Posts Tagged ‘Market’

Have you heard of CIT Group?  CIT is a company that lends money to about 1 million small and medium size businesses and has about 40 billion dollars in debt. They are a pretty big player in the lending business, a company mired in debt, a company on the verge of collapse. 

In the event they fail, there could be some pretty significant repercussions throughout the financial system.  Of course, they are not on the same scale as the Lehman Brothers. However, with a financial system on shaky ground, who knows what would result in the collapse of a large lender.  So, a company in trouble should be no big deal.  After all, President Obama is in the bail-out business and hasn’t had a good bail-out in a while now. 

No, not this time.  Poor little CIT doesn’t meet the too big to fail test.  President Obama stated that it had set “high standards” for granting aid to companies and leaving private investors as the one alternative to avoid collapse.  Wait a minute, excuse me while I settle down from that good laugh I had while writing. 

Since when does this administration have standards?  They still think that GM is a good business model.  So will CIT go into bankruptcy if Big Brother doesn’t lend them a hand?  Of course not, because Big Brother is going to lend them a hand.  The secret is that they are going to do it behind closed doors.  Yes, this is what is happening to our taxpayer dollars.  Roughly 7 of their big bondholders are in talks to cough up 3 billion or so to place another band-aid on the festering wound. 

Where do you think that these bondholders get their money?  With the banking system pretty much nationalized, the money easily funnels from the Government through these banks to these troubled companies.  Obama can keep his “high standards” and no problems to deal with in the financial sector.  They have been running the same system with AIG since that major entity was nationalized.

Price Levels

Let’s take a look at price levels. Last week I warned that things were looking bleak for the market.  As soon as I wrote the warning and hit send, the market turned around and put in a big week.  So does that mean we are out of the woods in the near-term?  Well, last week was the one week out of the month that we have options expiration.  Options expiration can be a real dramatic week either positively or negatively.  It is misleading to see the results of options expiration as what is really occurring with the market.

The next significant price level we are looking at is 956.  The S&P 500 has entered into a price level “zone” (over 940) and now we will really see what this market is made of.  Any strength carrying the S&P 500 over 956 could indicate that we are heading towards 1000.

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Since the day to day market doesn’t always bring something of interest to write about, I am changing this to a stock market alert.  Starting next week, we will be alerting you when you need to know about something of significance.  If you are on twitter, you can know immediately when we post.  Just search for Prudent Money and follow the show.  If you are on Facebook, you can go to the Prudent Money Fan Page.  That will alert you as well.

Finally, when we post updates on the blog, we put the title in the upper right hand corner of www.prudentmoney.com.

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Hello, my name is Bob Brooks, and I am a gloom and doomer. 

Well, sometimes I feel like I need to go to a 12 step group.  While everyone is popping the champagne bottles on Wall Street and the market puts in yet another strong day, I still stick to my guns about what is occurring.  So, let me give you a few possibilities in the near-term.

1)  The market falls apart on some pretty bad news and heads back down to the March lows. 

2)  The market declines for a period of time.  However, it does so constructively and then continues the bear market rally to new highs.  This could end up taking a few months, but it would ultimately return back to the bear market.  Of course, no one will even entertain that notion.  However, that is what a bear market does.

3)  We are in a new bull market, never to return to the bear market decline.  The worst is behind us. 

The market is not only at a dangerous spot right now but it faces some very big news.  We have an unemployment report this Friday and then we have the results of the stress test.  I am going to make an off the wall prediction.  I think that the Government will tinker with the unemployment numbers to actually make them look very good in order to offset the bombshell that they will drop with the stress results.  They keep changing the date of the release of this information which makes one wonder what is actually occurring.  Why in the world would they release this information the same day as the unemployment report?  Once again, it doesn’t make sense.

This morning pending home sales came out pretty strong and all of the sudden the real estate crisis is over with.  I wouldn’t jump on that party wagon just yet.  Bryan Rogers, who does all of the wonderful graphics and artwork for Prudent Money, made an interesting statement to me.  He said you have to take all of the technical analysis that you follow and add in the deceptive media element. 

I might turn out looking pretty foolish with my negative outlook.   However, I did not feel different in August and September of 2007.  Everything is not always what it seems!

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I had a debate with a fellow investment manager about his take on the market. He completely disagrees with me regarding my outlook.  His argument is that there are a lot of risks in the market.  However, the market is comfortable with that risk.  In other words, we have seen the full extent of the risk.  If you think about it, it is the big surprises that cause the large declines in the market.

Although I agree with that opinion, I don’t agree that the worst is behind us.  We have to consider the problems that are brewing on the horizon that have yet to become a full blown problem.  I remember writing in my client newsletters a few years ago about the category 5 financial hurricane that is sitting out in the distance.   I wrote that the market sees the risk of the housing bubble.  However, there is nothing that is ruining the party – so why worry?

Then the Bear Sterns collapse occurred and the market woke up to that category 5 financial hurricane that was heading for the United States financial markets.  Of course, Swine Flu was never on my radar of financial risks.  In fact, up until Saturday, I had never even heard of it.  So is a global epidemic of Swine Flu the new worry?  

Well, it is always tough to tell what is really going on and if this is a real problem.  The health “experts”, much like economists, are positively optimistic and downplaying the possibility of an epidemic forming.  President Obama addressed the scare this morning.  “This is obviously a cause for concern and requires a heightened state of alert,” Obama said, “but it’s not a cause for alarm.”   We are on a heightened state of alert and there is no cause for alarm?  What did he say?

Typically, these types of stories cause a negative reaction in the market.  However, it doesn’t develop into a full blown risk for investors.  However, if this were to become something much greater, then it would probably become a problem for investors.  For now, it is too early to tell.

Price Levels – Remember we always watch price levels in the S&P 500 to determine how much risk is out there for investors.  Friday, although a good ending to the week, the stock market was having a tough time getting above 875.  I would dare to say in the short-term it would be tough to be to optimistic until the S&P 500 can close a market day above 875.  This is a new week and let’s see what clues the market brings. 

TOMORROW:   What does my current Category 5 financial hurricane look like?  We will talk about it.


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