is trying to artificially prop up the financial markets, housing while keeping interest rates too low. The move to keep the “no failure policy” alive any longer will just cause more problems down the road. Just as a forest fire rejuvenates the forest to grow stronger a recession does the same to the economy in the long run. Bankruptcies and restructuring of the balance sheets is the outcome from economic forest fires.
The question will be can the FED’s “free money” jump start the economy? Just look at the long term results for” cash for clunkers” and the “housing tax credit” for some answers as to whether these programs helped long term growth. The public sector is in save and pay back debt mode and doesn’t want to get extended anymore with credit assuming they can get credit as the banks already have enough loans under water. During the past 12-15 months our government took over the spending and now is looking at ways to pay for it. With the private sector tapped out and the government in spend mode and feeling the heat from doing another stimulus the next step will be an economic slow down and even double dip. Taxes at ALL incomes are going UP period in 2011. Everything will be done prior to the November elections to mask the economic weakness.
Since the last update July 5th the market has roared past the 10,250 level toward 10,720. Right now it’s the dog days of August with very thin markets. The DJIA could easily make a double top at the 11.200 level. However the next big move will be lower and will be a sharp wake up call. The time frame for this important top to occur is within the next month probably next 2-3 weeks. The bear will re-emerge in earnest in the fall. The “extend and pretend” era is still running strong. As for the government buying everything in sight and keep our stock and bond markets rallying just look at Japan and see what their results were in the 1990’s.
Let’s think about the current environment for savers. Savers aren’t getting any return but have returned into saving rather than spent. This is telling us something. Consumers aren’t spending like they have the past 20 years. Their trend of being net spenders has faded and this by itself is a big game changer. The problem with the equation is government. The public can be net savers but if government spends like they have causing trillions in deficits in essence sooner or later will be paid by the US taxpayer. On one hand the American people are doing the right thing in saving but on the other their savings will be destroyed by our government spending and the weakness in the dollar. The balance between the public and private sector is out of line. Today’s profits will be taxed away tomorrow.
What can be done on the bullish case for stocks? Basically change everything opposite of today’s current economic environment- Higher interest rates, lower taxes, privatize some government programs and address the immigration issues. As with most Chicago politicians the issue isn’t why they get caught but when. Hopefully November brings change on both ends. Get rid of them all without any party bias. Then the markets will rally like in1982 and a new bull market will begin.
Monday, August 9, 2010
Monday, July 5, 2010
The Economy and Market mid- Year 2010 – Insights
The Economy and Market mid- Year 2010 – Insights
As the 2nd quarter comes to a close in a horrific manner one wonders what’s next. The year started out rocky in the month of January after seeing 6 consecutive monthly positive closes on the Dow Industrials. This correction only lasted into early February when the market resumed its track upward for 8 consecutive weeks. It seemed that nothing could halt the upward march as the DOW moved up 28 out of 34 trading days. During this span there were 3 occasions of at least 6 consecutive up days in a row. Then on April 26th the DOW topped out at 11,258 without any fanfare. It just seemed to go higher everyday for 2 months until it didn’t. As stated in the March 30th blog “The current rally probably can make marginal new highs into April or May with DOW resistance as follows – 10,960 then 11,032, 11,080 then 11,131 being the top level. If we close above 11,150 then 11,500-11,600 come into play. On the downside support is 10,550 then 10,250 followed by 10,183 then 9850. The first drop from the areas mentioned above should stop around 10,200 level before a bounce that would take the market NOT to new highs. The failed rally would send the market down to below the previous lows. It is from this point where a crash would be highly probably. In short, a top within the next two months at the 11,100 level followed by a decline to 10,250 which then would rally maybe back to 10,550-10,800 and from here another decline to retest the previous lows. The lows fail to hold and a crash ensues.”
From the April top the market dropped to 10,241 (not counting the flash crash) and spear-headed back to the 10,900 level before taking out the 10,241 low and failing below our 9850 crash “ALERT” level. The market has had its first 7 consecutive down days this year (and counting) last week. Expect the current decline into the 20% correction level where the question would remain is it just a correction or resumption of the cyclical bear market? There could easily be a sharp rally from the 9000-9100 level which is expected to be the “summer rally” but 8200 and lower is expected as the market heads into the second half of the year. Under 8200 is an air pocket to DOW 7364. A close above 10,250 would take me back to the table, but all the ingredients for a continued move lower remains until all the excesses from all the credit expansion (free money) and company failures are rung out of the system. In short a cleansing process which the strong survive and the weak FINALLY go out of business. Our government has done a good job so far of avoiding the latter but it will finally happen over the next few years.
This process of weeding out the losers will accelerate once it starts. The markets will anticipate the process and will turn months before the bottom in closures. There have been weekly local bank closures that have accelerated over the past year. Problem is the Fannie and Freddie bailout will far outpace the community bank’s losses. The credit bubble took 20 years of free money where each step down rates made a lower low. Now with rates near zero there is no lower low left. We have already started to correct the excesses over the past few years but it will take a powerful whiff of inflation to reduce the credit impact. Our government has been trying like mad to get home prices to rise. It hasn’t happened nor will it until the credit bubble washes itself out.
Gold dropped $50 in one day this past week. Everyone loves gold and now with deflation accelerating gold will have a sharp 30-40% correction over the next 6-18 months. As with most commodities when they drop they drop fast meaning it could easily drop from $1200 to $900 in a matter of weeks. Most of the public is in gold from the $900 to 1,000 level. Gold will be in crash mode once it closes below $900. A move below $1050 would give way to $900 and eventually to the low $700’s. GLD is the 4th largest ETF with money pouring into it at an unsustainable pace. Experienced traders should short the GLD between $118-122 and use a $125.30 stop. As they say in the pits “it’s a crowded trade”. Just as oil dropped from $147 to $33 in seven months gold is now in the same boat. My $720 target might be too high as $500 is the more likely scenario.
Our economy had a 20 year credit boom followed by the bust in 2007 and is still correcting. The consumer is in frugal mode. In 2009 our government which has been expanding at a terrifying pace instilled a 700 billion dollar spending spree to pick up the slack. Most of the stimulus money will be spent by the end of the year. The upcoming rise in taxes for those that have a job along with the new taxes for the health care bill among others will keep a damper on our economic expansion. The biggest wild card in the next few years will be the deficit and how it will be handled. So far the bond auctions have been overall well received but this could change on a dime as both the public and private sector scramble for credit.
For now stay very nimble and gradually put money into the market as it falls over the next year. There are many indicators that put a high likelihood (75-80%) of 2010 being a down year.
The January indicator, years ending in zero and the presidential cycle are some of the indicators that portray a negative bias continuing. As long as the market is below 9850 a crash mode is in effect. Don’t forget it’s the return OF capital NOT the return ON capital that is the current golden rule. There are many stocks that went from $1 or $2 in March 2009 then rallied to $20-25 and now are cut in half over the past 2-3 months. They could easily retest $1-2 and the pain between here and there is tremendous. The markets are currently at a cusp of returning into its cyclical bear market which is in its 11th year. Some think it ended in March 2009 but once we break the 20% correction criteria the continuation of the cyclical bear market will be confirmed. It will be only a matter of time.
As the 2nd quarter comes to a close in a horrific manner one wonders what’s next. The year started out rocky in the month of January after seeing 6 consecutive monthly positive closes on the Dow Industrials. This correction only lasted into early February when the market resumed its track upward for 8 consecutive weeks. It seemed that nothing could halt the upward march as the DOW moved up 28 out of 34 trading days. During this span there were 3 occasions of at least 6 consecutive up days in a row. Then on April 26th the DOW topped out at 11,258 without any fanfare. It just seemed to go higher everyday for 2 months until it didn’t. As stated in the March 30th blog “The current rally probably can make marginal new highs into April or May with DOW resistance as follows – 10,960 then 11,032, 11,080 then 11,131 being the top level. If we close above 11,150 then 11,500-11,600 come into play. On the downside support is 10,550 then 10,250 followed by 10,183 then 9850. The first drop from the areas mentioned above should stop around 10,200 level before a bounce that would take the market NOT to new highs. The failed rally would send the market down to below the previous lows. It is from this point where a crash would be highly probably. In short, a top within the next two months at the 11,100 level followed by a decline to 10,250 which then would rally maybe back to 10,550-10,800 and from here another decline to retest the previous lows. The lows fail to hold and a crash ensues.”
