Treasury auctions weaken

Healthcare will get the Obama kiss of death if congress passes the present bill. Look what Obama has already done to the solar, windmill, and automobile industries. In America they are dying but the socialist/communist nations are glad to pick up all the business Obama is sending them. Except they do not like Obama taking their money to give contracts to Obama supporters.

Market forces July 29
The auction for $39 billion in 5-year notes had unexpectedly weak results on Wednesday. The U.S. Treasury Department sold $39 billion in 5-year notes with China demanding a high rate of 2.689%. Thirty one percent of the bidders submitted the high bid indicating they are uniting now to pressure the USA. The bid-to-cover ratio, an indication of demand, came in at a record weak level under 2.0. The 5-year note auction was the second of three auctions the Treasury Department is auctioning this week, culminating today with an auction of 7-year bonds. The $39 billion in notes was the largest auction of 5-years in the security's history, breaking last month’s record of $37 billion. This diverts billions from the productive private sector to the non-productive socialist programs.

“There was already nervousness going into today’s auction and with the poor result, tomorrow should be quite interesting,” said Dan Greenhaus yesterday, market strategist with the brokerage firm Miller Tabak.

Next week, the market may be tested again when the Treasury Department sets new records with auctions 10-year and 30-year bonds on Wednesday and Thursday respectively. Debt is unrelenting because as debt increases American risk of hyperinflation increases causing interest rates to rise thus raising the costs of doing business in America and the cost of the Federal debt. That alone raises the inflation rate and the spiral of increasing debt gets worse.


A quote for today:
"Biting A Bullet by John P. Hussman,
In recent weeks, the dominant view of investors and analysts has shifted clearly to the expectation that the U.S. economy is in recovery. Put another way, the case for an economic recovery is based largely on mean reversion from the early 2009 extremes (not on improvements in jobless claims or other measures to a level that is on par with prior recoveries). The recovery argument also relies strongly on the idea that this is a run-of-the-mill post-war recession.

That said, I can only describe our investment stance here as “uncomfortably defensive.”
Our defensive stance here is driven by a combination of poor price-volume sponsorship, moderate overvaluation, strenuous overbought conditions, Treasury yield and commodity price pressures, as well as a variety of other factors that have historically combined to produce a weak overall return-to-risk tradeoff. Moreover, from a fundamental standpoint, the ebullience about an economic recovery is based on what I've frequently called the “ebb and flow” of short-term economic information that very well can turn hostile again – particularly given that there is no reason to assume that deleveraging pressures have seriously abated. "


Market Outlook

The recent rally has the market in a highly overbought position again. We expect U.S. stocks to continue with slides that represent buying opportunities and then wild optimistic appreciation (as we have just had) that can be times to take profits. This may very well be a consolidation period not a distribution period. That means that the sharp drops in some sectors may be funds cleaning out the sellers. But it would be unusual not to have the typical summer sell off.

Instead of selling individual stocks, when stocks are fairly valued across a sector the hedge funds now tend to sell the most overbought sectors in the morning and then use that money buying the oversold sectors in the afternoon. Therefore the index does not change much but individual investors get clobbered. We think investors will do better if they trend the sectors now and buy after the hedge funds attack a sector not latter when optimistic investors push it to new highs. Also don't believe anyone (such as Cramer) who are tied to the hedge funds. They want you to drive up prices on their own investments so they can sell at a good profit. That is called, "pump and dump" in their trade. Instead we make a note of the sectors they say they do not like and buy them near their lower trend line.

Health care stocks are presently being pumped by GE/MSNBC/Pravda/Goerbels. We take as a warning that hedge fund shorting of that sector will soon begin. Jim Cramer is a hedge fund alumnus so he is good to watch as long as you know the roll he plays.

Last night Asian markets were up: Hong Kong up 0.5%, Japan up 0.5%, and India up 1.4%.

Today most European markets are up in a range of +0.7% to +1.4% half way through their session.

US futures indicate about a +0.7% USA market opening this morning.

We will continue cherry picking mostly into and sometimes out of the market. We expect the decline will be the typical rotation with sharp drops in some individual stocks/sectors while other stocks/sectors bottom out or rise and then decline so the change in the market indices will be much smaller. It will be as though time was compressed and hence investing will require more trading skill. We watch the sectors carefully because hedge funds seem to deflate one sector at a time and then let investors pump them back into overbought territory. They can do that best during the kind of rallies we see in this sideways market.

The new socialist administration seemingly destroys every free market sector they touch. Hedge funds seem to be betting that the Obama bill fails. But if his socialized medicine passes in any form whatsoever we expect those stocks to implode as they did when Obama first announced his plan.