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.
Friday, November 28, 2008
Thursday, November 27, 2008
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.
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.
Wednesday, November 26, 2008
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.
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.
Tuesday, November 25, 2008
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.
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.
Monday, November 24, 2008
Obama dream team
This weekend Obama passed with flying colors.
President Elect Obama seems to have begun to act like the next president with effective actions and hope replacing previous weeks of vapid change monologues and economic fear finger pointing.
Lame duck president Bush has now become calculatingly negative but no one listens to him any more. This weekend at the Asian Economic Summit he said protectionism leads to the "D" word. This is something everyone in the room learned in third grade and was the first time he was broadly reported using the "D" word. Usually he is more responsible. If he sticks his foot in his mouth again like that... then President Elect Obama can ram it down his throat and say President Bush's white knuckled fear mongering is hurting America. It is time for these leaders to put up or shut up and stop trying to always blame someone else or terrorize the financial community just to seem more important and powerful than others.
The bailout of the incompetent management of Citicorp would normally mean a down day for the economic markets today but the new leadership and positivism of President Elect Obama and his dream team may wash away that bad news.
Japan is the fragile canary we use to test if the air in the financial coalmines is fit to breathe. Japan's market faltered first last year and led us down into this bear market. Now Japan seems to be showing evidence of having completed a market bottom. Most European markets are now giving ambiguous signals due to the high volatility, but Asian markets seem to be more accustomed to the volatility and are showing a better indication that the market bottom has now been established.
Today we will see if the failure of the lower resistance levels in American and European markets last week was a classic head fake to shake out the last of the panic sellers. Anyone with a brain now would be hesitant to short this market with equity values now at historic highs putting the risk of an earth shaking rally at an all time high.
We estimate that a rally now could easily extend to between 25% and 30% in its first spike-up and beautify and perfume the current dismal fund results heading into the year-end fund reporting period. And we have the recent calm measured and intelligent leadership of President Elect Obama to thank for a more positive national outlook. That market rise is consistent to a rise to the traditional 200 day moving average resistance level and as large as it seems it would still be a bear market. A bull market would have the the lower not the upper resistance level at the 200 day moving average resistance level.
President Elect Obama seems to have begun to act like the next president with effective actions and hope replacing previous weeks of vapid change monologues and economic fear finger pointing.
Lame duck president Bush has now become calculatingly negative but no one listens to him any more. This weekend at the Asian Economic Summit he said protectionism leads to the "D" word. This is something everyone in the room learned in third grade and was the first time he was broadly reported using the "D" word. Usually he is more responsible. If he sticks his foot in his mouth again like that... then President Elect Obama can ram it down his throat and say President Bush's white knuckled fear mongering is hurting America. It is time for these leaders to put up or shut up and stop trying to always blame someone else or terrorize the financial community just to seem more important and powerful than others.
The bailout of the incompetent management of Citicorp would normally mean a down day for the economic markets today but the new leadership and positivism of President Elect Obama and his dream team may wash away that bad news.
Japan is the fragile canary we use to test if the air in the financial coalmines is fit to breathe. Japan's market faltered first last year and led us down into this bear market. Now Japan seems to be showing evidence of having completed a market bottom. Most European markets are now giving ambiguous signals due to the high volatility, but Asian markets seem to be more accustomed to the volatility and are showing a better indication that the market bottom has now been established.
Today we will see if the failure of the lower resistance levels in American and European markets last week was a classic head fake to shake out the last of the panic sellers. Anyone with a brain now would be hesitant to short this market with equity values now at historic highs putting the risk of an earth shaking rally at an all time high.
We estimate that a rally now could easily extend to between 25% and 30% in its first spike-up and beautify and perfume the current dismal fund results heading into the year-end fund reporting period. And we have the recent calm measured and intelligent leadership of President Elect Obama to thank for a more positive national outlook. That market rise is consistent to a rise to the traditional 200 day moving average resistance level and as large as it seems it would still be a bear market. A bull market would have the the lower not the upper resistance level at the 200 day moving average resistance level.
Saturday, November 22, 2008
The movers and shakers of the world see Obama and are shaking.
President Elect Obama continues to subconsciously undermine the economy.
"The great difference between those who succeed and those who fail does not consist in the amount of work done by each but in the amount of intelligent work. Many of those who fail most ignominiously do enough to achieve grand success but they labor haphazardly at whatever they are assigned, building up with one hand to tear down with the other. They do not grasp circumstances and change them into opportunities. They have no faculty for turning honest defeats into telling victories. With ability enough and ample time, the major ingredients of success, they are forever throwing back and forth an empty shuttle and the real web of their life is never woven."
Og Mandino
Wake up!Americans are beginning to see what Obama has been doing. He is like a new misguided purchaser of a restaurant who is so ambitious, so calculating, and so confused that subconsciously he thinks he has to make the restaurant a shambles before the deal closes so that he can say how bad it was before he became the new manager. So each night he goes the current owner’s restaurant and yells fire, fire. Someone accidentally knocks over a candle and again Obama yells fire, fire… and this time he is telling the truth. But then he says, "I am not the manager yet so I can’t help you." "The restaurant is facing an extreme crisis of historic proportions!" So people panic and Obama secretly hopes the restaurant will only smolder with soaring loses and unemployed workers until the deal closes so he can mock the previous owner and claim he, Obama, raised the restaurant from its ashes. Unfortunately Obama still does not realize the panic he started that knocked over the candle may do extreme damage and could possibly burn the restaurant down before he takes over. And historians may actually one day point out that Obama's irresponsible behavior and unbridled voice of economic death probably is the cause.Americans are not oblivious to such calculated negativity.
Prior to this election it was pointed out that in previous elections of a Democrat after a two term Republican... the stock market surged. This year instead, the day of the 2008 election when the polls showed that McCain could beat Obama, the market soared but since Obama won, the market has nose dived. It is evident that investors and worker pension fund managers think the Obama administration is an economic death star and people fear that tyrants historically liked to talk down their countries into economic chaos before they took over. It would be so easy for Obama to overcome this world wide fear of Obama. Sure world socialists, terrorists, potheads, and communists overwealmingly preferred Obama to McCain but the recent Obama induced drop in the value of all free markets has been international in scope. Barely more than half of American voters chose Obama. The movers and shakers of the world see Obama and are shaking... with fear.
President-elect Obama provided some encouragement for markets when he announced that his replacement for retiring Treasury Secretary Paulson would be New York Fed president Timothy Geither. That was credited with producing yesterday's big snap-back rally. Geither is a free market thinker and that is encouraging. Now President-elect Obama needs to start talking up the economy and produce a few working free market capitalistic ideas. Even Red China’s President HU Jintao knows how to do that.
"The great difference between those who succeed and those who fail does not consist in the amount of work done by each but in the amount of intelligent work. Many of those who fail most ignominiously do enough to achieve grand success but they labor haphazardly at whatever they are assigned, building up with one hand to tear down with the other. They do not grasp circumstances and change them into opportunities. They have no faculty for turning honest defeats into telling victories. With ability enough and ample time, the major ingredients of success, they are forever throwing back and forth an empty shuttle and the real web of their life is never woven."
