2009 should be a vintage year for your portfolio

The world markets are generally in positive territory again today. Typically the market moves in waves of buying and selling. Traders concentrate on the daily ripples and institutional money managers focus on three years or longer but continually turn over their portfolio once or twice during the year because there are many sectors and they are always rotating. In the past I did some rotating about every three months when stocks hit relative highs that met my original targets. The Re-spiral method I have tested for two years and now use tends to work for major moves in once a year and out once a year when I go into more cash or short positions. So since I am now in the market I would not be surprised to see a sell signal some time in 2009 only because statistically that is what tends to happen. However the method does not predict such an event at this time and with the new “President Obama” the honeymoon with the analysts and newly polyannerized press the stock market could go right up all year long.

The housing implosion could be solved by mid year causing hundreds of $billions in upward revisions to bank assets with tens of $billions in profits immediately. Because Obama has already attracted such wealthy (though perhaps addle minded) patrons as Soros and Warren Buffet we can expect even more international wealth to be attracted back to the stock markets. We can expect the dollar to start off weak favoring investment abroad but later there would be long term profits from relative improvements in American exports. So we would want to rotate into more domestic investments before the dollar started to strengthen again. Ideally the dollar would be weak well into summer to bring tourism to America in 2009.

Therefore in 2009, even if the stock market moves up all year we expect the need to at least rotate investments over the year. Currently we favor high dividend stocks with safe balance sheets (cash and little debt). Those are a mix of US and foreign at this moment. Also Asian and Pacific stock ETFs (excluding Japan) still look oversold and in an upturn at this time.

At a minimum we should be diversified over five sectors... but that implies about $20,000 minimum. Less than that implies risk which increases toward 100% as a portfolio approaches $2000 because $2000 is where some brokers begin to annoy their customers because they in general do not like the small investor. Above $100,000 the expense side gets appreciably smaller and by the time your portfolio hits $500,000 they roll out the red carpet for you.

The last week or two of the year is usually bullish because the market makers want to put more money to work and show some great stocks in their portfolio. So these low volume good days are no guarantee 2009 will start off good. But I do indeed expect a good start in January. Most of the analysts favored Obama and so we should not fault analysts for their emotional and irrational negativism in the last days of the Bush administration. They want President Bush to look as bad as possible so that Obama will look that much better. But when Obama becomes president in twenty days you are going to think the campaign has begun again. The analysts will be falling all over themselves to say good things about the American economy to make the new “President Obama” look more infallible than the Pope. Don’t be surprised if international leaders including the Pope come to Washington for an audience and perhaps a blessing from “President Obama”. The stock market should shoot up at least 100 days until the first setback.

Have a very prosperous new year.

President elect Obama's economic Gatorade. Analysts should do some analysis from time to time.

CNBC analysts should do some analysis from time to time.

CNBC analysts are predicting the USA markets will bottom before Asian markets. Jim Cramer said the Asian markets still have a way to go before they bottom. Someone on CNBC later last night said that the market still has to fall 90% from where it is today before it is the bottom… and he said it with a straight face.

Someone needs to wake them up. The following Asian markets bottomed at the end of October 2008.

http://finance.yahoo.com/echarts?s=%5EHSI#symbol=%5EHSI;range=1y

http://finance.yahoo.com/echarts?s=000001.SS#chart1:symbol=000001.ss;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Even Japan looks like it bottomed back then.
Japan

http://finance.yahoo.com/echarts?s=%5EN225#symbol=%5EN225;range=1y

No one can predict the future and another war or a terrorist attack could put the world in a tailspin. But the extreme negative attitude of almost all the stock advisors is usually a sign that we bottomed.

Jim Cramer said we need to see the selling panic when prices decline rapidly and everyone is selling before we have a bottom. I would ask Jim what does he think happened in October 2008.

Jim Cramer said we need to see low volume at a bottom because everyone who would or could sell was sold out. I would ask Jim what does he think is the cause of the low market volume for the past few weeks?

It is possible that in six months we will be up 30% and then down 20% so we may almost be flat as happened in the 1970's. That was because Jimmy Carter gave America a new economy called stagflation. That could happen with the Obama policies too. But if that is the type of policy we see we should have time to sell everything before the policy takes effect.

Personally I see president elect Obama as giving the money to the private sector not state and federal bureaucracies and hence he is planning a private sector stimulation package not socialization. Countries with inflation print the money to pay their federal workers, police, and the military needed to maintain their proletariat socialist dictatorships. The bureaucrats then spend the money and buy everything so the stores are bare. By the time the private sector has the money inflation has wiped out its value.

But president elect Obama indicates the stimulation packages will go to individuals, private vendors, and private contractors not to our government bureaucracy. So we should jolt ourselves back into prosperity with Obama's economic Gatorade.

2009 looking better all the time

MasterCard use was down 8% in December. MasterCard started a new finance charge policy and moved due dates forward limiting some users to just one week to pay without a $50 late charge. So people try new cards with no annual fees, 2% direct rewards and a two week due date. But the bad-news-analysts are using MasterCard today to say sales are down. That is not true, it is MC that is losing business this holiday season not stores at least in New England. But it is good that the market is not listening to the bad-news-analysts like Mad Money and Fast Money all who failed to detect the market bottom in November. They want to frighten stockholders so that they can create a new bottom so they can say how smart they are. But American and Asian markets are now completing their third ascending market bottom and European markets are completing their second ascending market bottom. Asian markets are up 0% to 1% today and European markets are currently up 1% to 2% and American market futures are up slightly again.

The real good news is that the bad-news-analysts have lowered retail sales expectations so the market will respond even better when the truth comes out. Last year when we all should have sold out the Pollyanna-analysts were saying retail sales were up when we were telling the truth that the malls were relatively empty. We were right and they were wrong last year by about the same magnitude as they are wrong this year. This year we are seeing shopping malls filled more than last year but not as crowded as two years ago and we are seeing mail orders flat to slightly rising. So we expect a slight improvement in retail sales this December relative to 2007 and that will be great news for the market because the market expects a loss now.

We expect the next administration will give the average taxpayer several thousand dollars in 2009 to stimulate the economy. We expect it will be at least four times the stimulation the economy got in 2008 plus we expect the administration to postpone the expiration of the tax breaks the rich were getting under president Bush so they will be happy too. The stock market has discounted expectations that the new administration will tax investors heavily and put federal sin taxes on gasoline, fuel oil, big cars and big houses. It now appears that will not happen soon. The collapse in fuel prices will put a hold on left wing nonsense and there is evidence that President Elect Obama will unfetter the nuclear energy industry so that nuclear energy will come on line when oil shortages begin in ten years. We can expect the new administration to leave American oil in the ground until it appreciates more and remains high in price.

We saw poor sales at specific stores such as Home Depot, Lowes, AnnTaylor, Talbots and Sears and a few electronics stores. On the other hand discount stores were packed.

Talk show "experts" are saying, "Probably 50,000 American stores could close in the spring without any effect on consumer choice." Retail profit margins would then improve considerably. But construction will stay in the doldrums and it will be very tough for Home Depot. Confusing payment notices intermingled the long term interest free and short term credit. Customers do not like finance charges that result from the confusion on amounts and dates due. It may be the new bank policy but it could damage them as it is evidently damaging MasterCard with reported 8% reduced card usage in December. At worst, national sales are currently reported only down about 2%.

We expect the first week of January, and the month of January to set the stage for an advance in the stock market in 2009.

Since we expect the economy to turn up in 2009 we expect the stock market to end higher than it leaves 2008. At some point in 2009 we expect the market to be up 30% to 40% from the low in 2008.

But if the market had a high of 100 in 2007 and lost 40% to hit a low of 60 in 2008 then a 40% rise from 60 gets the market back to only 84. That is why people will switch from cash back into the market. They will see a 40% profit even if the market it is at 84 (or down 16% from the 2007 high).

The people who bought in at the low in 2008 will see 66% profit when the market recovers to the 2007 level. That is 66% more profit than the average gains from investing in equities because that just gets us back to where we started.

What we need is courage and common sense not the greed of geckos

But Jim Paulsen however says we need more Greed.

"Strategist Jim Paulsen at Wells Capital Management said "we need people wanting to step and buy cheap assets. Greed and value are starting to entice buyers, and I think that is a good sign that maybe we're at the front end of the end of this thing." The secret for January, Paulsen says, is to help unfreeze the panic in the healthy economic players who have jobs and businesses; to persuade them that "it's O.K. to go out and spend some money again. It might be O.K. to hire again. It might be O.K. to buy a car."

Jim Cramer said Goldman Sachs December 16 conference call outlined the bleak crises we are in. Analysts like Jim Cramer have started bashing the market again because they see now that they missed the bottom and they look bad. They would like the markets to drop again so that they can tell investors to get in and claim they called the bottom. Rapid deleveraging had put pressure on the markets. The Goldman Sacks December 16 conference call on the global economic crisis says the higher risks today are driving Goldman to better risk management. We listened to it and it was an example of good prognostics and it drove GS up14.35% that day. You can listen to it at:

http://www2.goldmansachs.com/our-firm/investors/presentations/current/2008-fourth-quarter-results.html

One of the problems is that the deal makers are not doing stock swaps because they can’t take any taxpayer money that way. They want to do deals with taxpayer money now so they can walk away wealthy and not have to actually merge two companies and make it work. But that will change as the market continues to improve.

