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Posts Tagged ‘President Obama’

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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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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Well, yesterday continues a strong performance for the stock market.  Remember we are still focusing on one question.  Was the low in the stock market in March the bottom of the bear market and the start of a new bull market or was the stock market rally that started in March nothing more than a bear market rally?  This is one of the most important questions to continue exploring at this juncture. There are huge risks for either answer. 

If you are not properly invested and this is the new bull market, then you are really missing out on recouping your losses.  If this is nothing more than a bear market rally, then the potential for extreme losses for stock market investors still lie ahead. 

For those of you who read my daily outlook blog, you know that I believe this is a bear market rally and a great opportunity for those who are heavily invested in stock to take advantage of this big move in the market and reduce your risk by selling stocks or stock mutual funds. 

As I started writing last week, my indicators are flashing caution right now and suggest that the risk continues to climb for anyone invested in stocks.  The market is truly ignoring some negative items.  Growth for the economy was announced yesterday much worse than expected.  We had -6.1% growth last quarter and the growth numbers for the first quarter were revised and reflect a worse first quarter than originally reported.  The last 6 months were the worst since 1958.

Foreclosures are climbing.  Swine flu should now be on every investor’s radar as this is just about to be classified as a pandemic.  The first of what I believe will be two automakers declared bankruptcy this morning.  The Government is going to be selling 71 billion dollars worth of government securities next week (read: printing money).  Finally, unemployment continues to weaken as evidenced in this morning’s new weekly jobless claim numbers (another record). 

All of this is occurring, and the consumer confidence number increased by 50% with the highest read since November 2005?  Are you kidding me?  As I have written many times, there is a great deal of evidence that exists that economic numbers are doctored.  There is just no plausible explanation for a rise by that much during a time with this much negativity.  However, keep in mind, we just “celebrated” (it certainly seems that way) President Obama’s 100th day in office.  It sure would be fitting for the stock market to have made money in his first 100 days as well as a huge rise in consumer confidence due to everything he has done in office.  HMMMMM…I follow this data very closely and it doesn’t add up.  It looks more and more like an organized PR campaign.  Let’s just all hold hands and believe there is no risk and the government will take care of everything.  If you are not paying attention to what is occurring out in front and behind the scenes please start doing so. 

Agree or disagree and think I am a conspiracy nut, things don’t add up.  I am just writing what I am seeing and staying away from the kool-aid that is being consumed in mass quantities.  For now, be careful with your risk.

with your risk.

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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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President Obama stated the other day that he sees glimmers of hope.  At the same time he was getting optimistic about things, another very disturbing piece of news was released.  In fact, this was news that did not get much attention…and it should.

 

Moody’s rating services assigned a negative rating to ALL local governments in the United States.  That means the rating services feels like the entire local government financial system is in trouble.  Once something like this happens, it is very hard for municipalities to get financing.  As it is, local governments and even most states are having serious financial problems.

 

There comes a point where the Federal Government cannot bail out everyone.  The problem is that the financial crisis has caused cracks in the foundation.  As a result, this isn’t just like any old recession where the worst is over and we start growing out of it.  Unfortunately, I think that it is going to take a very long time to get out of this one.

 

This is very significant that Moody’s would assign a negative rating to every single local government.  This just underscores the huge challenges that the Obama Administration has to face.  There comes a point where it is going to be impossible to spend our way out of this mess.  These types of problems act as a noose around the neck of the economy and the markets.  It is just tough to start recovering when facing these challenges.  As a result, the risk in the stock market remains very high. 

 

With that being said, the stock market did have a stellar week.  The S&P 500 finished over 850 and thus far has successfully finished above the price levels that we have been writing about.  As a review, think of price levels as road markers.  If you were traveling, you can get a sense of your success in reaching your destination by passing certain road markers.  However, if you are not seeing the road markers, then that could be a sign that you are losing ground and falling behind or even getting lost. 

 

It is no different for the S&P 500.  The goal is to get back to where we were when this whole thing started.  In order to do so, the S&P 500 needs to prove to investors that it has the ability to get back on the right road and make headway without getting lost again.  So, we use price levels (the price of the S&P 500 at the close of business each day) as a way of assessing whether or not the market looks like it is on the road to recovery. 

