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Posts Tagged ‘Obama’

All of the analysts are out this morning describing last week as nothing more than the normal correction that we have been expected.  “Don’t panic – this is no big deal.”  “It is great to be normal again.”  To be fair, everyone who is bearish is calling for this bear market rally to be over and done.  So, who is right?  Corrections are normal.  The fact that we haven’t seen a correction is not normal.  So, welcome back to normal stock market activity.  At the same time, the charts are potentially showing a change of character in the market that would also support the bearish case. 

Every time the market changes direction, you have to look at the catalyst.  Unfortunately for the bullish case, the catalyst is Washington intervention and finger pointing.  Washington wants to assert control (continued move towards socialism) and wants to point the finger.  There were two news items beyond not so hot earning reports that had a negative effect on the markets.

First issue – On Thursday, President Barack Obama proposed new rules designed to restrict the size and activities of the U.S.’s biggest banks, the latest in a series of administration moves to curb Wall Street.

If you think back to last year, they forced all of the investment companies like Goldman Sachs and JP Morgan to be banks so that the Government could give them aid and help protect them from failing.  Well there is a price that comes along with that protection and it is called control.  Basically President Obama wants to tell banks how big they can be and tell them whether or not they can participate in what is called proprietary trading. 

Healthcare was only one of the ingredients of socialism.  Nationalization of the banking system is the other.  So, we just continue to follow their game plan.   Last year they took some major steps in gaining control over the banking system.   They performed an unnecessary stress test on the banking system last year in order to tell us (which was not necessary) the banks that were healthy and unhealthy.  They also announced a list of problems that might force the government to step and take over.

Well one of those problems is unemployment.  The government said that banks might have difficulty in an environment where we had a 10% unemployment rate.  Guess what our unemployment rate is today?  Yes, technically we are starting to meet the criteria as stated by Washington that would require them to assert control.  It makes you wonder if President Obama’s announcement last week was a reenergized effort towards nationalization of the banking system.  

As you might imagine, Wall Street wasn’t too happy with the President’s plan to assert control.  You can look at the stock market and the moment he stated that he no banks should be allowed to run proprietary trading systems and that he wanted to limit the size of banks, the market fell apart. 

This also gives the politicians during an election year the ability to point the finger at those big old bad banks that gave mortgages to people that couldn’t afford them.  Those bad banks are the problem and the Obama administration and Congress are going to correct the problem. 

Second issue – Members of Congress came out and declared that they would not vote for reappointment of Fed Chairman Ben Bernanke for another term.  This is the ultimate in finger pointing.  It is real convenient to blame him for the financial crisis and take the spotlight off of their part (the largest part of the blame) in the financial crisis.   Not reappointing him would be a grand mistake. These politicians are too interested in their own survival to realize the problems they will create in the markets by not reappointing him. 

This is the risk that we run into with the markets. You create problems when Government wants to fix things, assign blame, and start over regulating industry.  They don’t regulate when they need to and when they regulate they do it too much.

Politicians should practice preventative medicine to prevent the crisis from happening and never should be allowed to fix anything after it is broken.  You just have to look back to the Great Depression to see they same type of effect when they passed the Smoot-Hawley Act which many historians state made the Great Depression much worse.  

Once again, we come to the same conclusion.  These politicians seem to continue to be the problem.

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We have had all types of bubbles in the history of the investment markets.  According to Jeremy Grantham, there have been 28 different types of bubbles from gold to art to real estate to stocks and even tulips.  Yes, there was an enormous tulip mania.  Bubbles are created out of a mania.  Manias are created from the notion that a great money making opportunity exists.  For example, we saw the stock market bubble that was created in the 90s due to the notion that these internet stocks were the next great thing.  These companies didn’t have any substance.  People were investing into the belief that an idea was going to be successful. 

Investors are doing the same thing today. We have an economy that has had economic growth based for the most part on one time stimulus.  We have a stock market that acts as if all of the bad news is behind us when, in reality, we have had a government that has been propping up the system. 