The banks like GS are leveraged 8.8 to 1 and cannot afford to loan money to Geckos because due to leverage they lose equity 8.8 times as fast as the Wall Street geckos like Madoff and the company, Cerberus, fleece investors.

Daimler Benz still owns 20% of Chrysler. The only thing Cerberus has going for it now is it contributed $millions to Republican candidates and nothing to the Democrats. (You can confirm this yourself) But billions in taxpayer aid could change all that. The perception of Wall Street corruption will only grow if the new president extends the loans next year and then Cerberus starts a similar payoff for the Democrats using taxpayer money.

We said that it was first the failure of the Bush administration to comprehend the moral hazard of loose "consequence free" financial oversight and secondly the slamming of the economy by democrat candidates that caused the current crisis of confidence that brought down the most leveraged and most corrupt American financial institutions. As the situation worsened financial markets demanded more collateral on capital exchanges and that caused the cash crisis. Now as the market bottoms and then reverses direction, the perceived risk will begin to decline and the cash crisis will turn into a flood of cash liquidity. That is when investors, corporations, and funds will flood the stock market with cash to buy up stocks which are now the best buying opportunity we have seen since before the Regan administration which gave us the longest growth period in American history.

Corporations are actually sitting on the side lines loaded with cash right now. This is the best opportunity they have ever had to buy back their stock without increasing their debt.

Yesterday US volume was again historically low and the market declined. That is much better than record low volume and a market advance. What it illustrates is the highly volatile shorting has subsided and shorting is becoming high risk at this point.

All Jim Cramer’s and other analyst’s efforts to induce another market low so that they can give a belated buy recommendation... has been to no avail so far.

Today Asian and European markets are net down slightly indicating international selling is also subsiding. The US futures show little selling pressure as well.

Again we recommend you listen to the up-beat Goldman Sachs report yourself to see why their stock jumped more than 14% that day when the analysts such as Jim Cramer tried to paint that conference call as a doomsday call. The dooms day analysts all feel very badly now that they missed calling the first and then missed the double market bottom call and so they want to induce a triple bottom if possible.

Fat chance they have.

January shaping up to be a good month for investors too.

Selling in Asia precipitated by the smaller than anticipated moves to stimulate the economy of China. But given the higher volatility of Asian markets the three-month trends are normal and are on a path to recovery. European markets are up modestly as are the USA market futures.

We can expect the European contraction to be more severe than most of Asia because they are trying to keep their currency stronger as Japan has done. This is because Germany now dominates the European economics, and Germany and Japan share a propensity for austerity even to the degree that it causes them economic pain. If all economies acted in unison there would be smaller imbalances and fewer currencies attacks from traders but it also results in greater economic volatility because everyone has peak demand at the same time and then commodity price collapses at the same time. Longer periods of expansion tend to exacerbate the alignment of economies. But if the USA and China were 180 degrees out phase commodities would not have such great swings because demand would be more uniform. That would help the developing world grow. But with the financial credit system currently in locked step, going against the trend as Germany and Japan tend to do is better for the world economy but very difficult and costly.

December 22 had very low market volume on the price decline. That is actually a good trend. We want advances driven by high volume and declines on low volume because that indicates money, overall, are flowing into the market. The USA market three-month trend is ascending but the parabolic SAR trend lines have been hit so there is now an increased probability of consolidation and possibly a small decline. The MACD for each market is still positive but is declining.

Last year at this time we pointed out that we could see retail sales were way down in New England because parking lots were partially empty at mid day. We were advising that the economy was headed to a recession. But the Wall Street analysts were telling the public the opposite. They wanted the public to buy when the market was beginning to collapse. We said the January retail sales reports would show that Wall Street was not telling the public the truth.
This year we see in New England that sales are better than last year but Wall Street has shorted the market and you are now hearing them falsely declaring that retail sales are down the season.

So take heart, because we can expect January reports will be better news and will help the advance into the next year. Already the Thanksgiving sales were reported up a modest 3% while Wall Street short sellers had declared it a disaster. Wall Street short sellers do not want investors to profit they want to profit themselves and for more than a year the profitable hedge funds have been shorting the markets so they profit by driving down stock prices. This trend in the USA has been reversing since October but they still want to panic the markets so they can cover their shorts profitably. Eventually the short sellers will panic and that is when the market will advance rapidly. We see January as likely a very good month for investors. And while we are still consolidating, December has recovered about 10% for investors. But we believe there can be another 20% to 30% recovery from these 10% higher current levels before another consolidation period. That conclusion is based on an evolving recession not the financial panic short sellers and politicians had been proclaiming since June-July of 2008 when Senator Schumer of New York caused the first run on and American bank located in LA. Such election year rhetoric was out of control and caused panic and crisis.

Sentiment is that the market is now ready to rally

Stock markets posted their first two-week gain in three months as the Federal Reserve reduced interest rates to a record low. Japan is up sharply after following the USA and reducing rates and making Japan's production more profitable. Other Asian and European markets are down slightly as investors in those countries wait for stimulation packages for their economies. US market futures are mixed with the markets at their 20 day moving average line which means oversold if the market has reversed and is bullish on a recovery in 2009.

Treasuries climbed for the seventh week so the Federal Reserve decided it was time for American taxpayers to cash in. So the FED cut its benchmark rate to as low as zero and said it would buy long-term debt, possibly including Treasuries, to lower borrowing costs and spur growth. Basically taxpayers can now pay zero interest for the USA stimulation package which is funded by the cash hoarders, many of whom are the prime cause of the recession.

President George W. Bush granted the emergency loans to General Motors Corp. This will provide the auto industry with the time needed to restructure and downsize so that they emerge profitably as the recession ends in 2009. Toyota, the world's leading auto manufacturer could go bankrupt if Japan does not provide liquidity so Japan lowered rates too and is planning to provide loans.

Sentiment is building that the market will rally into the end of this year and into 2009. Some market professionals are bullish in light of recent rallies because stocks usually rally at year’s end as Funds buy to reduce cash and beef up portfolios selecting stocks that are performing. Low volume during the holidays also makes it easier for the funds to move prices higher with less cash and thus raise performance and show due diligence.

Robert Pavlik of Oaktree Asset Management said he has seen "a reduction in the overall selling pressure." Pavlik also said he’s also optimistic because of the amount of cash on the sidelines and the "large number of reluctant and underperforming portfolio managers" that could turn more optimistic if they start to see stocks rally. Short selling is slowing and in Brazil it has returned to low 2007 levels.

James Paulsen of Wells Capital Management agreed, and said that a comparison of this current downturn with four previous market panics [1903, 1907, 1920 and 1973-74] shows that things might not be so bad. Paulsen said that each time, the markets recovered to their pre-crisis peak levels "within about 12 to 18 months of reaching their respective bear market lows." He said "it implies the S&P 500 should more than double from its 752.44 low established in November by May 2010." (Assuming we were correct and November 2008 was our major buying opportunity). We are not looking that far ahead. We are looking for half that in the first half of 2009.


But what should we be buying now?

Jonathan Garner, strategist for Morgan Stanley agrees with us and said that emerging-market stocks are a better buy than those of more developed regions because their economies will rebound more quickly from the global slowdown. Garner heads the global emerging-markets strategy team. He said, "Emerging markets were the last to drop and will pull out the fastest." "It’s very encouraging that since the end of October the tendency to outperform has re-asserted itself," he said. MSCI Inc.’s index of emerging-market stocks beat the developed-market gauge from the start of last year’s fourth quarter, to August. The emerging-market index fell as recessions in the U.S. and Western Europe dragged down growth in China, Brazil and Russia. Since October, emerging-market stocks outperformed again, a trend Garner says will continue next year.

James Cramer agrees with another strategy we recommend and is advising investors to load up on high dividend stocks that have good balance sheets and can sustain their dividends. Then no matter what happens they give the best possible return during a recession due to the cash they generate that they distribute as dividends.

Warren Buffet and Jim Rogers were buying and recommending stocks and commodities for two month already.


Scandal smolders.

Emanuel and Obama have remained silent about what, if anything, Emanuel knew of the governor's alleged efforts to peddle Obama's vacant Senate seat to the highest bidder. The friendly rapport Blagojevich and Emanuel had over the years has suddenly become a troubling liability for Emanuel and the new president he will serve as chief of staff. Any hint of scandal for Emanuel tarnishes any promise of political leadership free of scandal and corruption at a time when politicians are swimming in cash being borrowed from America's future. The taped conversations reveal Blagojevich telling others to float his idea by Emanuel of forming a nonprofit that he hoped would, with Obama's help, receive millions of dollars that the governor and others could tap later. They already have one that has been responsible for pervasive voter registration fraud. Stealing money from Americans is bad enough but Americans can get pretty upset when their votes are stolen so the newly elected can steal even more and corrupt even more. Probably Obama should have Emanuel resign now.

"We're not going to end corruption in Illinois by arrests and indictments alone," the prosecutor said. "What's going to make the difference is when people who are approached to 'pay to play' first say no, and, second, report it."

Consolidation for upside breakout

Sorry to be late; the blog did not like my internet settings this AM

We are starting to see less short selling which is a sign that the hedge funds are moving to a lower proportion of shorted stocks.