From the April top the market dropped to 10,241 (not counting the flash crash) and spear-headed back to the 10,900 level before taking out the 10,241 low and failing below our 9850 crash “ALERT” level. The market has had its first 7 consecutive down days this year (and counting) last week. Expect the current decline into the 20% correction level where the question would remain is it just a correction or resumption of the cyclical bear market? There could easily be a sharp rally from the 9000-9100 level which is expected to be the “summer rally” but 8200 and lower is expected as the market heads into the second half of the year. Under 8200 is an air pocket to DOW 7364. A close above 10,250 would take me back to the table, but all the ingredients for a continued move lower remains until all the excesses from all the credit expansion (free money) and company failures are rung out of the system. In short a cleansing process which the strong survive and the weak FINALLY go out of business. Our government has done a good job so far of avoiding the latter but it will finally happen over the next few years.
This process of weeding out the losers will accelerate once it starts. The markets will anticipate the process and will turn months before the bottom in closures. There have been weekly local bank closures that have accelerated over the past year. Problem is the Fannie and Freddie bailout will far outpace the community bank’s losses. The credit bubble took 20 years of free money where each step down rates made a lower low. Now with rates near zero there is no lower low left. We have already started to correct the excesses over the past few years but it will take a powerful whiff of inflation to reduce the credit impact. Our government has been trying like mad to get home prices to rise. It hasn’t happened nor will it until the credit bubble washes itself out.
Gold dropped $50 in one day this past week. Everyone loves gold and now with deflation accelerating gold will have a sharp 30-40% correction over the next 6-18 months. As with most commodities when they drop they drop fast meaning it could easily drop from $1200 to $900 in a matter of weeks. Most of the public is in gold from the $900 to 1,000 level. Gold will be in crash mode once it closes below $900. A move below $1050 would give way to $900 and eventually to the low $700’s. GLD is the 4th largest ETF with money pouring into it at an unsustainable pace. Experienced traders should short the GLD between $118-122 and use a $125.30 stop. As they say in the pits “it’s a crowded trade”. Just as oil dropped from $147 to $33 in seven months gold is now in the same boat. My $720 target might be too high as $500 is the more likely scenario.
Our economy had a 20 year credit boom followed by the bust in 2007 and is still correcting. The consumer is in frugal mode. In 2009 our government which has been expanding at a terrifying pace instilled a 700 billion dollar spending spree to pick up the slack. Most of the stimulus money will be spent by the end of the year. The upcoming rise in taxes for those that have a job along with the new taxes for the health care bill among others will keep a damper on our economic expansion. The biggest wild card in the next few years will be the deficit and how it will be handled. So far the bond auctions have been overall well received but this could change on a dime as both the public and private sector scramble for credit.
For now stay very nimble and gradually put money into the market as it falls over the next year. There are many indicators that put a high likelihood (75-80%) of 2010 being a down year.
The January indicator, years ending in zero and the presidential cycle are some of the indicators that portray a negative bias continuing. As long as the market is below 9850 a crash mode is in effect. Don’t forget it’s the return OF capital NOT the return ON capital that is the current golden rule. There are many stocks that went from $1 or $2 in March 2009 then rallied to $20-25 and now are cut in half over the past 2-3 months. They could easily retest $1-2 and the pain between here and there is tremendous. The markets are currently at a cusp of returning into its cyclical bear market which is in its 11th year. Some think it ended in March 2009 but once we break the 20% correction criteria the continuation of the cyclical bear market will be confirmed. It will be only a matter of time.
Sunday, May 9, 2010
The next Step- Reality
The next Step- Reality
All the mirrors that were talked about in the past blogs are now taking form all over the world in ways that should cause major problems in the next 2-5 years but longer term will be deemed as a “best thing that ever happened” scenario. We don’t want to see the “pretend and extend” period last much longer. The protests in Greece will spread across Europe and eventually to the U.S. We see it now on the Arizona’s bill on immigration even though the AZ law is no different than the federal law. Arizonians see their state suffer from all the added costs associated with the free lunch that illegal’s get and want to enforce the federal law. Protests and lawlessness come from not only economic factors but also from social factors. As we have been stating in the past, “When your neighbor tells you he got a zero percent car loan, works 4 days weeks, got a home and student loan reduction as well as interest rate relief, a cost of living raise, free school lunches and health care that might send one over the edge”.
As for the market actions the past few weeks we have seen cracks starting to form. On April 14th the market dropped over 100 points then made a marginal high followed by a 200 drop April 27th. The following week volatility surged and the drop ensued. Then this past Thursday an earthquake in the financial markets sent the markets down over 950 points although the drop was NOT REAL. It was more like 550 points. There was a train wreck between computers and human actions.
There were a multiple set of events that contributed to the decline. First many traders had sell stops, second once certain technical levels were violated and selling intensified but the 3rd factor of program trading caused the air pocket. Most of the free fall were NYSE stocks that printed far below their previous trades on ECN’s that didn’t have any liquidity. NYSE specialists can hold their stocks for up to 90 seconds if they have a massive imbalance. Over 80% of NYSE stock’s volume traded on the NYSE exchange 10 years ago. Specialists would freeze a stock for up to 90 seconds then put a block up before resuming trading. If the specialists couldn't resume an orderly market they would halt the stock for 15 minutes. The problem is that the 80% market share has diminished to less than 30%. This left the other ECN’s to make markets but when they saw the NYSE hold some of their stocks, the other ECN’s either stopped making markets or dropped their bids. Program trades cancelled their NYSE orders and went to other ECN’s where there weren’t any bids near the previous trades. Over a 4 minute stretch the market moved down 500 DOW points thanks to some excessive stealing by some ECN’s. The biggest rip off was Accenture stock trading at a penny although that trade and many others were busted. The slower specialist system prevailed over computers gone wild.
The frenzy lasted only 4-5 minutes but the lawsuits will last for many years to come. It can happen again and will probably happen during the upcoming crash. Guess it proves that speed can hurt. Just as the 1998 Long Term Capital collapse caused markets all over the world to fall unless the current rules are changed the collapse of our stock market like 1987 where program trading was the main culprit will repeat itself. Long Term Capital thought they had all the correlations figured out and it worked for a while until it didn’t. And when it failed the professors were dumbfounded. They thought their system was infallible. Now we have more programs that not only work on speed but correlations that will work until they don’t.
There is a strong likelihood that the April highs will hold for the year and maybe many years to come. There are many stocks like the restaurant sector that have lost 20-30% in a matter of 2-3 weeks. Dow 10,250 level remains support even though it was broken because of bad “prints” this past Thursday followed by 10,183 then 9850. A crash will occur once 9850 is broken. After last weeks decline a bounce back to 10,750-10,823 is likely. If the DOW closes above 11,300 it would signal a move higher. With free money here and in Europe it could delay the crash from later this year to next year although this scenario is less likely as countries like China raise rates. China’s property values have risen ridiculously the past few years and their collapse could be the tsunami wave that hits the US. China has a glut of buildings and vacancies that make Dubai look good.
The market’s tide has changed from buy the dips to sell the rallies until the proof of closing above 11,300 occurs. The old saying of “sell in May and go away “should be valid this year especially in a second year of a president’s term. Technically the tremors have started and it’s only a matter of time before the bear train resumes. As we saw in the past week markets fall at a faster rate than they rise. Sectors leading the next wave down- restaurants, hotel, auto and auto parts, retail and housing along with banking and insurance sectors. The US consumer is done. Higher taxes and inflation are in Santa’s stocking. The bill is coming due and the manner which the government handles the payments will determine how far the shoe drops. DOW 5,000 in the next few years is not out of the question. Hopefully we stop the printing presses and save all the trees we need to pay our way out of debt. Currently it's difficult to see this scenario from becoming reality.