Og Mandino
Wake up!Americans are beginning to see what Obama has been doing. He is like a new misguided purchaser of a restaurant who is so ambitious, so calculating, and so confused that subconsciously he thinks he has to make the restaurant a shambles before the deal closes so that he can say how bad it was before he became the new manager. So each night he goes the current owner’s restaurant and yells fire, fire. Someone accidentally knocks over a candle and again Obama yells fire, fire… and this time he is telling the truth. But then he says, "I am not the manager yet so I can’t help you." "The restaurant is facing an extreme crisis of historic proportions!" So people panic and Obama secretly hopes the restaurant will only smolder with soaring loses and unemployed workers until the deal closes so he can mock the previous owner and claim he, Obama, raised the restaurant from its ashes. Unfortunately Obama still does not realize the panic he started that knocked over the candle may do extreme damage and could possibly burn the restaurant down before he takes over. And historians may actually one day point out that Obama's irresponsible behavior and unbridled voice of economic death probably is the cause.Americans are not oblivious to such calculated negativity.
Prior to this election it was pointed out that in previous elections of a Democrat after a two term Republican... the stock market surged. This year instead, the day of the 2008 election when the polls showed that McCain could beat Obama, the market soared but since Obama won, the market has nose dived. It is evident that investors and worker pension fund managers think the Obama administration is an economic death star and people fear that tyrants historically liked to talk down their countries into economic chaos before they took over. It would be so easy for Obama to overcome this world wide fear of Obama. Sure world socialists, terrorists, potheads, and communists overwealmingly preferred Obama to McCain but the recent Obama induced drop in the value of all free markets has been international in scope. Barely more than half of American voters chose Obama. The movers and shakers of the world see Obama and are shaking... with fear.
President-elect Obama provided some encouragement for markets when he announced that his replacement for retiring Treasury Secretary Paulson would be New York Fed president Timothy Geither. That was credited with producing yesterday's big snap-back rally. Geither is a free market thinker and that is encouraging. Now President-elect Obama needs to start talking up the economy and produce a few working free market capitalistic ideas. Even Red China’s President HU Jintao knows how to do that.
Friday, November 21, 2008
Markets poised to rise, just waiting for President Elect Obama to provide the pretext
Hit the ground running? How about just waking up!
The last democrat to be president hit the ground running the week after he won the election. President elect Clinton put the word out to corporate leaders that he wanted to meet with them and get their ideas for the economy. Clinton did not let the 1992 recession of his predecessor put the economy at the point of collapse. Clinton did not make excuses for doing nothing like saying we cannot have two presidents. Clinton was not caught catching a nap before he took office.
Since the President Elect Obama mocked Senator McCain for saying the economic American economic fundamentals were sound… the economy started its nosedive. The nosedive got worse as Obama and McCain proposed $750 billion bailout. Investors know that socialism and the inevitable nationalization of industry would destroy the value of equities like it is already doing to the big three auto industry. Socialism to most Americans implies first economic and then moral bankruptcy such as paying autoworkers not to work.
Last night James Cramer asked when President Elect Obama would start doing something other than trounce the economy? Cramer said the lame duck President and Congress can't do anything now so it is time for Obama to show he has some of the leadership skills of his predecessor Bill Clinton who actually did hit the ground running. Cramer indicated that a depression was possible if Obama continues to show no leadership. That means President Elect Obama is beginning to be perceived as the cause of the economic chaos during his campaign against the American economy with his negativism, his failure to show Clintonesque leadership, and Obama's willingness to allow fears of socialistic nationalism grow and destroy faith in the American free market system.
Destroying the American economy is now being perceived as the strategy used to discredit past free market policies and lead to the victory of Obama in the election. I don't think it is true but Obama is doing nothing to help the free market economy or to give any hope that he supports the reforms of even the Clinton administration.
Two days ago James Cramer of "Mad Money" spread fear saying the market could lose another 50%. Yesterday the markets dropped only 6% on in spite of high volume. Fear mongering by the media and the newly elected is being perceived as an attempt to create damage during the Bush administration so that the new administration looks better. But it is being done at the expense of all Americans and Americans will not forget this irresponsible behavior. It is time to stop trashing the economy and work for solutions. Nationalizing the automobile industry by giving them money for a stake in them will further undermine the American free market system. If President Elect Obama is not a socialist then he should show his cards now and ease market fears.
Yet yesterday showed that the American markets are ready to surge on any positive pretext. If Obama gives a positive pretext he will get the credit for the surge. If President Bush gives the pretext and the surge occurs in spite of Obama's negativism then Obama will take office when the market has nowhere to go and history will see Obama's methods to be contrary to the best interests of Americans. Yesterday the investors fought off a high volume of short selling and the market failed to collapse into disorder. That means the market is poised now to recover with a record advance on record volume. But it needs a good pretext.
The last democrat to be president hit the ground running the week after he won the election. President elect Clinton put the word out to corporate leaders that he wanted to meet with them and get their ideas for the economy. Clinton did not let the 1992 recession of his predecessor put the economy at the point of collapse. Clinton did not make excuses for doing nothing like saying we cannot have two presidents. Clinton was not caught catching a nap before he took office.
Since the President Elect Obama mocked Senator McCain for saying the economic American economic fundamentals were sound… the economy started its nosedive. The nosedive got worse as Obama and McCain proposed $750 billion bailout. Investors know that socialism and the inevitable nationalization of industry would destroy the value of equities like it is already doing to the big three auto industry. Socialism to most Americans implies first economic and then moral bankruptcy such as paying autoworkers not to work.
Last night James Cramer asked when President Elect Obama would start doing something other than trounce the economy? Cramer said the lame duck President and Congress can't do anything now so it is time for Obama to show he has some of the leadership skills of his predecessor Bill Clinton who actually did hit the ground running. Cramer indicated that a depression was possible if Obama continues to show no leadership. That means President Elect Obama is beginning to be perceived as the cause of the economic chaos during his campaign against the American economy with his negativism, his failure to show Clintonesque leadership, and Obama's willingness to allow fears of socialistic nationalism grow and destroy faith in the American free market system.
Destroying the American economy is now being perceived as the strategy used to discredit past free market policies and lead to the victory of Obama in the election. I don't think it is true but Obama is doing nothing to help the free market economy or to give any hope that he supports the reforms of even the Clinton administration.
Two days ago James Cramer of "Mad Money" spread fear saying the market could lose another 50%. Yesterday the markets dropped only 6% on in spite of high volume. Fear mongering by the media and the newly elected is being perceived as an attempt to create damage during the Bush administration so that the new administration looks better. But it is being done at the expense of all Americans and Americans will not forget this irresponsible behavior. It is time to stop trashing the economy and work for solutions. Nationalizing the automobile industry by giving them money for a stake in them will further undermine the American free market system. If President Elect Obama is not a socialist then he should show his cards now and ease market fears.
Yet yesterday showed that the American markets are ready to surge on any positive pretext. If Obama gives a positive pretext he will get the credit for the surge. If President Bush gives the pretext and the surge occurs in spite of Obama's negativism then Obama will take office when the market has nowhere to go and history will see Obama's methods to be contrary to the best interests of Americans. Yesterday the investors fought off a high volume of short selling and the market failed to collapse into disorder. That means the market is poised now to recover with a record advance on record volume. But it needs a good pretext.