One of the oldest and easiest-to-interpret indicators in the stock market is market breadth often called the advance/decline line. It measures how broad or how narrow a rally or a decline is. It works by measuring market breadth versus the underlying market price index. So for the S&P 500 price index, we compare the cumulative advance-decline line to the S&P 500. If we look at a long-term chart of the two together, we see that in October 2007, there was a negative divergence where the S&P price index made a higher high in August, but the cumulative advance-decline line (breadth) made a lower high which is a sign of weakness just before the tremendous market drop.

Since that time, we have been in a bear market, and S&P breadth index has basically kept pace with the S&P price index, as they rallied together and dropped together. However, since the November 20 low in the S&P 500, there has been a slight change in this pattern. If we look at the short-term chart of this indicator and the S&P together we now find that during the decline of the week ending December 6, breadth was outperforming the index another indication that the price was bottoming out. The S&P price index has since just caught up with breadth, but breadth have been holding steady, keeping pace with it. This is one of the positive signs we’ve seen in the market since it made the highs of October 2007.

Our "Respiral" method which combines Parabolic SAR and MACD indices to call windows of buying and selling opportunities got us in cherry picking between Nov 6 and Dec 5, 2008.

Out June20-Nov 2, 2007
In Feb 27-April 4, 2008
Out May 28--June 12, 2008
In Nov 6-Dec 5, 2008


Asian (excluding Japan) ETFs, and high dividend return stocks with low debt and high cash positions are what we consider to be the safer investments to be in at this time.

The FED is doing everything possible to get people out of cash since hoarding cash (especially by banks) is what has caused the velocity of money to drop close to zero. The FED knows that it does not matter how much credit or cash they make available because when the velocity of money is zero or negative investment and consumer spending is zero.

Money in circulation = M (money available) X V (the velocity of money).

So the FED is now working on getting the velocity of money into positive territory be attacking the value of cash by dropping inflation adjusted interest rates into negative territory.

As stated above, the "Breadth" indicator is a measure of how broad or narrow a rally is, and this recent action suggests that the rally is broadening, which tends to be bullish for the market. And the FED is trying to put a negative interest penalty on people holding cash so that they buy now and stabilize real estate and equities. But the two most resent SEC chairmen have been greedy and incompetent and have allowed Madoff crooks and short seller market manipulators to fleece the pensions of honest Americans.

Let's face it, President Bush lacked the mental capacity or inclination to understand what was going on under the nose of his administration. President Bush lacked the kind of ethical standards necessary to declare that corporate, real estate and Wall Street greed and dishonesty was a moral hazard. President elect Obama promises to do better and Americans want to give Obama the chance now. And so far Obama has been acting like a capitalist and an evangelical so he may work out as well as President Clinton did and ignore socialist Soros and the far left.

On a much shorter-term basis, the market may be overbought. Typically, such an overbought reading will lead to a pullback followed by a renewed rally. If this market hadn’t been so volatile of late, we’d expect a pullback, after a 20% rise, along the lines of 3% to 10%. However, lately this market has been volatile and often in the course of a few days it can correct completely. Presently the market is up about 0.5% this week with one day to go.

Asia is mixed but down overall about 0.5% today. Europe is mixed and down about 0.75% at this time. The American market futures are mixed and indicate a slightly higher open for the market today. But options are coming into play today and it could swing more positive today.

Based on the improvement in breadth as discussed above, and this overbought situation we believe a pull back at this time would be smaller like March 2007 than December 2007 overbought situation. We do not chase rallies when we are this overbought. Let the short sellers get deeper into margin debt now so that we can look forward to an even bigger rally thereafter followed by a short-squeeze of historic proportions. We will assess the health of the market on a daily basis.

Reflation has been stepped up

An additional $350Billion economic stimulus is in the near term planning. A fiscal stimulus (deficit) is also said to be planned to further punish the hoarders of cash. The dollar is rapidly declining toward its previous low after hoarding earlier this year had strengthened it almost 20%. You may now refinance your house at 4.5% fixed rate.

All of these actions will avert a deep recession in the USA but inaction in Europe makes their future more bleak. Asia still has an enormous home market to create that can provide them the growth rate the USA had in the late 1800's.

USA stock futures are currently up slightly but the short selling usually occurs in the last hour of the day. International markets appear to be losing their volatility and hence it is more difficult to judge their strengths. Asian markets are higher with India up 3.7%. Europe is up about 0.6% on average.

The last hedge funds to switch to the long side will be caught off guard and it is entirely possible that we will see the most pervasive and dramatic short squeeze in history in early 2009. It will be peak quickly and probably will occur too fast for us to get a sell signal when it does. But if your portfolio recovers all its losses of 2008 or if it is suddenly up 40% from where we are today we would not wait for a sell signal. Remember; up 40% from here gets us to where people were before the values dropped only 29% if you do the math. The percent gains will appear much larger because we are starting from a place 30% to 40% lower than when the bear market began.

All the efforts to avoid a deep recession are now focussed on punishing those who hold/hoard cash. They are directed to relieving the pressure on those in debt and stopping the decline in commodity prices, which occurs from deflation. The economy is being rapidly re-inflated now and that should be good for price of stocks and commodities in the near future.

Fed to take action today

Climbing the Wall of Worry
European shares gained about 1 percent in morning trade today, reversing early losses after euro zone manufacturing and services activity deteriorated by less than forecast. The Fed interest rate is the key event to be watched today. Also, Goldman Sachs is expected to report its first loss today.

Asian markets were mixed last night. China's factory output growth slowed to just 5.4 percent from a year earlier, well off the 8.2 percent pace in October and lower than economists' forecasts, setting the weakest pace for a non-holiday month on record and raising expectations for more stimulus measures for the world's fourth-largest economy. It was the worst reading since the start of 1999, the earliest date for which monthly data is available, excluding distortions caused by the timing of the Lunar New Year holiday, which falls in January some years but in February in others. Five percent GDP growth in the first half next year is no longer a risk, it is now a reality. That is less than half the growth rate China had achieved.

U.S. stock-index futures advanced as speculation the Federal Reserve may cut its main interest rate to a record low outweighed concern about a slowing economy.

Bernanke may today reduce the FED's main interest rate to the lowest level on record and prepare for one of the boldest experiments in its 94-year history: using its balance sheet as the key tool for monetary policy. Treasury yields dropped to near record lows on speculation the Fed will buy debt treasuries and will cut interest rates today.

The stock market was down yesterday on very low volume as investors wait for the Fed to take action today. In the past the market tended to go down regardless of the Fed announcement. But as we climb the wall of worry of this rally we could begin to see strong upside reactions to government efforts to stimulate the economy.

Climbing the Wall of Worry

The collapse of equities in 2008 was not because we are going into a depression but was caused by a coordinated attack launched by corrupt short sellers running major hedge funds. Every time short selling was forbidden for financial stocks the financial sector rebounded. The hedge funds are now big enough to manipulate the market just as in the late 1800’s when wealthy individuals manipulated the markets. We are going into a recession for sure in part due to this hedge fund racketeering but the FBI is now beginning to take action.

Given the dire economic developments over the last three weeks many wonder why the Dow Jones Industrial Average has surged more than 1200 points over that span and is poised to close one of its worst years in history on an up note. The reason is because traders and portfolio managers are now looking ahead, pricing in the likelihood of an economic recovery at some point in 2009. The year-long slide has halted because most of the bleak economic news has already been “baked" into current stock prices. We indicated that the window of opportunity for getting in at the current bottom of the market was open the month of November but there are still opportunities when great stocks with low long term debt, with a Current Ration under 1.0, dividend income >7% and current quarter’s income at least five times higher than the annual dividend payout. We are near the end of the decline because we see market racketeers being investigated and stopped.

Aside from the obvious recent jump in the Dow, S&P, and NYSE, we pointed out other signs of improved market sentiment, including heavier trading volume in general with more on up days than on down days. Still, the markets remain skittish due to continued sporadic hedge fund manipulation of the market including shorting attacks on what seems like random stocks. Investing in individual stocks has been treacherous for two years now. But we are seeing more evidence that the FBI is now starting to crack down on Wall Street corruption.

The courts seldom allow taps to go on the telephone just because someone is suspected of cheating on their wife. When someone like Spitzer is taken down, it is not really just for seeing a prostitute. The FBI does not get involved for that type of domestic issue but uses smaller seamy infractions along with the private real threats of major prosecutions and prison sentences to stop major corruption cases in their tracks.

In the 1970s it was Ab-scam and local corruption crackdowns. Often they go easy because a corruption case is time consuming and costly so they bring the villains down on smaller charges such as infidelity.

Other times they make an example and throw some bums in jail. In the early 1990s it was the use of Rico racketeering law to crackdown on Junk Bond scams. They made a few examples after the Dot Com collapse in 2003-2003. Now they are cracking down on Wall Street corruption again and it is making short selling corruption crawl back into the shadows and thus bringing an end to the recent short selling attacks on the market.

Bernard L. Madoff, former chairman of the Nasdaq, was arrested Thursday charged with committing securities fraud. The 70-year-old founder of Bernard L. Madoff Investment Securities LLC is accused of running an investment scheme that has lost at least $50 billion. The Securities and Exchange Commission brought charges late Thursday and announced it would be stepping in to attempt to freeze assets and secure emergency relief for the firm’s investors.

Madoff reportedly confessed his business was, “a giant Ponzi scheme,” and was released after posting bail of $10 million. Madoff could be fined a maximum of $10 million and be imprisoned for up to twenty years if convicted. If it is proven that Madoff’s business truly did fleece $50 billion, it would rival the amount of losses incurred by Enron.