All the mirrors that were talked about in the past blogs are now taking form all over the world in ways that should cause major problems in the next 2-5 years but longer term will be deemed as a “best thing that ever happened” scenario. We don’t want to see the “pretend and extend” period last much longer. The protests in Greece will spread across Europe and eventually to the U.S. We see it now on the Arizona’s bill on immigration even though the AZ law is no different than the federal law. Arizonians see their state suffer from all the added costs associated with the free lunch that illegal’s get and want to enforce the federal law. Protests and lawlessness come from not only economic factors but also from social factors. As we have been stating in the past, “When your neighbor tells you he got a zero percent car loan, works 4 days weeks, got a home and student loan reduction as well as interest rate relief, a cost of living raise, free school lunches and health care that might send one over the edge”.
As for the market actions the past few weeks we have seen cracks starting to form. On April 14th the market dropped over 100 points then made a marginal high followed by a 200 drop April 27th. The following week volatility surged and the drop ensued. Then this past Thursday an earthquake in the financial markets sent the markets down over 950 points although the drop was NOT REAL. It was more like 550 points. There was a train wreck between computers and human actions.
There were a multiple set of events that contributed to the decline. First many traders had sell stops, second once certain technical levels were violated and selling intensified but the 3rd factor of program trading caused the air pocket. Most of the free fall were NYSE stocks that printed far below their previous trades on ECN’s that didn’t have any liquidity. NYSE specialists can hold their stocks for up to 90 seconds if they have a massive imbalance. Over 80% of NYSE stock’s volume traded on the NYSE exchange 10 years ago. Specialists would freeze a stock for up to 90 seconds then put a block up before resuming trading. If the specialists couldn't resume an orderly market they would halt the stock for 15 minutes. The problem is that the 80% market share has diminished to less than 30%. This left the other ECN’s to make markets but when they saw the NYSE hold some of their stocks, the other ECN’s either stopped making markets or dropped their bids. Program trades cancelled their NYSE orders and went to other ECN’s where there weren’t any bids near the previous trades. Over a 4 minute stretch the market moved down 500 DOW points thanks to some excessive stealing by some ECN’s. The biggest rip off was Accenture stock trading at a penny although that trade and many others were busted. The slower specialist system prevailed over computers gone wild.
The frenzy lasted only 4-5 minutes but the lawsuits will last for many years to come. It can happen again and will probably happen during the upcoming crash. Guess it proves that speed can hurt. Just as the 1998 Long Term Capital collapse caused markets all over the world to fall unless the current rules are changed the collapse of our stock market like 1987 where program trading was the main culprit will repeat itself. Long Term Capital thought they had all the correlations figured out and it worked for a while until it didn’t. And when it failed the professors were dumbfounded. They thought their system was infallible. Now we have more programs that not only work on speed but correlations that will work until they don’t.
There is a strong likelihood that the April highs will hold for the year and maybe many years to come. There are many stocks like the restaurant sector that have lost 20-30% in a matter of 2-3 weeks. Dow 10,250 level remains support even though it was broken because of bad “prints” this past Thursday followed by 10,183 then 9850. A crash will occur once 9850 is broken. After last weeks decline a bounce back to 10,750-10,823 is likely. If the DOW closes above 11,300 it would signal a move higher. With free money here and in Europe it could delay the crash from later this year to next year although this scenario is less likely as countries like China raise rates. China’s property values have risen ridiculously the past few years and their collapse could be the tsunami wave that hits the US. China has a glut of buildings and vacancies that make Dubai look good.
The market’s tide has changed from buy the dips to sell the rallies until the proof of closing above 11,300 occurs. The old saying of “sell in May and go away “should be valid this year especially in a second year of a president’s term. Technically the tremors have started and it’s only a matter of time before the bear train resumes. As we saw in the past week markets fall at a faster rate than they rise. Sectors leading the next wave down- restaurants, hotel, auto and auto parts, retail and housing along with banking and insurance sectors. The US consumer is done. Higher taxes and inflation are in Santa’s stocking. The bill is coming due and the manner which the government handles the payments will determine how far the shoe drops. DOW 5,000 in the next few years is not out of the question. Hopefully we stop the printing presses and save all the trees we need to pay our way out of debt. Currently it's difficult to see this scenario from becoming reality.
Tuesday, March 30, 2010
A Market for everyone: For Now
A Market for everyone: For Now
Where else on earth can one find so many mirrors that can reflect a perception that everything is alright. Besides the governments new venture into health care maybe they can reflect the disaster in their handling of Amtrak, Medicare, social security, Fannie and Freddie and the post office. Feel sick? Not to worry now as we have free health care for all. But one would state how about their venture into the TARP? Money is being paid back with interest? Yes, there are companies paying back but how about AIG, GM along with hundreds of small banks which will either pay back some or none of the money. The good companies already paid while the rest will struggle.
Banks has been liquefied by helicopter Ben. Our government’s goal of inflating houses so banks can recover their losses hasn’t shown up yet even with their market to model accounting method. This quarter should be interesting as banks must now put off balance sheet stuff onto their balance sheets. It will be interesting what junk they have been hiding but also the model they use to market these assets. There are so many extend and pretend offerings. How about 2% loan for 40 years? How about the 40,000 ex-Countrywide customers offered principal reduction? How about the government spending billions on programs for low interest rates and principal reduction? All these programs reward the deadbeat homeowner. Nothing like showing our youth that responsibility doesn’t matter in making choices because the government will bail you out doesn’t set a good example.
Our printing presses are in overtime mode creating one of the few jobs getting overtime. The velocity of money has slowed over the past few years to .79% from a 2-3% in the 1985-2000 era.. This means that for every dollar created it doesn’t turn over. If that changes inflation will explode as the turnover of money in the system accelerates. With the printing presses at full speed increases in money turnover would spell disaster. Our politicians want inflation back in the worst way. They think inflation will bring back housing and low budget deficits as a percentage of GDP. Inflation instead will devalue our dollar and erode our spending power.
Since the mid-1990’s the federal government has lowered federal taxes but on the state level taxes and budget shortfalls have increased to a level which in some states could cause a default. States have raised taxes from sales tax to real estate tax to the local level in fees. With an estimated 3.5 trillion dollar federal debt issue for 2010 states are left having a difficult time in competing with the federal government. Most of the raised debt is just to pay off the interest. This can t last long. Legacy costs are killing state budgets and show no sign of getting better anytime soon.
It’s been a year since the market lows. The sharp rally of over 75% has reflected the opposite in fear and greed and it has happened in such a short time period. Free money has been doing its job keeping the market afloat. When the debt bill arrives in the mail only then will this mirror game end and end badly. There is a high probably of a market crash sometime within the next 12-18 months. Meanwhile it seems that everyday is an up day. Earlier this month the DOW started a trend of being up 18-22 trading days. The market is in the 9th inning but it might go to extra innings.
A market top takes time to form. We need to see fewer stocks making new highs. We need to see the advance/ decline line turn over. Mutual fund money is at historical low levels which is a sentiment indicator. We already have high bullish sentiment among newsletter writers. Remember last year how lawmakers wanted to ban short selling blaming them for the market decline. A year later and market up 75% ends the debate for the need to change the current rules. There are few short sellers left standing. This is a bearish indicator as they will be very little short covering to stimulate a good old fashion short squeeze rally.
The current rally probably can make marginal new highs into April or May with DOW resistance as follows – 10,960 then 11,032, 11,080 then 11,131 being the top level. If we close above 11,150 then 11,500-11,600 come into play. On the downside support is 10,550 then 10,250 followed by 10,183 then 9850. The first drop from the areas mentioned above should stop around 10,200 level before a bounce that would take the market NOT to new highs. The failed rally would send the market down to below the previous lows. It is from this point where a crash would be highly probably. In short, a top within the next two months at the 11,100 level followed by a decline to 10,250 which then would rally maybe back to 10,550-10,800 and from here another decline to retest the previous lows. The lows fail to hold and a crash ensues.