Thursday, November 20, 2008
Economic Depression: cause and a solution
Cause:
Economic depressions and hyperinflation are unstable collapses in asset value or monetary value. Depressions wipe out the debtor’s ownership and hyperinflation wipes out the saver’s cash. An economic depression is often followed by hyperinflation as happened in Germany and other countries. Either or both instabilities can lead to political chaos.
A depression wipes out deep debtors first and as fear grows it successively wipes out even the minor debtors. Fear carried by the opportunistic media and fed by opportunist politicians, short sellers and asset buyers drives a relatively healthy economy into these economic instabilities. Recent Congressional testimony is an example of gross political opportunism. They drove the markets to break through their previous lows knowing full well that the lame duck Congress did not have any votes to act. They just wanted the opportunity to score political points and make the Fed and Treasury Secretary look dangerously foolish. So all the Congressional leadership accomplished was to make Americans even more fearful. It is evident that the three automakers need to restructure first before government loans make any sense. Congress opened mouth and inserted foot again just as the President elect was starting to do some positive things to allay fears and give signs of government competency.
It is easy to understand a home owner with 10% equity and 90% debt is wiped out when the home price drops more than 10%... if payments become a problem. It is easy to understand that as a depression grows more and more people become unemployed and can no longer make payments on debt. During a depression the panic causes people to stop buying and therefore layoffs increase enough to reach 25% to 40% unemployment in advanced economies and 90% in the third world.
Next the people with 80% mortgages are wiped out and the 70%, 60%, 50%....down to 10% mortgages when values drop 90%.
In the equities markets the investors liquidate to try to reduce debt to zero as soon as possible because if equities drop 90% as they did in the great depression you are given a margin call even if you only started with 10% margin.
Solution:
The solution is to recognize the instability when it reaches a threshold and then remove the fear factor and remove the reward for opportunism. For example if inflation exceeds 1% in any month or the core price index changesa at an annual rate of 20% or if housing or equities rise or fall more than 20% within a year, then the debt and asset values become locked together for that change. That means if a stock or house increases or drops say 50% in value the dept also drops or increases 50% in value.
Example 1922: House worth $20000 mortgage $18000, and then the house value drops 50% to $10,000 so the locked in mortgage drops 50% to $9000 and the homeowner preserved equity of equal value and did not default. Relative value relative to currency is preserved and opportunism is defeated
Example 1935: House worth $20000 mortgage $18000, and then the inflation hits 100% and value increases to $40,000 and the mortgage rises to $36000. Again value relative to currency is maintained for the particular asset.
The solution needs to have different factors for different major asset classes such as equities, homes and commercial properties and are class averages no tied to particular houses. The solution is not executed until the sale of the asset. Debtor and bank equally share the risk upon the sale of the asset when the threshold is reached so that banks and short sellers do not have an incentive to destabilize the market completely. They are limited to a threshold of 20% within a year before they share in the consequences.
The solution requires everyone use their intelligence shut their mouths and stop being politically or economically opportunistic.
Economic depressions and hyperinflation are unstable collapses in asset value or monetary value. Depressions wipe out the debtor’s ownership and hyperinflation wipes out the saver’s cash. An economic depression is often followed by hyperinflation as happened in Germany and other countries. Either or both instabilities can lead to political chaos.
A depression wipes out deep debtors first and as fear grows it successively wipes out even the minor debtors. Fear carried by the opportunistic media and fed by opportunist politicians, short sellers and asset buyers drives a relatively healthy economy into these economic instabilities. Recent Congressional testimony is an example of gross political opportunism. They drove the markets to break through their previous lows knowing full well that the lame duck Congress did not have any votes to act. They just wanted the opportunity to score political points and make the Fed and Treasury Secretary look dangerously foolish. So all the Congressional leadership accomplished was to make Americans even more fearful. It is evident that the three automakers need to restructure first before government loans make any sense. Congress opened mouth and inserted foot again just as the President elect was starting to do some positive things to allay fears and give signs of government competency.
It is easy to understand a home owner with 10% equity and 90% debt is wiped out when the home price drops more than 10%... if payments become a problem. It is easy to understand that as a depression grows more and more people become unemployed and can no longer make payments on debt. During a depression the panic causes people to stop buying and therefore layoffs increase enough to reach 25% to 40% unemployment in advanced economies and 90% in the third world.
Next the people with 80% mortgages are wiped out and the 70%, 60%, 50%....down to 10% mortgages when values drop 90%.
In the equities markets the investors liquidate to try to reduce debt to zero as soon as possible because if equities drop 90% as they did in the great depression you are given a margin call even if you only started with 10% margin.
Solution:
The solution is to recognize the instability when it reaches a threshold and then remove the fear factor and remove the reward for opportunism. For example if inflation exceeds 1% in any month or the core price index changesa at an annual rate of 20% or if housing or equities rise or fall more than 20% within a year, then the debt and asset values become locked together for that change. That means if a stock or house increases or drops say 50% in value the dept also drops or increases 50% in value.
Example 1922: House worth $20000 mortgage $18000, and then the house value drops 50% to $10,000 so the locked in mortgage drops 50% to $9000 and the homeowner preserved equity of equal value and did not default. Relative value relative to currency is preserved and opportunism is defeated
Example 1935: House worth $20000 mortgage $18000, and then the inflation hits 100% and value increases to $40,000 and the mortgage rises to $36000. Again value relative to currency is maintained for the particular asset.
The solution needs to have different factors for different major asset classes such as equities, homes and commercial properties and are class averages no tied to particular houses. The solution is not executed until the sale of the asset. Debtor and bank equally share the risk upon the sale of the asset when the threshold is reached so that banks and short sellers do not have an incentive to destabilize the market completely. They are limited to a threshold of 20% within a year before they share in the consequences.
The solution requires everyone use their intelligence shut their mouths and stop being politically or economically opportunistic.
Wednesday, November 19, 2008
The pravda and nothing but pravda from the media. Now at Bob Brinker capitulation level
America’s Pravda is still negative on America.
Pravda is Russian for truth, and was the name of the lying press the communists used to push failed economic policies and ridicule and destroy Soviet thinkers.
The economic news continues to be slanted highly negative. President elect Obama is acting wisely forgiving and embracing different ideas as President Lincoln did. Lincoln brought prominent thinking opponents into his cabinet to broaden his government and Barack Obama seems to have Lincoln as a role model. That could explain his excellent command of the English language.
But the news media has spread fear and seems bent on killing the American economy to further hurt the defeated and lame duck Bush administration. The media is irresponsible as well as biased in favor of socialism and Americans will ultimately punish the media by further ignoring their form of “pravda.”
Record low housing starts are good news not bad news as European socialists and the America media pronounce. How else will we turn the economy around if we don’t stop building unnecessary housing so that the prices of homes can recover and abandoned housing can be fully rented?
Record decreases in oil and gas prices are great not bad for the American consumer who can now buy something American instead. Most of the money for oil leaves America much the way a foreign tax would drain the American economy. The media one sided mental block is illustrated by their failure to distinguish between core inflation/deflation and oil/gas price increases. In the past they ignored the increases and stressed core inflation because the media wants higher energy costs because in their "quasi religious mother earth belief system"… high prices reduce consumption and other environmental pressures making mother earth happier. Until the cold war Iron Curtain came down these sappy happy folks were telling us how much more environmentally correct the Soviet states were. Then we discovered the communists had destroyed their forests and were driving autos called Trabits which were as polluting as it would be for everyone to drive their lawn mowers to work.