Possibly Rico racketeering law will be applied now to coordinated insider hedge fund short-side manipulation in the last hour of the day and the beating down of stock prices with naked shorting. It certainly looked like the short sellers backed off on this past Friday. It certainly is very positive that the market advanced after the substantial declines in Asia and Europe last Friday.

The 200 day DJI moving average is 26% above the current level of 8630. The 200 day moving average happens to be the upper resistance level of an advance during a bear market. That is the potential top for the advance we believe has now started.

Asian, European, and USA futures markets are somewhat positive this morning. When the short sellers fold and go from the dark side back 70/30 to the long side the stock market advance should be breath taking. But all along that advance it will be a climb up the wall of worry as the economy continues to bottom out. Remember the economy usually bottoms 6 months after the stock market bottoms and unemployment continues to get worse for another 6 months after the economy has bottomed.

The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery. -Winston Churchill

A government which robs Peter to pay Paul can always depend on the support of Paul.
- George Bernard Shaw

Harry Reed said Wall Street would show how critical the Chrysler hedge fund bailout was and hearing that, Wall Street advanced. But then President Bush indicated he would facilitate loans to the auto makers and the market stopped advancing.

Suppose you were an idiot. And suppose you were a member of Congress....
But then I repeat myself. -Mark Twain

He who is willing to sacrifice financial freedom for safety deserves neither.

Asian and European markets are in decline as the USA declines BBC and Scandinavian suggestions that socialism and much higher taxes is what Americans need.


We expect another down day today on Wall Street as Senate Democrats reject the Republican counter offer to avoid chapter 11 bankruptcy but still force concessions that restore auto industry profitability. We said earlier that these proceedings by a lame duck Congress were a disaster and that president elect Obama needed to stop the useless proceedings of his party because all they did was create doom and gloom not solutions.

The bailout is a scandal. A few years ago Chrysler was a German car subsidiary. It was sold at a bargain price to a hedge fund. This little bail out bridge offered Chrysler by congress is already more than what that hedge fund put up in equity to buy Chrysler. It smells rotten like more corruption. The union members now retire early with pay and benefits. So now there are more than three retired or unemployed autoworkers getting close to full salary for every working autoworker.

But it is much worse than just that. We are talking about $billions in profits for the hedge fund owners, paid for by US taxpayers. No wonder so much Wall Street and Soros money flowed into the campaign this past year. Now Soros and the rest want the US taxpayer to pay them back with interest for giving us the best congress that money could buy.

It will be interesting to see if GM is in Chapter 11 bankruptcy proceedings by January as they threatened Congress. They have not even begun to explore the Chapter 11 process so how can the American people believe that GM had any intention of making themselves solvent, ever. Chapter 11 will allow them to survive by restructuring and having people work rather than getting paid for doing nothing.

A more serious concern now is the US Treasury bubble that is forming.

Consider the billions of treasuries sold at low, zero, or even negative interest rates. That is a bubble waiting to pop and drive up interest rates when the frightened fools jump ship again. The US Treasury should be selling longer maturity bonds now so that debt does not come due suddenly and cause a credit squeeze or the printing presses to over heat.

The great demand for USA debt instruments has caused the interest rates on them to turn negative. Yes, some very strange people are so afraid of equities and other currencies and are so confident in the safety of Treasuries that a bubble is forming and it will likely pop. They clearly are plain fools because the USA does not have to default for them to lose their shirts. All that needs to happen is for the stock markets to surge, interest rates to rise, or there is suddenly some great news. Then everyone will want to get rid of their treasuries and back into stocks.

Then those holding the virtually worthless 0% interest treasuries who happen to lose their job or house will be forced to sell their treasuries at a fraction of their principal value. It is no different than when the hedge funds were forced to sell everything because many fools paniced and sold all their hedge funds creating great losses for themselves and others just to go into the treasuries. Money market investments pay interest and are now insured.

He who is willing to sacrifice financial freedom for safety deserves neither.

Buying dries up- corruption biggest Obama challenge

The market rose yesterday but it was clear the buying and short covering was drying up faster that the short selling.

Honest people often fail to see the corruption in others while dishonest people always challenge the honesty of others. The ones with the hanging chad problems and the election challenges tend to be the dishonest folk who expect the worst in everyone else. Al Franken is an example of those who condoned groups that were fraudulently registering voters because until votes were counted it was not known if any of the fraudulent voters were actually voting. Of course then they immediately accused Election Day checkers of discrimination if they did their job and checked too carefully for vote fraud. The reason the dishonest challenge the vigilance and high standards of honest people is because the dishonest expect others to be as corrupt as they are.

How low in corruption can one go than for the Democrat Governor of the corrupt state of Illinois demanding a kick back from candidates he reviews as replacements for Senator Obama from Chicago, the most corrupt city in the USA? Monday at dawn the Democrat governor of Illinois was arrested by the Feds, booked and then released.

The CIA periodically evaluates the corruption level of the nations of the world. The Moslem states of Bangladesh and Nigeria usually come out near or at the bottom of the barrel and Finland is usually one of the least corrupt near the top. The voter registration frauds, the attempts to win Senate seats in court challenges, and the selling of Senate seats is a bad start for the new administration. Some of the most corrupt administrations have been led by untainted but slow witted presidents who oversaw corrupt administrations. Smart presidents do not tolerate corruption unless they too are corrupt.

Optimism dried up yesterday as did stock buying as a result of the scandal in Illinois. We can expect scandal to bring out the sellers today even though the futures are currently higher. Asian and European markets were both mixed early today. The auto bridge loan agreement is seen as a maneuver to pass a compromise this year and then the real auto union deal would be done by the new administration. This is seen as the House majority trying to get Republican fingerprints on the deal so that they can say the Republican’s supported the bailout after the unions demand their kickback.

This column was wrong when we said the laid off auto workers collect 90% of their salary from the auto companies. They apparently get 95% of their old salary and some get public unemployment compensation too. The auto industry needs to go through a restructuring in bankruptcy court because they cannot survive with the current unions sucking the life out of them. It is possible that the Senate will have the brains and courage to reject any bailout before restructuring. Unfortunately President Bush would apparently sign anything he is handed at this point.

A market decline is likely to be short if Obama can get a grip now on his party so they appear less confused and more adept and organized than currently perceived.

Consolidation of Western markets continues, as the rally builds strength

Pro shares and other clever financial gimmicks are now as vulnerable as the phony mortgage derivatives were. They worked only in one way markets. But the stock market is now reversing direction and this is when their infallible gimmicks break down.

Yesterday the market hung on to most of Monday's large gains. It was another opportunity to pick up high dividend stocks with cash and low debt. Today futures indicate a good start for the day.

Asian markets show a much clearer bottom than Western markets and Asian markets were up several percent again as was the norm in the good old days (last year). Asian markets have large domestic consumer bases that will allow them to grow faster than the West for some time.

Shanghai Composite 2.0%, Hang Seng 5.6%, BSE 5.4%, Jakarta Composite 3.9%, Nikkei 3.2%, Straits Times 3.8%, Seoul Composite 3.6%, Taiwan Weighted 4.2%.

European markets are mixed and waiting for the American engine of innovation to resume the advance. The velocity of money refers to the rate at which money flows from hand to hand in an economy and is what results in the monetary multiplier effect. Much of the money injected into the banks was consumed covering bad debts instead of being loaned out. Money is plentiful but is still being hoarded at this time based on the advice of the same predators on Wall Street that have shorted the begesus out of banking and other targeted equities. The short sellers such as Goldman Sachs have already begun racking up losses because they are now highly vulnerable. Perhaps you have heard of naked shorting where more shares of a stock are shorted than exist? It is still being done even though it is not legal because the monitoring of the market is, gently speaking, in chaos. A short covering panic is brewing and some stocks will be bid up tremendously because there are too many naked shorts. As the velocity of money increases back to normal the short side of the Hedge Funds will devastate many funds and portfolios.

Hedge funds that are not prepared for this upturn (that can already be clearly seen in Asian markets) will be forced into liquidation as their short holdings rack up loses. You will see the Pro shares and other short side financial gimmicks are no safer no than the phony mortgage derivatives were. We would get out ASAP because that is how the small investors help the predator short sellers cover and transfer their losses to Joe Investor.

People are so cautious now they are buying US Treasuries that bear no interest at all. That is extremely unwise since printing money is the way governments get rid of their Treasury IOUs. Any government will jump at the opportunity to print as much money as possible as long as it is not inflationary. The turn around in the market will bring those Treasury investors back into the stock market.

Wall Street no longer publishes real market volumes. If you look at Yahoo and others you see the volume is fiction because the DJI, NYSE, and S&P have been fabricate since January 2005. If you go directly to the NYSE and look up April 10, 2007 as the market was rallying it said the volume was 2,510,110,000. If you look up Monday's rally the NYSE said 5,692,796,000 or more than twice the volume. Yet CNBC's totally obtuse Fast Money commentators said the volume is too low to rally. Mad Money and FOX were correct and said the volume is high. The volume is enormous as short sellers are doing their best to sow ignorance and fear because generally ignorance and fear works for them. Fear is flooding the Treasury market with buyers but during this consolidation fear is losing and a short covering panic is looming as a storm on unwise investors that have been lured into the dark side, the short side, of the market. For certain the funds will see the little Joe short sellers eaten alive before they take their fund loses.