What would cause this collapse? How about the realization of another Japan like era? Our banks haven’t written down enough bad mortgages both commercial and residential. The extend and pretend game is still on. US banks have stopped lending to the small guy. Instead they take the free money and buy treasuries or even put it into the stock market. Free money is not the answer. We need more bankruptcies and to stop rewarding failure.
End all the free money programs in autos, student loans and housing. Illinois is among many states that are looking into a 4 day school week as is the post office cutting out Saturday delivery. Work less and get out of the government subsidizing everything they can get their hands on and then tax it sounds like socialism. The individual has backed off their spending because the banks cut off their credit and free money. Now the government took over the credit card and upped the line and started to spend like crazy. Don’t we realize that the bill will eventually be paid by a lower standard of living for our kids?
As for sectors that should do bad in the next leg down expect –housing, retail, airlines, banks and autos. Gold will have another up leg but first could drop below $1,000. Longer term gold should double as our government put a torch on inflation only temporally. They wish for inflationary pressures to emerge but when you gas the fire it takes a while before the flame shoots up. When it does everyone’s hair will get singed.
My feelings on the politicians are that everyone should be voted out of office. What they have done in the past 10 years to our economy and future will only be realized as time moves on and it isn’t good. The 10 trillion dollar deficit is really a 40-50 trillion deficit when you look at all the entitlements.
As I finish this confusing report we are heading in a seasonal strong part of the year which is the first week in April and the Good Friday Easter weekend. I’m not that bullish nor am I that bearish near term although I would use a March 31st sell off to go long into the first week of April. Keep stops close. A blow off top next week over 11,100(or even up to 11,500) would be a perfect time to short the market. Remember that short term there are too many people wishing for a pullback. Once they chase the market and we get an up 150 open and close lower that would be a textbook top. It just might happen in the next week or two. The mirrors will either break or blind the public back into reality. A massive protest or two by year end is a high likelihood considering all the mirrors that were needed to fool the people in the first place. When your neighbor tells you he got a zero percent car loan, works 4 days weeks, got a home and student loan reduction as well as interest rate relief, a cost of living raise, free school lunches and health care that might send one over the edge.
Where else on earth can one find so many mirrors that can reflect a perception that everything is alright. Besides the governments new venture into health care maybe they can reflect the disaster in their handling of Amtrak, Medicare, social security, Fannie and Freddie and the post office. Feel sick? Not to worry now as we have free health care for all. But one would state how about their venture into the TARP? Money is being paid back with interest? Yes, there are companies paying back but how about AIG, GM along with hundreds of small banks which will either pay back some or none of the money. The good companies already paid while the rest will struggle.
Banks has been liquefied by helicopter Ben. Our government’s goal of inflating houses so banks can recover their losses hasn’t shown up yet even with their market to model accounting method. This quarter should be interesting as banks must now put off balance sheet stuff onto their balance sheets. It will be interesting what junk they have been hiding but also the model they use to market these assets. There are so many extend and pretend offerings. How about 2% loan for 40 years? How about the 40,000 ex-Countrywide customers offered principal reduction? How about the government spending billions on programs for low interest rates and principal reduction? All these programs reward the deadbeat homeowner. Nothing like showing our youth that responsibility doesn’t matter in making choices because the government will bail you out doesn’t set a good example.
Our printing presses are in overtime mode creating one of the few jobs getting overtime. The velocity of money has slowed over the past few years to .79% from a 2-3% in the 1985-2000 era.. This means that for every dollar created it doesn’t turn over. If that changes inflation will explode as the turnover of money in the system accelerates. With the printing presses at full speed increases in money turnover would spell disaster. Our politicians want inflation back in the worst way. They think inflation will bring back housing and low budget deficits as a percentage of GDP. Inflation instead will devalue our dollar and erode our spending power.
Since the mid-1990’s the federal government has lowered federal taxes but on the state level taxes and budget shortfalls have increased to a level which in some states could cause a default. States have raised taxes from sales tax to real estate tax to the local level in fees. With an estimated 3.5 trillion dollar federal debt issue for 2010 states are left having a difficult time in competing with the federal government. Most of the raised debt is just to pay off the interest. This can t last long. Legacy costs are killing state budgets and show no sign of getting better anytime soon.
It’s been a year since the market lows. The sharp rally of over 75% has reflected the opposite in fear and greed and it has happened in such a short time period. Free money has been doing its job keeping the market afloat. When the debt bill arrives in the mail only then will this mirror game end and end badly. There is a high probably of a market crash sometime within the next 12-18 months. Meanwhile it seems that everyday is an up day. Earlier this month the DOW started a trend of being up 18-22 trading days. The market is in the 9th inning but it might go to extra innings.
A market top takes time to form. We need to see fewer stocks making new highs. We need to see the advance/ decline line turn over. Mutual fund money is at historical low levels which is a sentiment indicator. We already have high bullish sentiment among newsletter writers. Remember last year how lawmakers wanted to ban short selling blaming them for the market decline. A year later and market up 75% ends the debate for the need to change the current rules. There are few short sellers left standing. This is a bearish indicator as they will be very little short covering to stimulate a good old fashion short squeeze rally.
The current rally probably can make marginal new highs into April or May with DOW resistance as follows – 10,960 then 11,032, 11,080 then 11,131 being the top level. If we close above 11,150 then 11,500-11,600 come into play. On the downside support is 10,550 then 10,250 followed by 10,183 then 9850. The first drop from the areas mentioned above should stop around 10,200 level before a bounce that would take the market NOT to new highs. The failed rally would send the market down to below the previous lows. It is from this point where a crash would be highly probably. In short, a top within the next two months at the 11,100 level followed by a decline to 10,250 which then would rally maybe back to 10,550-10,800 and from here another decline to retest the previous lows. The lows fail to hold and a crash ensues.
What would cause this collapse? How about the realization of another Japan like era? Our banks haven’t written down enough bad mortgages both commercial and residential. The extend and pretend game is still on. US banks have stopped lending to the small guy. Instead they take the free money and buy treasuries or even put it into the stock market. Free money is not the answer. We need more bankruptcies and to stop rewarding failure.
End all the free money programs in autos, student loans and housing. Illinois is among many states that are looking into a 4 day school week as is the post office cutting out Saturday delivery. Work less and get out of the government subsidizing everything they can get their hands on and then tax it sounds like socialism. The individual has backed off their spending because the banks cut off their credit and free money. Now the government took over the credit card and upped the line and started to spend like crazy. Don’t we realize that the bill will eventually be paid by a lower standard of living for our kids?
As for sectors that should do bad in the next leg down expect –housing, retail, airlines, banks and autos. Gold will have another up leg but first could drop below $1,000. Longer term gold should double as our government put a torch on inflation only temporally. They wish for inflationary pressures to emerge but when you gas the fire it takes a while before the flame shoots up. When it does everyone’s hair will get singed.
My feelings on the politicians are that everyone should be voted out of office. What they have done in the past 10 years to our economy and future will only be realized as time moves on and it isn’t good. The 10 trillion dollar deficit is really a 40-50 trillion deficit when you look at all the entitlements.
As I finish this confusing report we are heading in a seasonal strong part of the year which is the first week in April and the Good Friday Easter weekend. I’m not that bullish nor am I that bearish near term although I would use a March 31st sell off to go long into the first week of April. Keep stops close. A blow off top next week over 11,100(or even up to 11,500) would be a perfect time to short the market. Remember that short term there are too many people wishing for a pullback. Once they chase the market and we get an up 150 open and close lower that would be a textbook top. It just might happen in the next week or two. The mirrors will either break or blind the public back into reality. A massive protest or two by year end is a high likelihood considering all the mirrors that were needed to fool the people in the first place. When your neighbor tells you he got a zero percent car loan, works 4 days weeks, got a home and student loan reduction as well as interest rate relief, a cost of living raise, free school lunches and health care that might send one over the edge.