We also discovered how the only way East Germany reduced environmental pollution was by building their power stations on the West German border so the winds would carry the Soviet block pollution into Europe. It is the type of sappy environmentalist thinking that puts all the California power plants on their eastern border to export California pollution to neighboring states.
Mark twain understood that kind of sappy media thinking:
"The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble, through the rivalry of schools and creeds that are anxious to obtain official recognition, and there is great danger that our people will lose our independence of thought and action which is the cause of much of our greatness, and sink into the helplessness of the Frenchman or German who expects his government to feed him when hungry, clothe him when naked, to prescribe when his child may be born and when he may die, and, in fine, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise." Mark Twain
Benjamin Franklin understood American sappy media thinking too:
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." Benjamin Franklin
Volatility is the name of the game due to the competing fears of recession and hyper-inflation. While hedge fund redemptions have subsided recently the fear the news media is spreading causes investors to seek to exit at prices they can say they broke even. An investor who followed Bob Brinker’s buy and hold forever advice and who got into the stock market in March of 2003 can often get out and break even on market rallies from this current level. We are at the Brinker capitulation level now and when his following has abandoned his sappy advice the market should be quite strong but less secure and hence more volatile.
Pravda is Russian for truth, and was the name of the lying press the communists used to push failed economic policies and ridicule and destroy Soviet thinkers.
The economic news continues to be slanted highly negative. President elect Obama is acting wisely forgiving and embracing different ideas as President Lincoln did. Lincoln brought prominent thinking opponents into his cabinet to broaden his government and Barack Obama seems to have Lincoln as a role model. That could explain his excellent command of the English language.
But the news media has spread fear and seems bent on killing the American economy to further hurt the defeated and lame duck Bush administration. The media is irresponsible as well as biased in favor of socialism and Americans will ultimately punish the media by further ignoring their form of “pravda.”
Record low housing starts are good news not bad news as European socialists and the America media pronounce. How else will we turn the economy around if we don’t stop building unnecessary housing so that the prices of homes can recover and abandoned housing can be fully rented?
Record decreases in oil and gas prices are great not bad for the American consumer who can now buy something American instead. Most of the money for oil leaves America much the way a foreign tax would drain the American economy. The media one sided mental block is illustrated by their failure to distinguish between core inflation/deflation and oil/gas price increases. In the past they ignored the increases and stressed core inflation because the media wants higher energy costs because in their "quasi religious mother earth belief system"… high prices reduce consumption and other environmental pressures making mother earth happier. Until the cold war Iron Curtain came down these sappy happy folks were telling us how much more environmentally correct the Soviet states were. Then we discovered the communists had destroyed their forests and were driving autos called Trabits which were as polluting as it would be for everyone to drive their lawn mowers to work.
We also discovered how the only way East Germany reduced environmental pollution was by building their power stations on the West German border so the winds would carry the Soviet block pollution into Europe. It is the type of sappy environmentalist thinking that puts all the California power plants on their eastern border to export California pollution to neighboring states.
Mark twain understood that kind of sappy media thinking:
"The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble, through the rivalry of schools and creeds that are anxious to obtain official recognition, and there is great danger that our people will lose our independence of thought and action which is the cause of much of our greatness, and sink into the helplessness of the Frenchman or German who expects his government to feed him when hungry, clothe him when naked, to prescribe when his child may be born and when he may die, and, in fine, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise." Mark Twain
Benjamin Franklin understood American sappy media thinking too:
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." Benjamin Franklin
Volatility is the name of the game due to the competing fears of recession and hyper-inflation. While hedge fund redemptions have subsided recently the fear the news media is spreading causes investors to seek to exit at prices they can say they broke even. An investor who followed Bob Brinker’s buy and hold forever advice and who got into the stock market in March of 2003 can often get out and break even on market rallies from this current level. We are at the Brinker capitulation level now and when his following has abandoned his sappy advice the market should be quite strong but less secure and hence more volatile.
Tuesday, November 18, 2008
A big bounce is due soon
10, 9, 8, 7 6,..... launch
To launch a real rally the news media and Congress need to lighten up on their negativism… because their dour attitude will destroy this important retail season which normally accounts for almost 50% of our annual sales. The president elect is already taking many very positive steps. The country need some decent economic news in January.
There is evidence that the small investors who were weak hands have left the market and the downside volume has dried up. So now the funds control the volume and they are at this point in a zero sum game unless they drive the market up and attract more investors. With the market this low the funds can only cut up a very small pie and every fund that wins does it at the expense of another fund. So now if they short too much the pie gets smaller and they all lose.
Add to this the year end tax losses are almost settled and it is time for the funds to deliver and document their year end gains. Therefore unless they want to look very bad, the funds need to grow that pie by Dec 31. The only way they can do that is to cover some of their shorts (about 33% of investments now) and take a more positive position at this market low. Then when all the little investors jump back in next January with the new president’s inauguration… the funds can begin to unload and take short positions again.
One problem with a GM buyout is that the high paid workers already get early retirement and want taxpayers to pay the cushy pensions they get which more than doubles what social security gives average Americans… and they get it as early as age 55. The Republicans think the GM workers should go out and get jobs and only collect pensions when they reach 65 like most Americans. The Democrats on the other hand take big union contributions and feel the quid pro quo pressure to give the unions Anerican taxpayer money in return. The GM union wages are bad enough but the pensions make it impossible for GM, Ford, and Chrysler to compete. And as long as managers can get a free government handout they don’t care about stockholders. The GM shares are worthless anyway and the shareholders only theoretically select the management. This is a similar situation to that in Europe before World War II when the management took all the assets and left the population of Europe penniless. Something should be done but GM should be forced to reorganize the way Lee Iacocca reorganized Chrysler and gave Chrysler 20 more good years of productivity.
To launch a real rally the news media and Congress need to lighten up on their negativism… because their dour attitude will destroy this important retail season which normally accounts for almost 50% of our annual sales. The president elect is already taking many very positive steps. The country need some decent economic news in January.
There is evidence that the small investors who were weak hands have left the market and the downside volume has dried up. So now the funds control the volume and they are at this point in a zero sum game unless they drive the market up and attract more investors. With the market this low the funds can only cut up a very small pie and every fund that wins does it at the expense of another fund. So now if they short too much the pie gets smaller and they all lose.
Add to this the year end tax losses are almost settled and it is time for the funds to deliver and document their year end gains. Therefore unless they want to look very bad, the funds need to grow that pie by Dec 31. The only way they can do that is to cover some of their shorts (about 33% of investments now) and take a more positive position at this market low. Then when all the little investors jump back in next January with the new president’s inauguration… the funds can begin to unload and take short positions again.
One problem with a GM buyout is that the high paid workers already get early retirement and want taxpayers to pay the cushy pensions they get which more than doubles what social security gives average Americans… and they get it as early as age 55. The Republicans think the GM workers should go out and get jobs and only collect pensions when they reach 65 like most Americans. The Democrats on the other hand take big union contributions and feel the quid pro quo pressure to give the unions Anerican taxpayer money in return. The GM union wages are bad enough but the pensions make it impossible for GM, Ford, and Chrysler to compete. And as long as managers can get a free government handout they don’t care about stockholders. The GM shares are worthless anyway and the shareholders only theoretically select the management. This is a similar situation to that in Europe before World War II when the management took all the assets and left the population of Europe penniless. Something should be done but GM should be forced to reorganize the way Lee Iacocca reorganized Chrysler and gave Chrysler 20 more good years of productivity.