The underlying fundamentals are just not there for this economy.  There are serious imbalances.  However, the government wants you to believe that they are solving the problem.  The unemployment problem is on top of the list of the greatest problems we face.  This government has done nothing to fix this glaring problem minus the creation of some government stimulus jobs.  What is President Obama’s solution to the latest bad news in unemployment?  He announced Friday that he was going to create a job “summit” in December to figure out what to do.

First of all, he needs to be addressing the problems yesterday and not waiting until December to form a “study” group.  The reality is that while this bubble of hope is being created and the market is acting as if the government has everything in control, Americans are losing jobs, the foreclosure crisis is getting worse, and the landscape of our country continues to change drastically. You have states and municipalities facing bankruptcy.  The commercial real estate market is in trouble and could represent the next shoe to drop. 

In a bubble environment, reality becomes a real show stopper.  Remember just 4 years or so when people were flipping homes and acting as if home prices would never go down?  Well reality hit and you know the rest of the story.  I think that we are on the verge of seeing the same thing today with this artificially stimulated economy.  Wall Street is acting as if this is a normal cycle and the worst is behind us.  The government is arrogant enough to think that they can be this irresponsible, get away with it, and fix the economy when, in reality, that is the farthest from the truth. 

Then there is all of the mania surrounding gold.  This is all based on the assumption that we are going to get wide spread inflation when we are really facing a deflationary recession.  Don’t be fooled in thinking the price of gold cannot be cut in half.

Confidence is a fragile element that is the glue that holds everything together.  We went through a serious crisis of confidence last year.  We got some of that confidence back.  The problem is that this confidence is like the house built on sand.  Reality has a funny way of showing up.  

If the stock market were facing reality and not investing in “hope,” this market would not be anywhere near the levels that we are experiencing now.  Of course, you can make the argument that the stock market can go up with all of these imbalances present.  I would argue that we are facing serious and large imbalances.  This is not your ordinary situation.

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Back in March of this year when the stock market found a bottom, I posed a question that I felt would be “the” question for investors. Is this a bear market rally or is this the beginning of a bull market?

I have felt all along that this is nothing more than a bear market rally. A bear market rally is a pause in the bear market where the stock market goes up for a period of time.  Think of it as the bear resting and gathering energy for the next big decline. 

Of course, if it is a new bull market, then the March low of this year was the worst that it will get. 

I believe that we might be getting close to finding out.  Many of the indicators are stating that the moment of truth is here.  If this were a healthy normal market, we would at least see some type of market decline in the course of a new bull market.   I think that we might have already started that process.  If this is a bear market rally, then this decline will morph into something serious.  This should be a big test. 

For this stock market to change from a bear to a bull, the important level for the S&P 500 to reach would be 1121.  The S&P 500 would have to surpass that level and stay above that level.  If that were to occur, the evidence would support a major change for the stock market trend.

The unemployment numbers came out again this past Friday and showed more disturbing news for the economy.  Remember, if they cannot fix unemployment, this economy is going to have a tough time getting going again.  Unfortunately, Obama’s answer to more jobs is Government jobs through the stimulus program.  That is not the type of solution that will solve this problem.   

According to the Government’s “version” of the unemployment report, we lost 216,000 jobs. Of course, that was after they “added” back in 118,000 jobs that they created out of thin air.  As a review, each month the Government “estimates” the number of jobs created each month that they “feel” the Department of Labor misses.  It is such a farce. 

The number of those jobless as well as the overall unemployment rate is much higher than reported.  It is an absolute joke that they continue to report this garbage. 

I wanted to give you a link to an article about Robert Prechter.  He is a well regarded market analyst that has called major tops and bottoms of the market.  He uses a discipline called the Elliot Wave Theory. According to Elliot Wave, we have again hit a major top and it is about to get ugly.  Who knows if this is right or not?  I do know that he has a very strong track record and warrants some attention. 

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The recession is declared to be over or over soon states many media outlets on Friday.  Unemployment was not as bad as expected and it appears that we are starting to lose less jobs. All of that is good news and it took the media and Wall Street no time at all to react positively. 