Tuesday, January 5, 2010
2010 – The year of Reality
2010 – The year of Reality
The FED has released trillions of dollars in various programs. All indications point to a return of growth in the US but at what price and for how long? The government’s main goal is to inflate housing prices but so far they have failed. Instead what have they created? Only time will tell. I thought all this liquidity would end last fall and keep the market from going much above 10K. As we enter into 2010 the massive and unprecedented inflow of money supply has kept the market chugging upward. It should continue into part of the first quarter of the year before a major retreat of 14-30 %( or worse) in the DOW.
The markets strength into the 1st quarter of 2010 could see 11,700-11,800 once the 10,800 level is broken. The move could be violent and be similar to other blow off tops like 1987 and 1999-2000. Speculative stocks could be the place for 100-500% returns in just a few months. Many stocks have already rocketed off the March lows by as much but it’s the massive short squeeze that needs to occur. Short interest is currently at low levels.
My bullish stance would be voided if the DOW breaks below 10,200 for 2 days. Some think we have been in such a move the past few months but I think we are entering it now. The push or squeeze higher happens every 10 years or so. It’s a parabolic move that sucks everyone into the market. It recently happened to oil, bonds and gold. Once this top occurs probably around early February-March a selloff of over 5% followed by a rebound to lower highs will then setup the move for a steeper selloff.
Stocks like AAPL(10 months), GOOG (13 months) have been up at a statistically irrational monthly rate in the row while WDC, HPQ, WHR, FCX, MMM and LIFE have only missed a month from matching the AAPL or GOOG string. This parabolic move is in the 7th or 8th inning. There are signs of 2010 being the same as 1987 and 2000 when a short sharp drop spooked the market but kept on going parabolic for months. Meanwhile by keeping stops close there will be a load of opportunities. Stocks like MBI, RDN, MTG, FCEL, YRCW, and DRYS could show big returns in a short time.
The market’s momentum has shown impressive strength and won’t be turned around overnight. Even our government can’t mess up things that fast. 2010 will show many deep weaknesses in the economy that won’t be fixed overnight. The consumer isn’t coming back with consumer credit contracting. This is a long term trend. Higher taxation and government red tape is another trend that is a negative. The value of our dollar will continue to decline and will accelerate if the bond auctions run into trouble.
Below are a few problems that could turn into a disaster for both the economy and financial markets-
Iran attacks Israel
The government puts another spending program into place
All taxes go up and services fall
Protests in the street turn into riots (yes in the USA)
A major politician is caught in a scandal that effects all major countries
There is a major catastrophe to the food supply
A worldwide trade war
6-10 States default
A trend toward hyper-inflation emerges
Gold hits 2K
Housing bankruptcies accelerate to record levels.
Many of the above problems will have reared its head in the upcoming years. Our government so far has failed to inflate housing. Their goal is to inflate their balance sheet to make the liability column shrink as a percentage of assets to liabilities. If they do get housing going it will be the last asset class to re-bubble. (This would be 15-20 years out) Our bond market is in a bubble with stocks a few months away and 2-3K DOW points.
The mirages of our leaders competency will final come out and cause panic and distrust of our current system. Free healthcare won’t satisfy the masses once they realize it’s not free. Our freedoms have suffered greatly since 9/11 and will continue to do so.
2010 will be the year when the American people realize all the band aids put on the previous years problems have made things worse. Once we get some companies declare bankruptcy, states and federal spending increases stop, we turn off the printing machine, housing is allowed to fall, no more 3.5% FHA housing deals (with the rebate its no money down), stop programs like cash for clunkers, subsidies to companies that can’t compete and most importantly legacy costs need to actively be addressed otherwise last years market drop will be a cake walk compared to the next fall. Bottom line- Our countries net worth continues to fall to lower lows and our standard of living declines. It’s not a pretty picture. At this point our leaders have no clue their actions of the past 8 years can’t be solved by spending our way out. It hasn’t worked for the private sector and now with government taking up the slack looks like much of the same.
The credit card bill is arriving soon. So are the mid-term elections which probably mean zero rates till next fall. It’s hard to imagine that coming out of school 30 years ago a government job would outpace a private sector job when it comes to all the benefits and risks of retirement. Those who worked hard all their life only to lose their retirement and health benefits because their companies underfunded the account or stole from it. The time of reckoning is just about to begin this year and will last for 2-3 more years. They will be difficult but longer term will make this country much stronger and pave the way for real growth. As they say in NASCAR - Start your engines!!! Things that one would think weren’t possible here will happen. History does repeat itself although not in the exact form.
The FED has released trillions of dollars in various programs. All indications point to a return of growth in the US but at what price and for how long? The government’s main goal is to inflate housing prices but so far they have failed. Instead what have they created? Only time will tell. I thought all this liquidity would end last fall and keep the market from going much above 10K. As we enter into 2010 the massive and unprecedented inflow of money supply has kept the market chugging upward. It should continue into part of the first quarter of the year before a major retreat of 14-30 %( or worse) in the DOW.
The markets strength into the 1st quarter of 2010 could see 11,700-11,800 once the 10,800 level is broken. The move could be violent and be similar to other blow off tops like 1987 and 1999-2000. Speculative stocks could be the place for 100-500% returns in just a few months. Many stocks have already rocketed off the March lows by as much but it’s the massive short squeeze that needs to occur. Short interest is currently at low levels.
My bullish stance would be voided if the DOW breaks below 10,200 for 2 days. Some think we have been in such a move the past few months but I think we are entering it now. The push or squeeze higher happens every 10 years or so. It’s a parabolic move that sucks everyone into the market. It recently happened to oil, bonds and gold. Once this top occurs probably around early February-March a selloff of over 5% followed by a rebound to lower highs will then setup the move for a steeper selloff.
Stocks like AAPL(10 months), GOOG (13 months) have been up at a statistically irrational monthly rate in the row while WDC, HPQ, WHR, FCX, MMM and LIFE have only missed a month from matching the AAPL or GOOG string. This parabolic move is in the 7th or 8th inning. There are signs of 2010 being the same as 1987 and 2000 when a short sharp drop spooked the market but kept on going parabolic for months. Meanwhile by keeping stops close there will be a load of opportunities. Stocks like MBI, RDN, MTG, FCEL, YRCW, and DRYS could show big returns in a short time.
The market’s momentum has shown impressive strength and won’t be turned around overnight. Even our government can’t mess up things that fast. 2010 will show many deep weaknesses in the economy that won’t be fixed overnight. The consumer isn’t coming back with consumer credit contracting. This is a long term trend. Higher taxation and government red tape is another trend that is a negative. The value of our dollar will continue to decline and will accelerate if the bond auctions run into trouble.
Below are a few problems that could turn into a disaster for both the economy and financial markets-
Iran attacks Israel
The government puts another spending program into place
All taxes go up and services fall
Protests in the street turn into riots (yes in the USA)
A major politician is caught in a scandal that effects all major countries
There is a major catastrophe to the food supply
A worldwide trade war
6-10 States default
A trend toward hyper-inflation emerges
Gold hits 2K
Housing bankruptcies accelerate to record levels.
Many of the above problems will have reared its head in the upcoming years. Our government so far has failed to inflate housing. Their goal is to inflate their balance sheet to make the liability column shrink as a percentage of assets to liabilities. If they do get housing going it will be the last asset class to re-bubble. (This would be 15-20 years out) Our bond market is in a bubble with stocks a few months away and 2-3K DOW points.
The mirages of our leaders competency will final come out and cause panic and distrust of our current system. Free healthcare won’t satisfy the masses once they realize it’s not free. Our freedoms have suffered greatly since 9/11 and will continue to do so.