Friday, November 14, 2008
Rally needed to save year end sales
Without year-end sales the president elect could fumble the ball
To launch a real rally we need the funds buying to put a squeeze on short-sellers, forcing them to the buy side to close out short-sale positions. That could happen by Monday if Bernacke, Bush, and Hank don't open their mouths too much this weekend. That buying would drive the rally still further dispelling pessimism in time for the holiday season. Unless the news media and the president elect lighten up on their negativism… their dour prognostications will destroy this important retail season which normally accounts for almost 50% of our annual sales.
On seeing higher market prices, the media would then begin pointing out positive news. Institutional money on the sidelines would begin to come in on fear of being left behind for what can be a rally that restores most of what has been lost this year. People would feel more confident and go out shopping again.
If we remember the panic of 1987, the market lost 25% in two days in October. But by the end of that year the market was higher than when it started. Today's market is oversold because the press picked up on the Obama campaign depression talk. Notice that no one but the press still continues to talk that negative talk and when they stop it, the market will rise to compensate for the previous negativism. If president elect Obama really cares about the downtrodden he would not wait until he takes office to show positivism.
FDR showed positivism early and by the time he was in office two months American production had doubled. If the party that won in November does not take action and work together in a non partisan manner to turn the economy around now, then they could be holding a dragon by the tail in January and Americans will see them (they mandated mortgages for unqualified home buyers) as the true cause not the solution to this problem. If this recession is not over in three years (as with the DOT- COM bubble) they will be held responsible. So it is in the interest of the newly elected to start positive thinking for implementing solutions as soon as possible or they will run out of time. Americans are not very patient when presidents fumble the ball.
To launch a real rally we need the funds buying to put a squeeze on short-sellers, forcing them to the buy side to close out short-sale positions. That could happen by Monday if Bernacke, Bush, and Hank don't open their mouths too much this weekend. That buying would drive the rally still further dispelling pessimism in time for the holiday season. Unless the news media and the president elect lighten up on their negativism… their dour prognostications will destroy this important retail season which normally accounts for almost 50% of our annual sales.
On seeing higher market prices, the media would then begin pointing out positive news. Institutional money on the sidelines would begin to come in on fear of being left behind for what can be a rally that restores most of what has been lost this year. People would feel more confident and go out shopping again.
If we remember the panic of 1987, the market lost 25% in two days in October. But by the end of that year the market was higher than when it started. Today's market is oversold because the press picked up on the Obama campaign depression talk. Notice that no one but the press still continues to talk that negative talk and when they stop it, the market will rise to compensate for the previous negativism. If president elect Obama really cares about the downtrodden he would not wait until he takes office to show positivism.
FDR showed positivism early and by the time he was in office two months American production had doubled. If the party that won in November does not take action and work together in a non partisan manner to turn the economy around now, then they could be holding a dragon by the tail in January and Americans will see them (they mandated mortgages for unqualified home buyers) as the true cause not the solution to this problem. If this recession is not over in three years (as with the DOT- COM bubble) they will be held responsible. So it is in the interest of the newly elected to start positive thinking for implementing solutions as soon as possible or they will run out of time. Americans are not very patient when presidents fumble the ball.
The double bottom was completed with all USA indicators
November 13 did reveal that this record downward leg of the bear market is over. Every USA index has repeated its low with the S&P actually setting an inter day new record low but then still closed above its previous low closing. The bounce was initially from many sources but as soon as the decline for the day was erased, the computer driven buying surged with 20% of the daily volume occurring within 15 minutes of the market crossing into positive territory. The five investing indicators we follow are green again. Our indicators are tuned with a 60 to 180 day horizon.
We can expect spirits to begin to rise now as the world recession demands resolution
World leaders meet this weekend to coordinate a more global solution to this economic mess. The cause, we must all agree, is lack of global regulation. We had regulated our USA banking system until the world's unregulated competition almost wiped out our banks. Can you remember when the world banks of Japan where gradually knocking the USA banks out of the top 10? I remember that well... and that forced us to deregulate our own banks. Banking and securitized debt require world standards and world regulation or each country cheats and lowers their standards to undo the competition. Likewise the executive salary scandal requires world regulation or the corporate sycophants just abandon their country.
November 13 did reveal that this record downward leg of the bear market is over. Every USA index has repeated its low with the S&P actually setting an inter day new record low but then still closed above its previous low closing. The bounce was initially from many sources but as soon as the decline for the day was erased, the computer driven buying surged with 20% of the daily volume occurring within 15 minutes of the market crossing into positive territory. The five investing indicators we follow are green again. Our indicators are tuned with a 60 to 180 day horizon.
We can expect spirits to begin to rise now as the world recession demands resolution
World leaders meet this weekend to coordinate a more global solution to this economic mess. The cause, we must all agree, is lack of global regulation. We had regulated our USA banking system until the world's unregulated competition almost wiped out our banks. Can you remember when the world banks of Japan where gradually knocking the USA banks out of the top 10? I remember that well... and that forced us to deregulate our own banks. Banking and securitized debt require world standards and world regulation or each country cheats and lowers their standards to undo the competition. Likewise the executive salary scandal requires world regulation or the corporate sycophants just abandon their country.
Thursday, November 13, 2008
The double bottom is in... will it hold?
A Double bottom formed with all USA indicators
Today, November 13 will reveal if this record downward leg of the bear market is over. Every USA index has repeated the low again for this year. This is about as low as it can go and still bounce with a perfect double bottom.
Hank Paulson lowered the bar again on American confidence in the Bush administration. After President Bush… with white knuckles grabbed the microphone last month and told the world his $750 billion package had to be passed immediately to save the world, Wall Street's Hank Paulson said yesterday he could not figure out how to unscramble the Wall Street mortgage securitization mess and would use some of the money to try to unscramble the credit card mess (for which he knows know even less). Apparently the only money spent for certain on the mortgage mess was to cover a few more lavish Wall Street retreats and some critical Wall Street executive bonuses.
Hence that news yesterday from Paulson was enough to make the market hit the bottom for a second time in two weeks. If only President Bush could get Paulson and Bernacke would stop opening their mouths the economy might stop imploding. If we could get them to hire someone with smarts we might be able to get the economy turned around. If this bottom does not hold today it will likely trigger sell signals and be in free fall again.
Two of five indicators we use have gone red now but the new spiral index says we should continue buying into the market slowly in this price range. This index has windows for buying and selling. The window could stay open for several weeks of buying and then close with a second confirmation that we should hold.
It could also be possible for the signal to reverse itself without ever issuing a closing buy confirmation although that has not happened in over a year. That would be called "whipsawing." That would be a reversion to our original position of staying on the sidelines with cash.
Today, November 13 will reveal if this record downward leg of the bear market is over. Every USA index has repeated the low again for this year. This is about as low as it can go and still bounce with a perfect double bottom.