 

I really do regret taking the opposing view on this one.  I would like for it to be true.  There are just a few problems.  We have 14.462 million people unemployed.  The number is likely higher. This is the estimate from the Department of Labor.  Where are these people going to get jobs?  Unless you are ready to pick up a shovel and get on the Obama job creation bus, you might just be out of luck.  Once again, the Obama administration does not have a plan in place to fix the job situation. 

 

Looking back to 1948 (as far back as records take us), there has never been as big of a spike in the number of those unemployed.  The closest spike that you can find was between 1979 and 1982.  In 43 months, the unemployment numbers jumped 106% to a high of 12.051 million people. Today, in just 33 months the unemployment numbers jumped 125% to 14.462 million.  The following is a chart from www.freelunch.com that illustrates this dramatic rise.

I think that the monthly unemployment numbers could continue to look better.  However, that doesn’t mean that companies are hiring. I think that it means that companies have cut as far as they can cut.  Those lay-offs might start to slow.  Until there is a solution to the problem that over 14 million people are facing, we will continue to have this crisis. 

 

Regarding the market…the 1929 comparison that I wrote about still tracks very closely.  I would still suggest that there is extreme risk on the table.  As long as we stay below 1020 on the S&P 500, that will remain the case.

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Today offers us a good example of what happens when the illusion of confidence is broken.  Let’s start with the headlines this morning:

Stocks Sink as Retail Sales Slide

You mean to tell me that people aren’t buying things?  I am shocked!!  I thought that everything was recovering and OK.  

Then there was this headline –  U.S. Foreclosure Filings Hit Record for Second Straight Month

You mean that President Obama’s programs aren’t fixing the foreclosure problem?

Of course, as I write the stock market has a decline of -1.78% for the early morning.  Investors act surprised because of the creation of false hope that is propagated by Wall Street, the media, and the politicians.  This is also why I believe that we will continue to see this bear market for a longer timeframe than most expect.  This is a game of confidence.  The establishment wants everyone to think that there is no risk and we are on our way to recovery.  Call me skeptical – I just cannot imagine that a country that is still stuck in a financial crisis is all of the sudden recovering from problems that were created over decades. 

The real danger occurs when the establishment cannot even build false hope anymore. 

As far as price levels go, watch the S&P 500 today if we decline down to 875.  That will be a key price level for the stock market to stay above if there are any hopes of this current bear market rally staying alive.

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I was talking to a buddy of mine in the money management business.  He was much more bullish shorter-term than me.  So, as usual, we debated the markets.  He said that he doesn’t see anything on the horizon that could be a big stumbling block.  My reply was it is the problem that you don’t see that is the problem. 

The challenge is that we are in an environment that is ripe with major risk that we don’t see.  Just a week ago, who had ever heard of swine flu?  Can that be a big problem?  I heard that this could get bad enough to wipe -5% of growth from the economy.  I am still undecided if this is the big pandemic that they have predicted.  It just doesn’t have that feel to it.  I think that the bigger risk lurks within the stress tests of the banking system that we will see next week.

The stress tests are worrisome.  I am extremely distrustful of the government and their agenda.  As I have stated before, there is no good reason to stress test the banks and then release the results.  There must be another reason why they are going this direction.  So, I guess we will see next week. 

As for this current market, the S&P 500 must finish the day over 875 and stay there for this current rally to stay bullish.  It is having a great deal of trouble with that price level.  Today didn’t tell us much.  Now that Obama’s first 100 days are out of the way and the end of the month is over (there are many things that occur to push the markets up so that month end investment statements will look good) we will see how the market act without any interference.

As for this current market, the S&P 500 must finish the day over 875 and stay there for this current rally to stay bullish.  It is having a great deal of trouble with that price level.  Today didn’t tell us much.  Now that Obama’s first 100 days are out of the way and the end of the month is over (there are many things that occur to push the markets up so that month end investment statements will look good) we will see how the market acts without any interference.

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