2010 will be the year when the American people realize all the band aids put on the previous years problems have made things worse. Once we get some companies declare bankruptcy, states and federal spending increases stop, we turn off the printing machine, housing is allowed to fall, no more 3.5% FHA housing deals (with the rebate its no money down), stop programs like cash for clunkers, subsidies to companies that can’t compete and most importantly legacy costs need to actively be addressed otherwise last years market drop will be a cake walk compared to the next fall. Bottom line- Our countries net worth continues to fall to lower lows and our standard of living declines. It’s not a pretty picture. At this point our leaders have no clue their actions of the past 8 years can’t be solved by spending our way out. It hasn’t worked for the private sector and now with government taking up the slack looks like much of the same.
The credit card bill is arriving soon. So are the mid-term elections which probably mean zero rates till next fall. It’s hard to imagine that coming out of school 30 years ago a government job would outpace a private sector job when it comes to all the benefits and risks of retirement. Those who worked hard all their life only to lose their retirement and health benefits because their companies underfunded the account or stole from it. The time of reckoning is just about to begin this year and will last for 2-3 more years. They will be difficult but longer term will make this country much stronger and pave the way for real growth. As they say in NASCAR - Start your engines!!! Things that one would think weren’t possible here will happen. History does repeat itself although not in the exact form.
Wednesday, November 4, 2009
WOW – How quickly things are going to change
WOW – How quickly things are going to change
Now that the recession is over let the recovery begin?? I don’t what our politicians are looking at but this recovery will be one big mirage. All the stimulus and tax credits for homes and clunkers have hit the economy with little response. Maybe it’s the higher real estate or state taxes? Maybe it’s the 10% unemployment? In the last 10 years our economy has created 2 million jobs of which 1.8 are government jobs. What going to happen with all the legacy costs? Maybe its seniors getting a zero social security increase for 2010? Maybe it’s the zero interest rates hurting the savers and causing them to search for higher and riskier investments? We know how all this is going to end.
Ford had its first profit in two years. Then they come out with a big debt and equity offering. How is Ford going to compete with GM (Government motors)? Ford lost an UAW concession vote and now will be at the mercy of the government in a few years.
Today the FED left the negative rates intact. Goldman Sachs will continue to rake in the cash for a while longer. Last quarter GS made at least 100 million that’s million per day for 36 of the 65 trading days. They ONLY HAD 1 losing day! How did they do it? From the trading pits it’s called free money. GS is selling debt to our government at big mark-ups. Our government is buying debt instruments in various programs that total in the trillions. Our government is almost the only buyer of mortgages. They were big buyers of treasuries until this past week when the program expired. This activity is super dangerous and marks an important factor of “ no one can fail” philosophy which is going to bite us where it hurts during the next 2-3 years.
The FED states there is no inflation. Sure we don’t have oil at $140 but prices have been creeping up even though the demand worldwide has dropped this past year. Our government doesn’t consider surcharges when computing inflation. Companies that deal in steel, airlines and shipping to name a few are raising prices by adding surcharges. This is a joke.
Gold has broken out and is likely to move parabolic just like oil did a few years back. Oil went from $100-$140 in 4 months before crashing. Gold can reach $1500-$2000 in the next 3-5 months before it crashes. Those that are long gold put a stop around $1020. There might be a bit of a pull back but use it to buy. Move your stop up every week and scale both in and out but it should act like oil did in 2008.
One of the carry trades that have been popular since the beginning of the year is shorting of the dollar and take the proceeds and invest in riskier assets like equities, bonds, mortgage securities both here but mainly overseas. Gold and commodities have also benefitted but this is about to change.
The dollar trade is of great concern when it gets unwound. Just like in 1998 when all the computer geeks and professors (L-T Capital) thought they figured out how world markets correlate. They bet big and lost hundreds of millions leaving our government to bail them out. The dollar will rally in the short term because there are too many shorts. Stocks will suffer but gold will rally. Commodities will also fall. This action will begin any day. There will be a lot of confusion in all the computer models.
The yield curve has steepened meaning mortgage rates will go up. The Fed has been buying treasury auctions but that ended last week. Next week’s auctions will be a major concern for the markets next week. The unraveling will begin soon. The dollar will rally because of interest rates are going up leaving the carry trade at risk of a nasty unraveling.
The job market basically is ugly and will take years to return to 7 or 8% unless we believe the so called “jobs saved” scenario. The problem with this is 90% (debatable) of the working population is much greater than the 10% unemployed so jobs “saved” can really jump. Maybe in 6 months if unemployment tops 11-12% our government will come out and state that it could be worse and we “saved” millions of jobs.
As for stocks, all this free money should send the market to 12,000 but too many remember the outcome of 1% rates in 2002 and what happen years later. How about zero rates? That should turbo charge the market but memories of the recent bear can’t trap everyone just like those alive in the 1929 era.
Our government thinks a weaker dollar will help exports. How about producing a quality product? China’s currency is fixed to the dollar so it doesn’t change much when the dollar drops. We are net importers of stuff from Europe, Korea and South America so goods will cost more not to mention the impact of oil which is priced in dollars. Sooner rather than later our credit starved country will suffer from our current policies of using the charge card.
The same mistakes that have hindered growth in Japan for the last 20 years has made its way across the ocean. The FED o.k.’s the use of a banks model to price assets rather than market prices. Take Ambac(ABK) which just reported a profit of over $7 this past quarter. One would think the stock would be trading $50-70 a share. How about $1.50!!(On its way to zero). The company is a mortgage insurer and marked up their assets.
Not until we see bankruptcies and companies losing money will the market make a cyclical bear market low not a fake-out rally which either has ended or is in the process of ending. DOW 10,100 is short term resistance followed by 10,300. Support is 9615 then 9400 then 9100 and 8850. Once the 8850 level is broken the bear will reappear in earnest. DOW 6600 will be retested and probably break the first time.
Too much public debt and government debt leaves our country with a continuation of the re pricing of assets and letting the air out of the bubbles. That will lay a foundation for a solid recovery and new cyclical bull market to emerge in the next 2-3 years. The next few years however will be of great concern. Capitalism as the way we knew it the past 30 years has run its course since 9/11 but more like 2005. More on that at another time.
Just a few ideas-
Remember to keep your stops on both the buy and sells-
Short DIA 98 stop 102 target 9200
Short or buy puts in –
FCX $75-79 stop 85 target 60
FWLT $30-32 stop 35.25 target 22-23
MCD $60-61 stop 64 target 56-57
WHR $75-80 stop 83 target 60-62
TUP $45-46 stop 49 target 34-36
AXP $36-37 stop 39 target 30-31
COF $38-40 stop 42 target 32-34
MS $32-33 stop 35 ½ target 26-27
SHLD $70-72 stop 79 target 48-50
WFC $28 ½-29 ½ stop 31 ½ target 20-22
IP $23-25 stop 27 ½ target 16-18
TIN $16-18 stop 20 target 10-11
LNC $25-26 stop 29 target 16-18
XOM $72-74 stop 76 target 62-64
BUY GLD $102-104 stop 97 target 130-150
Stay away from the double or triple short ETF’s unless you buy puts in the long ETF or puts in the short ETF. Over time with volatility these products melt away. For example, natural gas has rallied from .25 to .45 in a few months but the UNG hasn’t moved. The commodity is up 45% while the ETF’s are up 5-10% when they say they will mirror the commodity movement. This activity will cause a big class action lawsuit next year and the government will start another hoopla investigation.
Now that the recession is over let the recovery begin?? I don’t what our politicians are looking at but this recovery will be one big mirage. All the stimulus and tax credits for homes and clunkers have hit the economy with little response. Maybe it’s the higher real estate or state taxes? Maybe it’s the 10% unemployment? In the last 10 years our economy has created 2 million jobs of which 1.8 are government jobs. What going to happen with all the legacy costs? Maybe its seniors getting a zero social security increase for 2010? Maybe it’s the zero interest rates hurting the savers and causing them to search for higher and riskier investments? We know how all this is going to end.
Ford had its first profit in two years. Then they come out with a big debt and equity offering. How is Ford going to compete with GM (Government motors)? Ford lost an UAW concession vote and now will be at the mercy of the government in a few years.