We were warning investors last year to get out of stocks before the collapse but Bob Brinker and CNBC advised investors to stay invested. Now they both are saying stay out of equities as we slowly pass a market low. Anyone who would buy and hold should stay out of equities all together because investors should be aware that 60 to 90 days is the longest horizon they should ever consider before re-considering their holdings. Investors should always be prepared to re-allocate and should never intend to hold forever because when they lose 90% of their 401 retirement plans people unfortunately do not have a stomach to continue to hold. Buy and hold psychologically is impossible for most people and the people with the least savvy and will-power are usually the ones who follow the buy and hold philosophy. But Warren Buffet and Jimmy Rogers are continually buying and selling and they see this relative low we are passing through as the buying opportunity of a lifetime. So do we.

We examined the market volume for the last 15 days… and 10 of the 15 had higher volume than average on market advances and lower volume than average on declines showing that buying pressure has been dominating in the last three weeks.

American Socialism is not an option

World markets are generally cautious but positive today. Last night “Mad Money” said it is time to take profits. But don’t let that fool you because I looked at their recommendations and they are still down on average by more than 20%. So “Mad Money” is sending a coded message to get ready for a 20% or more advance in the market.

The wild hedge fund dumping has ended and panic covering of shorts has begun on every opportunity when the market declines. Just as investors continue to have buying opportunities even though the market in general seems to have bottomed, hedge funds will have opportunities to cover their shorts. But once the public is aware that the selling panic is over get ready for a buying panic.

So we expect strength and consolidation for a short period and then a buying frenzy with an intermediate peaking in three to six months.

If your stocks get back to October 2007 levels then do as “Mad Money” says and Ka-Khing! You will be very happy. And for those of you who avoided the panic by getting out in advance, you should try to defer profits to next year when they will be much higher. But do not tell anyone because you will be called a braggart.

Here is why the world will descend into a dark age if America allows the indigent and illegal to grow to the point that they constitute an electoral majority and they decide to redistribute the wealth to themselves.

If America ever adopted socialism the world would lose its economic engine and would become like the movie, “The Plant of the Apes.” When taxpaying Americans become the minority we will know the end of the American era has come. Freedom will then be freely voted out in favor of tyranny.

In East Germany under Communism the sad joke that everyone knew was,

“People pretend to work while the government pretends to pay them.”

Here is the equation for computing the pain of unemployment in socialist/communist states where the government redistributes the unemployment by cutting the work week and adding vacation time.

(Unemployment under socialism) = (unemployment under capitalism) plus 100 times (hr/year reduced worker employment under socialism) / (hr/year worker employment under capitalism)

Socialist countries have shorter work weeks and more vacation to share the pain of higher unemployment, and lower productivity and lower real income. It takes away the sting when everyone suffers together.

Capitalism rewards people who create national wealth and jobs and trickles down the wealth. Under capitalism the indigent live better than most people under socialism and communism but they are unhappy and complain because they a jealous of the more wealthy who they see living a better life.

The socialists wait for patents to expire or modify the capitalist's product designs to circumvent patents so that they do not need to be as creative and productive and can still keep within 20 years to 50 yrs of the American economy. America is the engine of the world not because it has the greatest manufacturing capacity but because it has the fastest and greatest engine of innovation. America needs to be able to produce new technology faster than socialist and communist countries can steal it and produce it with their low paid subsistence and slave labor forces.

The world economies now co-exist in three levels.
1) Capitalism/competition/ liberty is the engine driving innovation/ product superiority/ high productivity/ and then sharing the wealth
2) Socialism/copying/ conformity /redistribution of wealth /product redesign/ mediocrity/ share the pain.
3) Communism/overt patent violation/product and commercial piracy/ group think / envy / punish and kill non-conforming.

Socialism in America is not an option! If the free market capitalist engine of the world economy becomes a socialist state under the new administration then the world will decline to the level of the world in the movie, “Planet of the Apes” with the Socialists the sympathetic Chimpanzees and the Communists the tyrant Gorillas (no free men).

The Roman Empire was once the world’s greatest economic engine. The Roman’s blamed their decline and fall on an illegal tribe of indigent immigrants which they referred to as the “Invasion of the Vandals.” Rome permitted it because initially the barbarians reinforced their army. But eventually the barbarians wanted to share, then to take, and finally to overthrow and vandalize. The actions of the Vandal tribe now define the word vandalism. When the Roman Empire fell the world’s economic engine was destroyed and the world went into the dark ages.

Market psychology, knowledge, truth, mergers, and acquisitions should now result in an historic surge in stock prices.

Obama and the media were over the top during the campaign when they began using the "D" word. President elect Obama now realizes continued use of the "D" word is detrimental to himself politically as well as to America and he has stopped using it. But he still needs to get the media and his people to stop forecasting the worst of all possibilities every time they open their mouths.

Economic news is relative to the outlook and knowledge of investors. The growth now of a positive outlook will bring the realization that the market descended too far in anticipation of a great "D" and now has to correct upward to be consistent with only 1970's type stagflation. Investor knowledge should bring the realization that after the market bottoms it takes on average of six months for the economy to bottom and an average of 12 months for unemployment to peak. Therefore further news of deterioration of the economy and employment should have little negative effect provided President Obama sticks with capitalism and the economy bottoms by the summer of 2009.

America's unemployment will be dampened by the natural reduction in outsourcing and Democrat plans to tax outsourcing and other economic sins that rob Americans and give away our trade secrets. But America already has the lowest unemployment in the world. The European socialists like to reduce unemployment by reducing full time working hours from the standard USA 40+ to something usually well below 36 hours per week. So effectively you have to add at least 10% to their unemployment figures to be consistent with American unemployment statistics. Therefore Britain, Germany and France have more than 18% USA equivalent unemployment.

Socialism does not ease economic pain by encouraging innovation and growth with incentives. Instead socialist countries like to tax innovators and have everyone share the pain. Socialism benefits from the calming mean spirited psychological benefit that arises with the knowledge that everyone else is either just as bad off or even in worse shape. Socialist nations like to use pravda (the socialist word for truth) to delude their population into thinking their way is more equitable and that they have a higher purer appreciation of people and the environment. The Soviet Union's pravda effectively deluded American and European socialists who openly argued that the Soviets were helping not raping their environment and had no Gulag for protestors as we eventually learned.

The Asian markets seemed to be bottoming sooner than the USA and are up sharply again today.

^SSEC Shanghai Composite up 3.57%, ^HSI Hang Seng up 8.66%, ^N225 Nikkei up 5.20%,
^KS11 Seoul Composite up7.48%, ^TWII Taiwan up 4.57%.

The European markets are also up sharply and are waiting in anticipation of a great rally in the USA. They will be open most of this morning and will respond to the direction of American markets which appear ready to start with a small positive momentum after a 6% swing upward Friday as shorts began to worry.

^FCHI CAC (France) up 6.85%, ^GDAXI DAX (Germany) up 6.10%, ^AEX up 6.66%,
^OSEAX OSE up 5.90%, ^OMXSPI Stockholm up 5.05%, ^FTSE (Grand Britannia) up 5.05%.

So far president elect Obama is giving no hint that he wants to make the USA a socialist state. He may do as President Clinton did and abandon his party's far left and steal the best Republican ideas forcing Republicans to come up with new greater ideas. He could do that without political consequences because his support would grow immensely.

OK, so now it looks like we passed this market test too.

On the day we said the window for optimum buying was going to close the market first dropped over two percent. And then investors seemed baffled later as bad news just kept coming in but the market rallied and closed up over 2%. In addition to the bad unemployment news, the media searched under every rock to heap on additional bad news that mentioned the “D” word. "Desperate times call for desperate policy actions," said Nouriel Roubini, economics professor at NYU Stern School. "We are facing the risk of global deflation," he said. "The risk is if [policymakers] do too little you end up in a serious depression (the “D” word)."

If the window of opportunity to buy is closed is it too late now? No it is not too late for three reasons. This method makes the standard assumption that it contains knowledge of cause and effect when in reality it contains knowledge of experience not proven cause and effect. It could very well be that the cause is not what we are measuring but that our method responds to the same causes that the market responds to. In that case while our method responds similarly to the market it may be responding different enough to causes such that it would not be precise.

The second reason that it is not too late is because our method is trained with historical data and statistically optimized so that on average it provides the best result. But all stocks do not behave to the underlying forces and mechanisms driving the market. Individual stocks form something similar to a normal distribution about the mean which is what we use to optimize. The medians for each sector of the market are skewed around the mean with some sectors bottoming sooner and some sectors bottoming later. Therefore the method is not as accurate for individual sectors much less individual stocks.

Third, our method was tuned with three years of recent history and would break down completely if an unforeseen crisis occurred such as Russia invading Poland, an assignation, an act of terrorism in America, or a major scandal. Therefore this method cannot accurately predict crises events.

Together the window on precision would say we could have individual market and individual stock dips over the next week because the method lacks precision and accuracy for individual stocks. Also a crisis could at any time reverse the market and no method developed by man can predict such an unlikely event.

On the cautious side which stocks look most attractive?