Hank Paulson lowered the bar again on American confidence in the Bush administration. After President Bush… with white knuckles grabbed the microphone last month and told the world his $750 billion package had to be passed immediately to save the world, Wall Street's Hank Paulson said yesterday he could not figure out how to unscramble the Wall Street mortgage securitization mess and would use some of the money to try to unscramble the credit card mess (for which he knows know even less). Apparently the only money spent for certain on the mortgage mess was to cover a few more lavish Wall Street retreats and some critical Wall Street executive bonuses.
Hence that news yesterday from Paulson was enough to make the market hit the bottom for a second time in two weeks. If only President Bush could get Paulson and Bernacke would stop opening their mouths the economy might stop imploding. If we could get them to hire someone with smarts we might be able to get the economy turned around. If this bottom does not hold today it will likely trigger sell signals and be in free fall again.
Two of five indicators we use have gone red now but the new spiral index says we should continue buying into the market slowly in this price range. This index has windows for buying and selling. The window could stay open for several weeks of buying and then close with a second confirmation that we should hold.
It could also be possible for the signal to reverse itself without ever issuing a closing buy confirmation although that has not happened in over a year. That would be called "whipsawing." That would be a reversion to our original position of staying on the sidelines with cash.
Wednesday, November 12, 2008
Emerging markets emerging first
The market bottom seems to be forming
Oct 27 and Oct 28 appear to be the very bottom for this cycle. The upper resistance line for a bear market is the 200-day moving average. While the market next year may hit a new low we are poised for a rally soon of 20% or more over the next 60 to 120 days.
Emerging markets took their hit first and now stand to outperform
Due to the large amount of outsourcing done to India, China and other Asian nations, global funds took a much greater hit than American or European funds until now. That is why they are of higher potential value now as the world takes action to recover. China is especially wise in applying $586Billion of their profits from their trade boom rainy day treasure to an infrastructure based stimulation package. That should also put a floor under world commodity prices because that will make them recession resistant and stabilize demand for raw materials.
The 4 trillion Juan ($586 billion) plan announced Nov. 9 is aimed at keeping China, the fourth-largest economy, growing amid a global recession. China's stimulus package to build infrastructure such as roads and railways offers a sales boost to construction- machinery makers such as Caterpillar Inc. and Terex Corp. These American businesses have a market share in China, making them likely to get a lift from the two-year spending plan.
The Chinese government will invest funds in low-rent housing, projects in rural areas, as well as roads, railways and airports. China accounts for 5 percent of Caterpillar's projected sales of $50 billion this year. They are spending $100 million to triple excavator capacity at its Shandong SEM Machinery Co. unit in northern China as part of a $1 billion investment in emerging markets in the next three years. The China's spending will help Caterpillar; the world's largest maker of earthmoving equipment, counter declines in construction sales in North America and Europe. Terex based in Westport, Connecticut, builds small road-building and construction machinery. Terex is the world's third-largest maker of construction machinery and stands to benefit the most.
Keeping American Jobs
If you print a pile of paper money and then burn it, is that inflationary? No of course not!
If you print a pile of paper money distribute it to people to buy new cars and then the car dealers burn it, is that inflationary? Hardly at all! Everyone got a new car before the car dealers lost their shirts and neutralized the potential inflation.
If the car industry burns all their money unintentionally and you print a pile of paper money to restore it to them, is that inflationary? No of course not! No in fact that is why the bail out of the auto manufacturers is not inflationary. In fact the burning of their piles of accumulated earnings was actually money lost to pay salaries of workers who made good cars that sold at a loss to Americans due to foreign competition. That lost money is deflationary if not replaced.
When value disappears credit also disappears because credit is based on the value of the equities and other financial assets that we own. The money in circulation is not just paper… it is a multiple of the paper value and the multiplier is called the velocity of money. If we double the number of transactions per day for a given amount of money we effectively double the money in circulation. The deflation that caused our credit crunch was not just caused by money being lost but by money not being exchanged as rapidly as before. The reason it froze up was because people lost trust in the system. People lost trust because they saw Wall Street theives going wild and they heard President Bush say it was not a moral hazard and no one would be punished for stealing the money.
President Bush and Congress now have the lowest ratings in history because they don't understand what a moral hazard is. They caused this crisis. The thugs got rich and Joe the plumber got poorer. The new Obama administration must know the Bush administration and the Democrats in Congress fostered moral hazards. But are they also aware of the moral hazard of socialism?
Gold to rise as the bailout drives equities to zero
If shareholder assets continue to be driven to zero in favor of rich bondholders the price of gold bullion will skyrocket, as it is the only thing that holds value in such uncertain times.
Oct 27 and Oct 28 appear to be the very bottom for this cycle. The upper resistance line for a bear market is the 200-day moving average. While the market next year may hit a new low we are poised for a rally soon of 20% or more over the next 60 to 120 days.
Emerging markets took their hit first and now stand to outperform
Due to the large amount of outsourcing done to India, China and other Asian nations, global funds took a much greater hit than American or European funds until now. That is why they are of higher potential value now as the world takes action to recover. China is especially wise in applying $586Billion of their profits from their trade boom rainy day treasure to an infrastructure based stimulation package. That should also put a floor under world commodity prices because that will make them recession resistant and stabilize demand for raw materials.
The 4 trillion Juan ($586 billion) plan announced Nov. 9 is aimed at keeping China, the fourth-largest economy, growing amid a global recession. China's stimulus package to build infrastructure such as roads and railways offers a sales boost to construction- machinery makers such as Caterpillar Inc. and Terex Corp. These American businesses have a market share in China, making them likely to get a lift from the two-year spending plan.
The Chinese government will invest funds in low-rent housing, projects in rural areas, as well as roads, railways and airports. China accounts for 5 percent of Caterpillar's projected sales of $50 billion this year. They are spending $100 million to triple excavator capacity at its Shandong SEM Machinery Co. unit in northern China as part of a $1 billion investment in emerging markets in the next three years. The China's spending will help Caterpillar; the world's largest maker of earthmoving equipment, counter declines in construction sales in North America and Europe. Terex based in Westport, Connecticut, builds small road-building and construction machinery. Terex is the world's third-largest maker of construction machinery and stands to benefit the most.
Keeping American Jobs
If you print a pile of paper money and then burn it, is that inflationary? No of course not!
If you print a pile of paper money distribute it to people to buy new cars and then the car dealers burn it, is that inflationary? Hardly at all! Everyone got a new car before the car dealers lost their shirts and neutralized the potential inflation.
If the car industry burns all their money unintentionally and you print a pile of paper money to restore it to them, is that inflationary? No of course not! No in fact that is why the bail out of the auto manufacturers is not inflationary. In fact the burning of their piles of accumulated earnings was actually money lost to pay salaries of workers who made good cars that sold at a loss to Americans due to foreign competition. That lost money is deflationary if not replaced.
When value disappears credit also disappears because credit is based on the value of the equities and other financial assets that we own. The money in circulation is not just paper… it is a multiple of the paper value and the multiplier is called the velocity of money. If we double the number of transactions per day for a given amount of money we effectively double the money in circulation. The deflation that caused our credit crunch was not just caused by money being lost but by money not being exchanged as rapidly as before. The reason it froze up was because people lost trust in the system. People lost trust because they saw Wall Street theives going wild and they heard President Bush say it was not a moral hazard and no one would be punished for stealing the money.