Today the FED left the negative rates intact. Goldman Sachs will continue to rake in the cash for a while longer. Last quarter GS made at least 100 million that’s million per day for 36 of the 65 trading days. They ONLY HAD 1 losing day! How did they do it? From the trading pits it’s called free money. GS is selling debt to our government at big mark-ups. Our government is buying debt instruments in various programs that total in the trillions. Our government is almost the only buyer of mortgages. They were big buyers of treasuries until this past week when the program expired. This activity is super dangerous and marks an important factor of “ no one can fail” philosophy which is going to bite us where it hurts during the next 2-3 years.
The FED states there is no inflation. Sure we don’t have oil at $140 but prices have been creeping up even though the demand worldwide has dropped this past year. Our government doesn’t consider surcharges when computing inflation. Companies that deal in steel, airlines and shipping to name a few are raising prices by adding surcharges. This is a joke.
Gold has broken out and is likely to move parabolic just like oil did a few years back. Oil went from $100-$140 in 4 months before crashing. Gold can reach $1500-$2000 in the next 3-5 months before it crashes. Those that are long gold put a stop around $1020. There might be a bit of a pull back but use it to buy. Move your stop up every week and scale both in and out but it should act like oil did in 2008.
One of the carry trades that have been popular since the beginning of the year is shorting of the dollar and take the proceeds and invest in riskier assets like equities, bonds, mortgage securities both here but mainly overseas. Gold and commodities have also benefitted but this is about to change.
The dollar trade is of great concern when it gets unwound. Just like in 1998 when all the computer geeks and professors (L-T Capital) thought they figured out how world markets correlate. They bet big and lost hundreds of millions leaving our government to bail them out. The dollar will rally in the short term because there are too many shorts. Stocks will suffer but gold will rally. Commodities will also fall. This action will begin any day. There will be a lot of confusion in all the computer models.
The yield curve has steepened meaning mortgage rates will go up. The Fed has been buying treasury auctions but that ended last week. Next week’s auctions will be a major concern for the markets next week. The unraveling will begin soon. The dollar will rally because of interest rates are going up leaving the carry trade at risk of a nasty unraveling.
The job market basically is ugly and will take years to return to 7 or 8% unless we believe the so called “jobs saved” scenario. The problem with this is 90% (debatable) of the working population is much greater than the 10% unemployed so jobs “saved” can really jump. Maybe in 6 months if unemployment tops 11-12% our government will come out and state that it could be worse and we “saved” millions of jobs.
As for stocks, all this free money should send the market to 12,000 but too many remember the outcome of 1% rates in 2002 and what happen years later. How about zero rates? That should turbo charge the market but memories of the recent bear can’t trap everyone just like those alive in the 1929 era.
Our government thinks a weaker dollar will help exports. How about producing a quality product? China’s currency is fixed to the dollar so it doesn’t change much when the dollar drops. We are net importers of stuff from Europe, Korea and South America so goods will cost more not to mention the impact of oil which is priced in dollars. Sooner rather than later our credit starved country will suffer from our current policies of using the charge card.
The same mistakes that have hindered growth in Japan for the last 20 years has made its way across the ocean. The FED o.k.’s the use of a banks model to price assets rather than market prices. Take Ambac(ABK) which just reported a profit of over $7 this past quarter. One would think the stock would be trading $50-70 a share. How about $1.50!!(On its way to zero). The company is a mortgage insurer and marked up their assets.
Not until we see bankruptcies and companies losing money will the market make a cyclical bear market low not a fake-out rally which either has ended or is in the process of ending. DOW 10,100 is short term resistance followed by 10,300. Support is 9615 then 9400 then 9100 and 8850. Once the 8850 level is broken the bear will reappear in earnest. DOW 6600 will be retested and probably break the first time.
Too much public debt and government debt leaves our country with a continuation of the re pricing of assets and letting the air out of the bubbles. That will lay a foundation for a solid recovery and new cyclical bull market to emerge in the next 2-3 years. The next few years however will be of great concern. Capitalism as the way we knew it the past 30 years has run its course since 9/11 but more like 2005. More on that at another time.
Just a few ideas-
Remember to keep your stops on both the buy and sells-
Short DIA 98 stop 102 target 9200
Short or buy puts in –
FCX $75-79 stop 85 target 60
FWLT $30-32 stop 35.25 target 22-23
MCD $60-61 stop 64 target 56-57
WHR $75-80 stop 83 target 60-62
TUP $45-46 stop 49 target 34-36
AXP $36-37 stop 39 target 30-31
COF $38-40 stop 42 target 32-34
MS $32-33 stop 35 ½ target 26-27
SHLD $70-72 stop 79 target 48-50
WFC $28 ½-29 ½ stop 31 ½ target 20-22
IP $23-25 stop 27 ½ target 16-18
TIN $16-18 stop 20 target 10-11
LNC $25-26 stop 29 target 16-18
XOM $72-74 stop 76 target 62-64
BUY GLD $102-104 stop 97 target 130-150
Stay away from the double or triple short ETF’s unless you buy puts in the long ETF or puts in the short ETF. Over time with volatility these products melt away. For example, natural gas has rallied from .25 to .45 in a few months but the UNG hasn’t moved. The commodity is up 45% while the ETF’s are up 5-10% when they say they will mirror the commodity movement. This activity will cause a big class action lawsuit next year and the government will start another hoopla investigation.
Wednesday, October 14, 2009
Is the Stock Market Safe to Invest Again?
Is the Stock Market Safe to Invest Again?
What has happened since the March lows in the DOW besides a 3400 point rally? Back in March, pessimism was rampant. Eric Schmidt CEO of Google was very negative on the economy with his stock trading in the $320 level. Just last week he became optimistic about the future with his stock already up 65% off the lows to $530. The current market psychology has gone in a complete 360 reversal. An important top in the market is at hand. We are in the latter stages of a cyclical bear market that started in March of 2000. A real cyclical bull market will re-emerge in 2-3 years. The current rally is just a big head fake. Below are a few reasons why-
Dollar falling
Shippers near their lows
Higher commodity prices
Zero business investment as % of GDP
Government spending out of control
Recent IPO’s open lower than their IPO price
Nearing the 50% retracement in the DOW which is 10,300 level
Stagflation
Commercial real-estate loans due in next 2-5 years
Lack of any housing appreciation even with tax credit.
Unemployment at least 10%.
Government intervention in health care
In recessions companies usually lose money.
Repeat of 2002 with free money
There has been no country in modern history that ever was prosperous when their currency falls apart. It was one of the reasons why we crashed in 1987. People don’t want to hold a currency that loses its value overnight. Remember Germany and the wheel-barrel? Give me the wheel barrel and forget the $$. Sure it might help the trade deficit a bit but it also raises foreign import prices. We are net IMPORTERS of goods.
If economies of the world have a positive GDP and are out of recession then why are shippers near their lows? Most shippers haven’t participated in any part of this rally. The dry shipper’s index has barely budged from its low of $8,000 to its current level of $21,000. Still it’s off its all time high of $230,000 made May 2008 and more importantly its June high of $70,000.
The Fed’s current easy money policy was supposed to inflate house prices instead its inflating commodity and financial assets. Heating oil prices have rallied even though there is plenty of heating oil in storage. This is the same with oil and natural gas. The latter has no more storage places left. It bottomed at about 25 cents and now trades in the 45 cent level. Funny thing with oil is it’s trading around $74 a barrel but pump prices are only $2.65. When oil was $140 we were paying $4.40 a gallon. Talk about manipulation.
How can the FED lend out money at .25% while the DOW yields over 4 ¾% and not expect a flood of money into the markets. The current yield is about 2.90% which is very low to historical yields. Money has also flowed into the bond market also keeping yields low. It doesn’t help that our government is also a buyer of bonds. Didn’t we make the same mistake in 2002? Haven’t we learned our lesson?