1) At market lows we look for individual stocks that are most oversold but with "current ratios" over 1.0. That means they have enough short term money to survive at least 90 days if credit freezes solid. Anything could happen in 90-120 days to reverse the trend. In 2002 the market bottomed in October. It had a profitable selling opportunity that winter but dipped again in March 2003. The low was October 2002 but Bob Brinker said buy in March 2003 on that dip. He said sell in early 2000 but then recommended buying QQQ in late 2000. Bob Brinker had been one of the best market timers until then. Even though he claims not to believe the buy-until-you-die philosophy he fell into that rut in 2000 and still is in it.

2) Next we look for high stable dividends (greater than 5%). We want the high dividends because that means we could hang on for five years and still likely do a lot better than treasuries. Stable dividends imply a cash generating company that is not highly leveraged. We prefer the long term debt is not greater than the equity the stock holders have invested. But in reality a trained investor would tailor the long term debt ratio to the industry.

3) Growth stocks/funds of nations with a lot of potential look attractive. Old socialist countries that are stuck in the socialist mud look unattractive. Socialist countries that are becoming more open to the free market can be very attractive. Another reason why Asian and emerging market funds are attractive now is that in addition to being beaten down, the dollar is at this moment quite strong and we can buy more now at the dollar peak. Then as the economies turn around China (and a few others) should emerge faster because in addition to the world market they have great opportunities for creating greater internal competitive advantages as they develop a better home market and infrastructure. They are now where America was in the late 1800’s. Then as they rise we get the additional better return from the declining dollar which further raises the fund’s market value in the weak dollar denomination.

Ben, Paul, and Roubini's worries should soon evaporate because banks and industry are now ready to invest those $billions they have been given... now that they sense a bottom is forming. What would be the sense of mergers and acquisitions if prices were not about to go up? Here are the different programs that are now set to pump in money and drive up the value of stocks.

TARP: Troubled Asset Relief Program. This is the Treasury's big $700 billion ($850B including pork) program that has been used to prop up financial institutions.

CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.

AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."

TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.

TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.

TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.

SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan's purchase of Bear Stearns in March. Also used to back AIG's balance sheet to avoid total collapse.

PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed's discount window.

Tell others about this new and useful site if you wish it to continue.

Last day of the Christmas sale of American stocks

Ok, we put our methods to another public test and took a risk that we will make a fool of ourselves. No double speak.

Today if the market closes above its previous November 2008 low we will conclude the panic selling is over and the market will soon rebound ending the current hedge fund panic and the buying opportunity of a lifetime. On the other hand if the market breaks the November 2008 low then the new method will have failed this test due to over sensitivity to the whipsaw of the volatile market.

People like to point out that stock markets are one of the FEDs leading indicators and historically bottom 6 months before the Gross Domestic Product bottoms and up to 12 months before unemployment peaks. That is absolutely true and that is why the stock market is a reliable leading indicator of the American economy. That is why if we are at the market bottom now we can anticipate unemployment to continue to worsen for another12 months while the economy deteriorates for another 6 months.

So the market should rise in anticipation that a deflation/depression risk is diminishing.

Again the financial mechanism for the coming rally will be mergers and acquisitions by corporations and astute wealthy investors who just cannot pass up these basement bargains. The source of funds in most cases will be the hoards of cash held by corporations and banks that have been waiting for this bottom. That is why so much bailout money was hoarded before and will now flow too. It is all on the sidelines now waiting to rescue good investments and drive up the whole market analogous to an enormous stock buy-back.

The primary technical mechanism is the bear trap that will be sprung as hedge funds return to their bull market 70%+ long, 30%- short position from their current high levels of shorting.

The primary sustaining mechanism is all the experienced investors like you and me who got out of the market last year and have not been fully invested more than toe deep since then. The experienced investors have begun doing what Warren Buffett and Jim Rogers say they have been doing… selectively buying in since November and will buy much more on any price declines. Today may be that last opportunity before the market surges higher.

The psychological mechanism will be the public realization that in order to get elected many politicians trashed the economy, and the competency of corporation executives and the FED as well as federal administration personnel. Their obituaries for the American free market system and the American Constitution will be proven to be premature. Obama and the American economy are really OK and there was no need for the panic when Obama won. But it did make it clear who was driving down the market since the moment it became clear he would be a presidential candidate. The market then went into free fall the moment his election was announced. Obama however is selecting mostly pragmatic rather than leftists for his government.

When it becomes apparent that this current economic malaise is only a more severe version of 1989-1991 recession and not a depression… then Americans will realized that the market has over reacted and mistakenly discounted a future depression and should only have discounted a recession. That realization will put a relatively silver lining on everything and Americans will start investing again to beat the band.

Last day of the best buying opportunity in this market cycle if not our lifetimes

Tomorrow, Friday December 5, in all likelihood will probably be the last day of the best buying opportunity in this market cycle if not our lifetimes. Bad employment news Friday could first drive the market down to once again within 10% of the recent lows. So we intend to be ready to buy more. Just as hedge funds were forced to sell to raise cash for redemptions, next hedge funds will have margin calls and be forced to buy to cover their enormous short positions.

The energy of the first leg up of the market recovery will catch Wall Street mad money off guard and cause massive closed hedge fund losses of liquidity. This could be the greatest short squeeze ever as hedging transitions from the short side to the long side in a matter of days. The echoes of the explosive first move should be seen over the first quarter of 2009 as the cash influx reverberates into succeeding market sectors.

Remember how mergers and acquisitions always drive stock prices higher? Right now hundreds of companies like JNJ and shrewd investors like Warren Buffett are taking advantage of the depressed prices of corporations to buy them. That can only drive stocks upwards and closer to traditional fair market valuations. Just yesterday Warren Buffet’s offer for entry into the nuclear industry was challenged with a counter offer that doubled his first offer. That is how the market will get bid up by mergers and acquisitions.

That will cause stock market investors to soon realize their folly of being out of the market. They will come back in droves and the short sellers may resist at first… but they will then panic and it is conceivable that the market will recover rapidly as it did in 1987. More than 50% of this year’s investor losses could be recovered by December 31 or shortly thereafter.

We have been testing our Respiral technical method for two years now. See http://investment.suite101.com/discussion.cfm/3561 for the history of the development of the tool from the Spiral (a Parabolic SAR method) combined with the MACD method. They were being tuned to eliminate whipsaw at market highs and lows. We replaced discrete buy and sell turning points to avoid whipsaw and use a transition period instead to allow an orderly transition over a period of time that averages slightly more than a month for reversing our market position. It provides periods for cherry picking into or out of the market. These are the central periods we had from 2007 and 2008 testing. Buy (March 2007), sell (July-October 2007), buy (March 2008), sell (5-28 to 6-12, 2008), and buy (Nov 2008).

Today all world markets feel like the quiet before the storm. Tomorrow will likely be the bear’s last challenge and we will in all probability look back on this past year as another short lived panic and recovery as hundreds of billions of dollars flow in from the federal printing presses, incredible values tempt investors, and the cost of borrowing rests at record lows.

Credit market pressure eases. Historic buying opportunity is about to end.

The 3-month Libor rate edged lower to 2.21% Tuesday from 2.22%. Its record high was 6.88%, when the credit crisis was at its worst.

The credit market showed signs of improvement Tuesday as lending rates eased and investors anticipate European central banks will lower key lending rates this week, making borrowing cheaper in Europe to spur lending. Treasuries rallied and yields remain near record lows keeping the cost of American debt at historic lows. Many wonder why the Treasury doesn’t lock in the low rates by offering long terms again. "The low rates on Treasury bills and the Treasury market in general is a sign of fear that is inherent in the marketplace - it is that flight to quality trade," said Kenneth Naehu, managing director and head of fixed income at Bel Air Investment Advisors.

The credit market is "healing," but banks are still hesitant to lend freely to each other, said William Larkin, portfolio manager at Cabot Money Management.

Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages.
The stock market is poised to start lower today giving investors another chance to get back in the market. Investors who bailed out in recent weeks will be sorry they listened to “Mad Money” when the market begins its combined year end rally, election year rally, and the rally from fear to confidence that we are just in a recession similar to the period of bank failures from 1989 to 1991.

We still predict history will show that this week was the end of an historic buying period that lasted more than a month.

Warren Buffet abandons wind energy in favor of nuclear energy.

Warren Buffett, a key advisor of president elect Obama, recently put on hold his wind energy plans in lieu of the fact that alternative energy is not practical or cost effective compared with clean nuclear energy.

But EDF has now bid up Warren Buffett’s Constellation Nuclear Clean Energy Offer. Electricite de France SA, the world’s biggest operator of atomic reactors, offered to pay $52 a share for half of Constellation Energy Group Inc.’s nuclear business to expand French interests in the U.S. and challenge a rival bid of $25.15 a share from billionaire Warren Buffett.

Bob Brinker sees nuclear energy as essential to the survival of American competitiveness. He had a nuclear scientist on his money talk show several months ago who explained the French nuclear program and why nuclear power was the answer to our energy crisis. Ultimately we would need to develop fusion power but nuclear power from fission could buy us a few thousand years to develop a cost effective fusion energy source. Fusion is what powers our sun.

France's decision to launch a large nuclear program dates back to 1973 and the events in the Middle East that they refer to as the "oil shock." The quadrupling of the price of oil by OPEC nations was indeed a shock for France because at that time most of its electricity came from oil burning plants. France had and still has very few natural energy resources. It has no oil, no gas and her coal resources are very poor and virtually exhausted. In the USA environmentalists convinced President Carter that the world was running out of oil and there was nothing he could do. The environmentalists laughed when candidate Ronald Reagan proposed the world increase the supply side of oil.