President Bush and Congress now have the lowest ratings in history because they don't understand what a moral hazard is. They caused this crisis. The thugs got rich and Joe the plumber got poorer. The new Obama administration must know the Bush administration and the Democrats in Congress fostered moral hazards. But are they also aware of the moral hazard of socialism?
Gold to rise as the bailout drives equities to zero
If shareholder assets continue to be driven to zero in favor of rich bondholders the price of gold bullion will skyrocket, as it is the only thing that holds value in such uncertain times.
Monday, November 10, 2008
Market poised to wake up today
The market analysts are waking up to the new opportunity of record low PE ratios and cash suddenly being available now to even buy up the American automobile industry. The capitalists who act now will easily do 20% better than Warren Buffet, president elect Obama's financial advisor. But it will take to the end of January 2009 not just to Dec 31 2008 for this to be accomplished so the gains will not necessarily be taxed until 2010.
For the complete story see:
Believing in Estimates Means 20% Advance for S&P 500 (Update1)
By Eric Martin and Elizabeth Campbell
Nov. 10 (Bloomberg) --
David Kostin of Goldman Sachs Group Inc. predicts an advance because U.S. companies are cheap relative to earnings. Strategas Research Partners' Jason Trennert is counting on a resumption in bank lending to lift equities. Thomas Lee at JPMorgan Chase & Co. says stocks are swinging so much that a 25 percent jump by Dec. 31 isn't out of the question.
The S&P 500 is poised for its worst year since the 1930s after almost $700 billion in bank losses froze credit markets and spurred concern the economy will shrink. U.S. equities posted the steepest monthly loss in 21 years in October and $6 trillion was erased from U.S. markets in 2008.
``It's very difficult for us to see that kind of turnaround by year end,'' said Richard Weiss, who oversees $53 billion as chief investment officer at City National Bank in Beverly Hills, California. ``The stock market would need to see a bottoming of this economic cycle, and that is nowhere in sight.'' (This is not true. The market need only rise to its 200 day moving average for this to occur.)
Futures on the S&P 500 expiring in December gained 2.7 percent to 961.60 at 5:47 a.m. New York time after China unveiled a $586 billion economic stimulus package and the Group of 20 nations urged central banks to cut interest rates.
Kostin, Trennert and Lee are among the most pessimistic of Wall Street strategists with year-end estimates tracked by Bloomberg. The three expect the benchmark for American equities to end 2008 at an average of 1,075, up 15 percent from its closing level last week. ``I wouldn't call it extremely bullish,'' said New York- based Lee, who says the S&P 500 may rise to 1,125. ``The high level of volatility means you're going to have a pretty wide range of possible outcomes.''
The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.
The S&P 500 trades at 10.39 times next year's estimated earnings from continuing operations, compared with the weekly average of 21.1 times historical operating profit over the past decade, according to data compiled by Bloomberg.
Borrowing Costs
Trennert expects the S&P 500 to increase 18 percent to 1,100, even after cutting his estimate twice between the end of September and mid-October. He says stocks will rebound as borrowing costs fall. ``The market discounted what we believe will be a recession in 2009'' when it reached a five-year low of 848.92 on Oct. 27, Trennert said.
Fair Value
``The U.S. is going to be the first market out of the bottom,'' Barton Biggs, a former Morgan Stanley strategist who now runs Traxis Partners LLC, a New York-based hedge fund, said on Bloomberg Television. ``We're at a major buying opportunity.''
For the complete story see:
Believing in Estimates Means 20% Advance for S&P 500 (Update1)
By Eric Martin and Elizabeth Campbell
Nov. 10 (Bloomberg) --
David Kostin of Goldman Sachs Group Inc. predicts an advance because U.S. companies are cheap relative to earnings. Strategas Research Partners' Jason Trennert is counting on a resumption in bank lending to lift equities. Thomas Lee at JPMorgan Chase & Co. says stocks are swinging so much that a 25 percent jump by Dec. 31 isn't out of the question.
The S&P 500 is poised for its worst year since the 1930s after almost $700 billion in bank losses froze credit markets and spurred concern the economy will shrink. U.S. equities posted the steepest monthly loss in 21 years in October and $6 trillion was erased from U.S. markets in 2008.
``It's very difficult for us to see that kind of turnaround by year end,'' said Richard Weiss, who oversees $53 billion as chief investment officer at City National Bank in Beverly Hills, California. ``The stock market would need to see a bottoming of this economic cycle, and that is nowhere in sight.'' (This is not true. The market need only rise to its 200 day moving average for this to occur.)
Futures on the S&P 500 expiring in December gained 2.7 percent to 961.60 at 5:47 a.m. New York time after China unveiled a $586 billion economic stimulus package and the Group of 20 nations urged central banks to cut interest rates.
Kostin, Trennert and Lee are among the most pessimistic of Wall Street strategists with year-end estimates tracked by Bloomberg. The three expect the benchmark for American equities to end 2008 at an average of 1,075, up 15 percent from its closing level last week. ``I wouldn't call it extremely bullish,'' said New York- based Lee, who says the S&P 500 may rise to 1,125. ``The high level of volatility means you're going to have a pretty wide range of possible outcomes.''
The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.
The S&P 500 trades at 10.39 times next year's estimated earnings from continuing operations, compared with the weekly average of 21.1 times historical operating profit over the past decade, according to data compiled by Bloomberg.
Borrowing Costs
Trennert expects the S&P 500 to increase 18 percent to 1,100, even after cutting his estimate twice between the end of September and mid-October. He says stocks will rebound as borrowing costs fall. ``The market discounted what we believe will be a recession in 2009'' when it reached a five-year low of 848.92 on Oct. 27, Trennert said.
Fair Value
``The U.S. is going to be the first market out of the bottom,'' Barton Biggs, a former Morgan Stanley strategist who now runs Traxis Partners LLC, a New York-based hedge fund, said on Bloomberg Television. ``We're at a major buying opportunity.''
Sunday, November 9, 2008
Market rebound still on schedule
A 200 day exponential moving average tracks the lower range of the last bull market and the upper range of the current bear market. If indeed the current market excursion has bottomed then how high could the next excursion go before the bear market downtrend resumed? We compute that the market would likely rebound 20% to 25% from Friday levels before hitting the bear market upper range of price swings (the 200 day moving average). That would recover the entire market loss since mid September.
This does not mean the bear market is over. The bear market would likely resume in 2009 until mergers and acquisitions of troubled companies begin to pick up. We predict that the $billions being pumped into the world economies will eventually end the bear market with a flurry of mergers and acquisitions that restore the value of the entire market. The velocity of money will then pick up so that the hundreds of billions of dollars of new credit will result in the trillions of dollars of equities purchases leading to the restoration of the savings and pensions of those who were patient enough to stay invested.
We maintain that we are only entering a recession and nothing more. Fear of a depression served its purpose in changing the political control of the US government. The current 6.5% American unemployment is only about half of what socialist nations such as France have to deal with even in boom times.