Our government is spending like they just won the lottery. Don’t they understand that somebody namely the people of the US will end up paying for the current misgivings? The value of the dollar is reaching a critical point where it will harm our markets and the future of America in a very negative way. It’s sad only a chosen few can cause problems for the masses.
There is resistance in the DOW around 10,000 followed by 10,300 then 10,500. If the market doesn’t break 10,000 by the end of the month then odds favor another bear move down. The panic to get out of the market won’t happen until we close below 8850. A return next year to 6600 is a high possibility.
Don’t be fooled into thinking everything is fine. We are walking a tightrope of fiscal irresponsibility and monetary shamefulness. History will soon repeat itself. Where are the bankruptcies? Companies that don’t make money in a recession are making money now because of cost cutting i.e. job cuts. That can’t last for long.
One sign of market weakness is the current IPO’s that are trading below their initial offering. Companies are issuing stock to raise capital which in a way is good but they don’t use the money to expand rather just payoff debt via equity.
Gold is looking frothy but could easily go into orbit like oil did in 2008. Adjusted for inflation gold should be about $2300 an ounce. Gold could easily hit $1500 over the next 6 months, but like in 1980 the down move can be ugly. This makes one wonder if it’s really a hedge of inflation or just a mirage. Commodities are rising on fears of inflation not demand. Commodities are a better hedge against inflation than gold. Stagflation will be the theme 2010-2013.
The government wants to inflate its way out of the large deficits. It’s the 1970’s all over again. Won’t be surprised to see the bell bottoms come back. Does a war, falling dollar, rising commodity prices and weak stock market sound like a remix of the 1970’s that left this country in stagflation? Paul Volcker is standing in the background shaking his head.
There was cash for clunkers which helped Honda and Toyota move their inventory. There was a tax credit for first time home buyers which stabilized the housing market.
There was an $870 billion dollar stimulus package. There was a US winner of the Nobel peace prize who is running the country. In the end the inevatable will happen. Companies will go bankrupt and the weak will disappear laying the groundwork for a stronger economy. Our nation will go back to real growth and be a stronger country. The politicians who put us into this mess will be defeated. America will wake-up. Unfortunately it won’t happen for a while especially if the policies that are in place stay with us for a while.
Where’s the wake up call? Maybe the defeat of Chicago not making it past Japan for the Olympics is the beginning. Chicago came in 4th in a 3 country race. Maybe the Olympic committee figured out that Chicago politicians are crooks. Some went out and bought land where the future Olympic site was planned. Maybe now they will use it for a casino. Many of these crooks are now in Washington.
On a final note of how sad our country has gotten. The nightly news was showing the awful killing of school kids over the past years. Intercity kids don’t attend and the unattended usually end up in gangs. It was getting so bad that the Obama administration decided to send the head of education to address the problem. The funny thing about that is the guy used to be in charge of the Chicago schools before he left for Washington. Talk about a waste.
What has happened since the March lows in the DOW besides a 3400 point rally? Back in March, pessimism was rampant. Eric Schmidt CEO of Google was very negative on the economy with his stock trading in the $320 level. Just last week he became optimistic about the future with his stock already up 65% off the lows to $530. The current market psychology has gone in a complete 360 reversal. An important top in the market is at hand. We are in the latter stages of a cyclical bear market that started in March of 2000. A real cyclical bull market will re-emerge in 2-3 years. The current rally is just a big head fake. Below are a few reasons why-
Dollar falling
Shippers near their lows
Higher commodity prices
Zero business investment as % of GDP
Government spending out of control
Recent IPO’s open lower than their IPO price
Nearing the 50% retracement in the DOW which is 10,300 level
Stagflation
Commercial real-estate loans due in next 2-5 years
Lack of any housing appreciation even with tax credit.
Unemployment at least 10%.
Government intervention in health care
In recessions companies usually lose money.
Repeat of 2002 with free money
There has been no country in modern history that ever was prosperous when their currency falls apart. It was one of the reasons why we crashed in 1987. People don’t want to hold a currency that loses its value overnight. Remember Germany and the wheel-barrel? Give me the wheel barrel and forget the $$. Sure it might help the trade deficit a bit but it also raises foreign import prices. We are net IMPORTERS of goods.
If economies of the world have a positive GDP and are out of recession then why are shippers near their lows? Most shippers haven’t participated in any part of this rally. The dry shipper’s index has barely budged from its low of $8,000 to its current level of $21,000. Still it’s off its all time high of $230,000 made May 2008 and more importantly its June high of $70,000.
The Fed’s current easy money policy was supposed to inflate house prices instead its inflating commodity and financial assets. Heating oil prices have rallied even though there is plenty of heating oil in storage. This is the same with oil and natural gas. The latter has no more storage places left. It bottomed at about 25 cents and now trades in the 45 cent level. Funny thing with oil is it’s trading around $74 a barrel but pump prices are only $2.65. When oil was $140 we were paying $4.40 a gallon. Talk about manipulation.
How can the FED lend out money at .25% while the DOW yields over 4 ¾% and not expect a flood of money into the markets. The current yield is about 2.90% which is very low to historical yields. Money has also flowed into the bond market also keeping yields low. It doesn’t help that our government is also a buyer of bonds. Didn’t we make the same mistake in 2002? Haven’t we learned our lesson?
Our government is spending like they just won the lottery. Don’t they understand that somebody namely the people of the US will end up paying for the current misgivings? The value of the dollar is reaching a critical point where it will harm our markets and the future of America in a very negative way. It’s sad only a chosen few can cause problems for the masses.
There is resistance in the DOW around 10,000 followed by 10,300 then 10,500. If the market doesn’t break 10,000 by the end of the month then odds favor another bear move down. The panic to get out of the market won’t happen until we close below 8850. A return next year to 6600 is a high possibility.
Don’t be fooled into thinking everything is fine. We are walking a tightrope of fiscal irresponsibility and monetary shamefulness. History will soon repeat itself. Where are the bankruptcies? Companies that don’t make money in a recession are making money now because of cost cutting i.e. job cuts. That can’t last for long.
One sign of market weakness is the current IPO’s that are trading below their initial offering. Companies are issuing stock to raise capital which in a way is good but they don’t use the money to expand rather just payoff debt via equity.
Gold is looking frothy but could easily go into orbit like oil did in 2008. Adjusted for inflation gold should be about $2300 an ounce. Gold could easily hit $1500 over the next 6 months, but like in 1980 the down move can be ugly. This makes one wonder if it’s really a hedge of inflation or just a mirage. Commodities are rising on fears of inflation not demand. Commodities are a better hedge against inflation than gold. Stagflation will be the theme 2010-2013.
The government wants to inflate its way out of the large deficits. It’s the 1970’s all over again. Won’t be surprised to see the bell bottoms come back. Does a war, falling dollar, rising commodity prices and weak stock market sound like a remix of the 1970’s that left this country in stagflation? Paul Volcker is standing in the background shaking his head.
There was cash for clunkers which helped Honda and Toyota move their inventory. There was a tax credit for first time home buyers which stabilized the housing market.
There was an $870 billion dollar stimulus package. There was a US winner of the Nobel peace prize who is running the country. In the end the inevatable will happen. Companies will go bankrupt and the weak will disappear laying the groundwork for a stronger economy. Our nation will go back to real growth and be a stronger country. The politicians who put us into this mess will be defeated. America will wake-up. Unfortunately it won’t happen for a while especially if the policies that are in place stay with us for a while.
Where’s the wake up call? Maybe the defeat of Chicago not making it past Japan for the Olympics is the beginning. Chicago came in 4th in a 3 country race. Maybe the Olympic committee figured out that Chicago politicians are crooks. Some went out and bought land where the future Olympic site was planned. Maybe now they will use it for a casino. Many of these crooks are now in Washington.
On a final note of how sad our country has gotten. The nightly news was showing the awful killing of school kids over the past years. Intercity kids don’t attend and the unattended usually end up in gangs. It was getting so bad that the Obama administration decided to send the head of education to address the problem. The funny thing about that is the guy used to be in charge of the Chicago schools before he left for Washington. Talk about a waste.
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