French policy makers correctly saw only one way for France to achieve energy independence: nuclear energy, a source of energy so compact that a few pounds of fissionable uranium are all the fuel needed to run a big city for a year. Plans were drawn up to introduce the most comprehensive national nuclear energy program in history. Over the next 15 years France installed 56 nuclear reactors, satisfying its power needs and even exporting electricity to other European countries. The American supply side plan gave the world another thirty years of breathing room until the growth of the undeveloped countries like China and India overwhelmed supply. Now we finally cannot find enough oil to sustain world growth.

American environmentalists claim there is plenty of oil and we should drive up American energy costs until wind and bio-mass energy is competitive. But the immediate effects of their ideas have been to drive up the price of food and cause greater world starvation especially in corn dependent societies. The American environmentalists have also shut down most American hydroelectric plants and removed the dams because they are afraid it hinders the fish spawning in rivers. The state of Washington used to export their hydroelectric energy but now they don't have enough for themselves. The American environmentalists stopped the recent wind energy farm proposals on the New England seacoast because they were afraid that sea gulls will fly into the slowly rotating blades and be stunned and could drown. Now they say that there is plenty of oil and America should not begin drilling to have oil coming on line when the world economy recovers from the current recession. The French have concluded that the environmentalist use psychology to exploit deep seated human myths and fears.

Ironically, the French nuclear program is based on American technology. After experimenting with their own gas-cooled reactors in the 1960s, the French gave up and purchased American Pressurized Water Reactors designed by Westinghouse. Sticking to just one design meant the 56 plants were much cheaper to build than in the US. Moreover, management of safety issues was much easier: the lessons from any incident at one plant could be quickly learned by managers of the other 55 plants. The "return of experience" says Mandil is much greater in a standardized system than in a free for all, with many different designs managed by many different utilities as we have in America.

Things were going very well until the late 80s when another nuclear issue surfaced that threatened to derail their very successful program: nuclear waste. Now, using the very recovery processes that the American environmentalists oppose in the USA the French were able to consume most of the waste to create additional energy.

French technocrats had never thought that the waste issue would be much of a problem. From the beginning the French had been recycling their nuclear waste, reclaiming the plutonium and unused uranium and fabricating new fuel elements. This not only gave additional energy reducing the need for the fuel, it reduced the volume and longevity of French radioactive waste. The volume of the ultimate high-level waste was indeed very small: the contribution of a family of four using electricity for 20 years is a glass cylinder the size of a cigarette lighter. It was assumed that this high-level waste would be buried in underground geological storage and in the 80s French engineers began digging exploratory holes in France's rural regions.

To the astonishment of France's technocrats, the populations in these regions were extremely unhappy. There were riots. The same rural regions that had actively lobbied to become nuclear power plant sites were openly hostile to the idea of being selected as France's nuclear waste dump. In retrospect, Mandil says, it's not surprising. It's not the risk of a waste site, so much as the lack of any perceived benefit. "People in France can be proud of their nuclear plants, but nobody wants to be proud of having a nuclear dustbin under its feet." In 1990, all activity was stopped and the matter was turned over to the French parliament, who appointed a politician, Monsieur Bataille, to look into the matter.

Christian Bataille resembles the French comedian Jacques Tati. His face breaks into a broad grin when asked why he was appointed to this task. "They were desperate," he says. "In France, executive power dominates much more than in Anglo-Saxon countries. So that if the Executive asks parliament to do something it means they are really at the end of their ideas."

Bataille went and spoke to the people who were protesting and soon realized that the engineers and bureaucrats had greatly misunderstood the psychology of the French people. The technocrats had seen the problem in technical terms. To them, the cheapest and safest solution was to permanently bury the waste underground. But for the rural French says Bataille, "the idea of burying the waste awoke the most profound human myths. In France we bury the dead, we don't bury nuclear waste...there was an idea of profanation of the soil, desecration of the Earth."

Bataille discovered that the rural populations had an idea of "Parisians, the consumers of electricity, coming to the countryside, going to the bottom of your garden with a spade, digging a hole and burying nuclear waste, permanently." Using the word permanently was especially clumsy says Bataille because it left the impression that the authorities were abandoning the waste forever and would never come back to take care of it.

Fighting the objections of technical experts who argued it would increase costs; Bataille introduced the notions of reversibility and stocking. Waste should not be buried permanently but rather stocked in a way that made it accessible at some time in the future. Europeans felt much happier with the idea of a "stocking center" than a "nuclear graveyard". Was this just a semantic difference? No, says Bataille. Stocking waste and watching it involves a commitment to the future. It implies that the waste will not be forgotten. It implies that the authorities will continue to be responsible. And, says Bataille, it offers some possibility of future advances. "Today we stock containers of waste because currently scientists don't know how to reduce or eliminate the toxicity, but maybe in 100 years perhaps scientists will."

Bataille began working on a new law that he presented to parliament in 1991. It laid plans to build 3-4 research laboratories at various sites. These laboratories would be charged with investigating various options, including deep geological storage, above ground stocking and transmutation and detoxification of waste. But in reality the nuclear energy process itself is a detoxification and purification process. Fissionable material already present it the earth is irradiating everything around it. That material is mined and concentrated so that a sustained much faster nuclear reaction can occur and in days the radiation content is reduced to what normally would occur in millions of years. Essentially each reactor gets its energy by converting radioactive Uranium into non-radioactive lead. The French then remove other radioactive wastes such as any created Plutonium by concentrating them and extracting their energy again removing radioactivity. The waste material produced from the radiating of the surrounding earth is the same kind of low level radioactive waste that the radioactive uranium produces if it is left in the ground. Therefore the nuclear energy program purifies the earth by removing highly radioactive materials and replacing them with the low level radioactive materials that will occur anyway if the Uranium is left undisturbed. These solid wastes are turned into a glass product that virtually eliminates any possibility of being penetrated or dissolved by water in the earth. Then they are store in extremely arid locations similar to the locations where uranium is mined that in addition have no ground water. The glass product is sealed in stainless steel containers that can be inspected, removed, reprocessed at a later date or further encapsulated in reinforced concrete. The net effect is the detoxification of the earth by accelerating the decay and elimination of the earth's radioactive materials (i.e. uranium) in nuclear power plants to produce low cost nuclear energy.

But as with hydroelectric plants (i.e. the state of Washington) and windmills on the Atlantic coast (i.e. Naragansette bay), and offshore oil drilling… American environmentalists oppose nuclear energy (i.e. anywhere). These sources of energy have no CO2 foot print but American environmentalists don’t want them in their back yard. Instead American environmentalists support the continued use of fossil fuels at prices that impoverish Americans.

The energy consumed in producing a glass solar panel (mining, melting, fabricating) exceeds the net energy produced in the life of the panel. The actual output of wind energy farms has been demonstrated to be about 25% of their quoted (design) output. The goal of American environmentalists is not the lowering of our carbon footprint but is effectively the enrichment of a few American environmentalist manufacturers who cannot produce any products with a net energy benefit, the Arab kings and princes, and world oil company executives. And they blame you and me who they force to consume oil for the C02 damage to the environment. The American environmentalists offer no worldwide solution except blame, regulation, worldwide poverty and ultimately starvation.

It is therefore not surprising that Warren Buffett, a key Obama advisor recognizes that nuclear energy is America’s future.

We see the intermediate and short term trends now as upward and rocky.

Volatility is high now because the market is highly shorted and hedge funds are pounding the markets trying to scare out nervous investors. China appears to be stabilizing their market now to maintain political stability.

We believe the window of opportunity to buy into the market near the low will close within a week because the markets are poised to surge upward. Volatility remains high and the opportunity to buy in at reasonable prices will vanish quickly as the short side of the market gradually is trapped in a cascade of short squeezes like the market has never seen before.

"Mad Money" and other stock pumpers who claimed they could make money buying stocks near their high could do so only briefly because their recommended stocks rose upon the recommendation's announcement and then fell such that those buying the stocks after the recommendations (essentially every small investor) lost money. That has been reported by many that have followed pump and dump strategies. But now the "Mad" money is on the short side and they recommend that their listeners sell at every rally and thus bail short sellers out as the short sellers still try to pound the market down.

But the market has lost every cent the "buy high and hold" advisors have claimed could be made in the past thereby discrediting their long strategy. And their calculations were always bogus anyway because when you track the price history of stocks and funds back in time you obviously are tracking equities that survived until today and you are not accounting for the equities of the enterprises that failed along the way and were removed from every market average as soon as they stagnated. Indicies replace descending stocks with advancing stocks as a matter of course.

The new selling strategy Mad Money recommends will be discredited next. The market manipulators previously adhered to at most a 30% to 70% short to long hedge position in the previous bull market. We would expect they are at an incredibly risky position of 70% or more short at this time to take advantage of the bear market and short sellers have already squeezed more out of the market than our recession can possibly deliver.

We expect the squeeze will grow over a period of at least 90 days. The folks who now dump and spread negativity fully believe in their strategy because it has worked for a several months now. So as the market rises they will increase their short position and precipitate volatile sell offs as we saw yesterday. Ultimately their losses will accumulate and the upside volatility will grow and reach a climax as the short sellers are forced to cover their positions and go bankrupt. The run up in prices will last until the short positions drop well below 30% again. That should take several months.