This does not mean the bear market is over. The bear market would likely resume in 2009 until mergers and acquisitions of troubled companies begin to pick up. We predict that the $billions being pumped into the world economies will eventually end the bear market with a flurry of mergers and acquisitions that restore the value of the entire market. The velocity of money will then pick up so that the hundreds of billions of dollars of new credit will result in the trillions of dollars of equities purchases leading to the restoration of the savings and pensions of those who were patient enough to stay invested.
We maintain that we are only entering a recession and nothing more. Fear of a depression served its purpose in changing the political control of the US government. The current 6.5% American unemployment is only about half of what socialist nations such as France have to deal with even in boom times.
Friday, November 7, 2008
Testing the low
The market is about to make its second bounce that typically signals that a market decline has bottomed. There is still an opportunity to buy now near the bottom.
The sell off in the last two months has been the result of people panicking, redeeming their cash value, and forcing the funds to liquidate holdings. The drop yesterday was on higher volume typical of capitulation of the risk adverse frightened individuals. The result of many index fund baskets of investments tends to drag the strong equities down with the weak companies so there has been no safe place to hide.
But this has created a situation where mergers can begin to flourish and managers can take many companies private buying out the low capitalized companies. With the cost of borrowing so low and the streets of lower Manhattan awash in cash, fund flows should soon become positive again and a rebound is due now.
Fear of a depression was an excellent political strategy up until November 3 but now the new government needs to stop scaring mom and pop investors. The wealth transfer that this opportunistic fear induced is from little people to the corporate managers who borrow other people's money (OPM) to buy the assets of the elderly and the fearful. This is reminiscent of Germany during the rise of Hitler. The Bank managers in Germany during the 1920s bought up the bank assets with OPM and then paid off the debt easily during the ensuing inflation.
Hitler became very popular because he promised to go after the top 1% of the rich who he claimed had stolen the people's money. No one expected that he would seek to exterminate them and confiscate their wealth. But blinded with hate no one objected too much when he did it. That will never be repeated but class hatred can destroy everything that made America great.
Today is critical. If we break through the DJI low established Oct 27 (8085-8176) then a new decline will be more likely. The DJI market intra day low this year was 7774 on Oct 10. Yesterday the low was 8637.
The sell off in the last two months has been the result of people panicking, redeeming their cash value, and forcing the funds to liquidate holdings. The drop yesterday was on higher volume typical of capitulation of the risk adverse frightened individuals. The result of many index fund baskets of investments tends to drag the strong equities down with the weak companies so there has been no safe place to hide.
But this has created a situation where mergers can begin to flourish and managers can take many companies private buying out the low capitalized companies. With the cost of borrowing so low and the streets of lower Manhattan awash in cash, fund flows should soon become positive again and a rebound is due now.
Fear of a depression was an excellent political strategy up until November 3 but now the new government needs to stop scaring mom and pop investors. The wealth transfer that this opportunistic fear induced is from little people to the corporate managers who borrow other people's money (OPM) to buy the assets of the elderly and the fearful. This is reminiscent of Germany during the rise of Hitler. The Bank managers in Germany during the 1920s bought up the bank assets with OPM and then paid off the debt easily during the ensuing inflation.
Hitler became very popular because he promised to go after the top 1% of the rich who he claimed had stolen the people's money. No one expected that he would seek to exterminate them and confiscate their wealth. But blinded with hate no one objected too much when he did it. That will never be repeated but class hatred can destroy everything that made America great.
Today is critical. If we break through the DJI low established Oct 27 (8085-8176) then a new decline will be more likely. The DJI market intra day low this year was 7774 on Oct 10. Yesterday the low was 8637.
Thursday, November 6, 2008
November 4 Election Day
In the last two days we have gone back into the stock market after two years with our 401’s completely out. Our advisor at Goldman Sachs said he believed even if Obama were elected, the market would rise after the election until the inauguration. Our advisor at Mellon said they were fully invested last week.
The market had had already discounted the election. When the market discounts bad news the market drops and then when the news occurs the market actually rises if the news is not as bad as expected.
Until a few months ago all economists and responsible people (such as McCain) refrained from using the "D" word (for economic "Depression") as they tried to avoid financial panic. This is consistent with FDR’s advice during the Great Depression. During the Great Depression FDR gave us the expression, "The only thing we have to fear is fear itself". From that time on no one used the "Depression" word as it was considered similar to shouting "FIRE" in a crowed nightclub. People did not use the "D" word until Obama and his media following picked up on it. And as soon as they began talking about how bad the economy was, the fear FDR warned about resulted in banks fearing to loan money.
But we have not had two quarters with the GDP down so technically we are not even in a recession yet. So Obama has positioned himself to be an economic miracle worker. Obama will get credit for averting his imaginary depression by saying astute things that give investors hope. The economy is already awash with cash and the stock market is a bargain since it already discounted Obama's imaginary economic depression.
I am seeing evidence (3 out of 4 indicators) that we have passed the stock market bottom for now. Cash is flowing back into investments again. The strong dollar at this time has made foreign investment an even greater bargain. If the Europeans do not slash their rates soon the dollar will likely decline again and beaten down emerging markets should rise just due to the dollar decline let alone due to their recovery from being down about 50% to70% from their highs.
Now is the time to be invested globally because they are down the most due to Obama’s imaginary economic depression and have the most to recover over the next 60 to 90 days. We can expect the Asian markets to rise rapidly now as fears of a depression subside. USA markets should also rise too for at least two or three months. By then we should have a better idea how long the recession will last.
Buy in the pull-back of a double bottom. Of great importance is the need for the EU to also lower their rates so as not to cause currency problems and to make sure the recession subsides. Currently the EU is not even contemplating the "D" word.
The market had had already discounted the election. When the market discounts bad news the market drops and then when the news occurs the market actually rises if the news is not as bad as expected.
Until a few months ago all economists and responsible people (such as McCain) refrained from using the "D" word (for economic "Depression") as they tried to avoid financial panic. This is consistent with FDR’s advice during the Great Depression. During the Great Depression FDR gave us the expression, "The only thing we have to fear is fear itself". From that time on no one used the "Depression" word as it was considered similar to shouting "FIRE" in a crowed nightclub. People did not use the "D" word until Obama and his media following picked up on it. And as soon as they began talking about how bad the economy was, the fear FDR warned about resulted in banks fearing to loan money.
But we have not had two quarters with the GDP down so technically we are not even in a recession yet. So Obama has positioned himself to be an economic miracle worker. Obama will get credit for averting his imaginary depression by saying astute things that give investors hope. The economy is already awash with cash and the stock market is a bargain since it already discounted Obama's imaginary economic depression.
I am seeing evidence (3 out of 4 indicators) that we have passed the stock market bottom for now. Cash is flowing back into investments again. The strong dollar at this time has made foreign investment an even greater bargain. If the Europeans do not slash their rates soon the dollar will likely decline again and beaten down emerging markets should rise just due to the dollar decline let alone due to their recovery from being down about 50% to70% from their highs.
Now is the time to be invested globally because they are down the most due to Obama’s imaginary economic depression and have the most to recover over the next 60 to 90 days. We can expect the Asian markets to rise rapidly now as fears of a depression subside. USA markets should also rise too for at least two or three months. By then we should have a better idea how long the recession will last.
Buy in the pull-back of a double bottom. Of great importance is the need for the EU to also lower their rates so as not to cause currency problems and to make sure the recession subsides. Currently the EU is not even contemplating the "D" word.
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