Therefore we see the intermediate and short term trends now as upward and rocky.

Confidence that Obama is centrist and not a socialist is raising hope in America.

We believe the window of opportunity to buy into the market near the low will close within a week because Obama is raising American confidence and the markets are poised to surge upward.

Energy price increases where primarily responsible for recent lower consumer spending not the variable rate mortgages. People were hit with the doubling of heating and cooling costs not just higher interest rates last year. So dropping oil prices gave a $1000 Christmas gift to many people living in North America and Europe.

The drop in the oil price was just in time for people to fill their heating oil tanks for the winter with $1000 savings from prices just four months ago. In many case the cost this season is lower than last year and still declining.

Also, any people we know cut gasoline consumption 25% to 50% since last year. For some it was as easy as husband and wife switching cars so that the energy efficient car was used for distant commuting and the turkey gas gobbler car was used for local driving only when the efficient car was not available. This cutback in consumption will cause oil prices to drop far below the level two years ago and is showing up now as the biggest effective tax reduction in five years for main street shoppers. So retail sales will be up this season and consumer confidence will rise now.

Asian stocks snapped a six-day winning streak with investors realizing seven straight up days was asking too much. European stocks however are up 2% to 3%. American stocks are poised to start out fairly low but are ready to surge again this week. Our indicators are saying that this is the last week of opportunity to get aboard before the market surges and everyone says the market’s historic bottom is behind us. That is based on volume, MACD and Parabolic SAR trends.

The media is as over pessimistic now as they were over optimistic last year when a little truth on their part would have helped investors lighten up near the market’s top. Last year we surveyed the shopping malls and warned that consumers stayed home and parking lots were mostly empty. It was not until January of 2008 that the media had to tell the truth about the FED's dismal retail sales report. This year we are seeing parking lots much fuller yet estimates are only that sales are up 7% from last year. We expect the media’s pessimism will not end until it is too late for investor’s to get back into the market at its historically low prices. January 2009 will be when the clueless media must officially report the surge in retail sales.

Again, we believe the window of opportunity to buy into the market near the low will close within a week. Confidence in Obama being a centrist and not a socialist is raising hope in America.

Market Exuberance

Our technical indicators show the best buying opportunity started at the end of October and should continue into next week.

After four rare American market advances in a row the traders are hedging bets on the low side.

While legendary investors Warren Buffett and Jim Rogers may have been at odds on the Fannie/Freddie Bailout, they are in complete agreement that we are at an investment buying opportunity of a lifetime. That window of opportunity will end soon as hedge funds lighten up on their short side to reflect only a recession rather than an economic disaster. We expect shoppers to come out after months of uncertainties caused by presidential campaign rhetoric.

As a reminder… during the campaign the Democrats brought out the “D” word and expressed mocking contempt for the abilities of the Republican administration. The Republican’s on the other hand painted the Democrats as socialists about to be elected by 40% of the population who have no desire to work for a living, who pay no taxes, and who planned to vote by the bus load for Democrats (on or two times at least) to get a big re-distribution handout taken from working Americans. The fear tactics worked, polarized the country and drove the economy to the brink. But now Americans know what was said during the campaign was exaggerated. The pronounce death of America was premature. Just as Clinton did, Barack Obama is poised to disarm Republicans and get their support by adopting the more rational Republican platform with regards to energy.

That has all ended and the extreme pessimism is busting into exuberance. We anticipate that after the recent 15% rise from the market bottom that we will resume with at least another 20% rise starting within about a week. That is why we say the window of opportunity to get back into the market will be closed within about a week. We could be in for seeing a short-squeeze of a lifetime which could possibly briefly cancel most of this year’s loss as the markets have a volatile upward swing in prices.

Barack Obama pledged "Help is on the way,"

Our technical indicators show the best buying opportunity started at the end of October and should continue into next week.

A set of economic reports out Wednesday were predictably gloomy for the pessimistic media, but the stock market continued its winning streak. The Dow Jones industrials rose and for the first time since April 15-18 there were four straight days of gains. It was S&P's steepest climb since 1933, as a rally in oil prices lifted energy shares and investors speculated President-elect Barack Obama’s economic team will bolster growth.

The market reversed losses from early in the day after President-elect Barack Obama pledged to have a plan to deal with the nation's economic crisis on his first day in office. "Help is on the way," he said.

It affected investors who are gaining confidence that the nation's financial system will not go on the slippery slope of socialism with already 40% of Americans not paying income taxes. When the majority pays not taxes and elects their president America will go down the tubes the way auto unions destroyed the industry productivity by taking salaries for doing nothing. The stock market bolted higher Wednesday, propelling the Dow Jones industrials and Standard & Poor's 500 index and confirming the current relative market bottom.

Asian technology stocks gained last night and Europe is off to a good start today while American markets are closed for Thanksgiving.

Warren Buffett has been buying since the beginning of October. Jim Rogers covered most of his shorts and went long in Chinese equities, commodities and agriculture starting at the end of October. We too prefer Asia markets and emerging markets and high dividend commodity related equties at this time.

We predict the immediate buying opportunity will be over in about 5 business days, and the market will then begin to rise more rapidly to the 200 day moving average by March 2009. We cannot estimate yet if this is the bear market bottom or if the bear will test this area again sometime next year. Even systemic sector related uncertainty is as unpredictable now as random events.

Much good news today, but four days in a row of rallying would be extraordinary.

Weekly jobless claims fell 14K to 529K a welcomed sign in the holiday season and Tiffany topped income estimates.

The EU drafted a $256B two-year recovery plan requires that the 27 governments of the European Union work together with a stimulus plan representing a significant 1.5 percent of EU gross domestic product.


China cuts interest rates in an effort to boost economic growth and private borrowing, China took its biggest cut since 1997, 1.08% from a satanic 6.66% to, to a good-fortune 5.58%. Beijing is trying to shore up consumer and investor confidence. Communist leaders worry about rising job losses -- especially in export industries hit by weak global demand -- and possible unrest. Just this week, the World Bank cut its forecast for China's growth next year from 9.2% to 7.5%, the lowest level since 1990.

The USA treasury Department unveiled a new rescue program that will also require any institution participating in the program to comply with its restrictions on executive compensation including limitations on the institution’s expenditures or bonuses, to protect the taxpayers’ interests and reduce ongoing risks to the financial system.

Asian markets were up; European markets await hint of USA market direction. Only if we continue the market bounce will we likely see the US markets advance a fourth day without shaking out some Jim Cramer sellers.

At the top of the market Jim Cramer's advice was only to buy stocks making new tops. Studies show investors made no money following that advice in a bull market and lost their shirts this year. Now that he is down 40% to 50% he advises people to sell on advances near the market bottom and buy back on declines. So far that is churning in the highly volatile market and reducing what little money his followers still have.

We used to publish as BoltonCT on Suite101. We test several indicators including an S&P parabolic SAR method we call our Re-Spiral method that gives a start and end date to cherry pick in and out of the market. During the last year the buy and sell periods were as follows.

Sell 7-3-07 to 11-02-07
Buy 2-27-08 to 4-4-08
Sell 5-28-08 to 6-12-08
We are now in a buying test period.

President elect Obama is proving to be pragmatic

A short squeeze of historic proportions is coming due to increasing credibility of president elect Obama.

Nixon had detent with China, and Regan had detent with the Soviet Union. Who would have expected such hawks to make detent with communists? But that was logical because they had credibility. So too, only the Democrats can fix the GM problem because they have the credibility needed to face down union excesses that have brought down the American auto industry.

Too much risk is what makes markets and business go down in value. Uncertainty is risk, and Obama has begun to reduce uncertainty. Main Street hates uncertainty too. Almost everyone hates uncertainty.

The people in this world who think about, build, and invest in world economies are beginning to see that president elect Obama has a surprising lot of Blue-dog Democrat qualities that could allow him to wrestle the squirmy financial markets back into the old conventional recession box far away from the new "D" quagmire. We hope he rationally explains to the big three automotive companies that they must go through bankruptcy and shed the practice of paying workers 90% of their salary when they have no work to do and allow early retirement at age 55. Auto workers should be required to work for a living and perhaps then they would be competitive again.

And we certainly hope president elect Obama will not allow unions to take away the American traditional right of workers to always have a secret ballot for votes. Taking away the secret ballot would unfortunately be old world totalitarianism and gangsterism condoned by the Democrat party in power.

With Blue-dog programs, president elect Obama will get the support of most Americans and the economic crises of fear should abate.

Next we may be surprised by president elect Obama's energy policy. Europe is way ahead of America there and has realistic goals of up to 10% solar related energy sources. America though has mentally challenged environmentalist who on one hand want a 20% solar energy goal but on the other hand don't want it in their back yard (like windmills in places like off the shore of Massachusetts where they could work efficiently). They would waste ten times the development costs to double solar output using solar panels that harvest less energy than they require in manufacturing. European leaders and the exceedingly rare sane world environmentalists support clean nuclear energy but some American environmentalists prefer going back to dirt roads and burning dry cow dung in kitchen stoves like they do in India (some want to ferment it first to make gas in our back yards to burn).

But president elect Obama mentioned nuclear energy during the debates as the longer term solution. So perhaps president elect Obama will start a nuclear generation program which would actually make more sense.

As for the market, a short squeeze of historic proportions is about to begin as uncertainty wanes.