 

So, let’s look at some new price levels.  The next price levels for the S&P 500 to close above in order to remain positive would be 875, 900 and then 945.  If the S&P 500 closes below 825 to 800 then that could be an indication that the stock market is not on the right road to recovery and simply taking a short-cut that is leading to a dead end. 

 

Although the last 5 weeks have been positive, there is one fly in the ointment.  There are many technical indicators (other road markers) that I follow and use to help me figure out the future direction of the stock market.  One indicator that I follow is showing that this bear market rally might be in its final stages.  Could it be wrong?  Yes, it could be wrong if we actually have started a brand new bull market.  Although anything is possible, I would think that a brand new bull market is a low probability event. 

 

 

 

 

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The market is getting all types of signs of confidence.   Everyone with a vested interest in this turning around (with the exception of President Obama who still doesn’t understand that the market matters) is doing everything possible to build confidence. 

First, you have Citigroup’s CEO, Vikram Pandit, sending out an “internal” memo stating that they were going to make a profit during the first few months of the year.  This would be the first time since 2007.  Of course, this doesn’t take into consideration all of the losses from the toxic mortgages that they have on the books.  Conveniently, he didn’t really know that number. 

Newsflash, I have $1,000,000 dollars in the bank account and I owe $1,200,000 to other people.  Just because I have $1,000,000 doesn’t make me a millionaire.

However, this made the market giddy and confident. Then my favorite confident booster from the week – General Motors said that they didn’t need anymore taxpayer money. Well, that is good to know that we dodged that bullet.  Maybe, just maybe, those billions of dollars are still keeping them in business and they don’t need anything “this” week.  After all, we know that they are not selling cars.  So, it is not like they have tons of money coming in from someone other than their creditors (taxpayers).  GM is saying, “please stop making our stock go down.  We don’t need your money until next week.”

No, last week’s rally was (in my opinion) nothing more than a technical occurrence that just happens when the stock market goes through these big declines. 

Nothing really differs from what I wrote last week about this stock market rally. I think that this is a bear market rally.  I have been looking for a pretty impressive bear market rally that could go as high as 30 to 40%.  However, I don’t think that this is the beginning of that rally.  It would not surprise me if we see the selling start up again.  If the market continues to go up this week and reach some of the price levels I wrote about last week, we might be in for “the” bear market rally and I would clearly be wrong.

Then there was all of my favorite quotes:

The legend in investments, Warren Buffett, said the economy has “fallen off a cliff”  (much like the stock from his Berkshire Hathaway company).  I guess he needs to justify his losses (although I do agree with him).  Now that we see he can lose money like the rest of normal Wall Street people, do you think it is time that CNBC stops immortalizing the guy?

Fed Chairman Ben Bernanke said that he believes we can be out of the recession by the end of 2009 if we solve the problems.  OK, he came up with some very eloquent reason why he should be right.  Cutting through everything he said, the interpretation would be  – “we will be OK if we solve the problems.” 

If Tony Romo leads the NFL in quarterback ratings, we have the top defense in the NFL, and our running back tandem is the best, we will probably win the Superbowl.  These are the kinds of things that are intended to build confidence.

The problem is that there is very little to be confident about as the Government continues to address every other problem except the one that is bankrupting America.  The cancer is setting in and no one is administrating chemo.

For this week, the key will be for the S&P 500 to stay above 741 and to possibly close the week over 800.  If that were to happen, there is something to like about this stock market rally.

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If an event is occuring in our country, the stock market will vote on it and tell you whether it is positive or negative.  Last night President Obama gave a very important speech that was designed to reassure America and bring back some confidence into the system.  The markets are voting today and the results aren’t good.

So, a few things might be taking place right now.  First, there is so much negativity that the stock market will not be able to muster even a small recovery rally.  If that is the case, then the S&P 500 should fall  below 741 and we should be heading south down towards 600 in short order.

Second, markets have a tendency to decline after a big move up.  The S&P was up over 4% yesterday.  After a big day like that one, two things can happen.  The market will go up in strength a second day.  That would take a very confident and strong market environment .  An undecided market will decline and “test” some lower levels.  If you are a first time reader, go back and read some of the blogs that I have written about levels.  We always want to watch the levels.  For the S&P 500, it is positive if the market can close above 755.  If that occurs and the market can remain above that level, the S&P 500 might be heading up for a small stock market rally.  A close below 755 would mean a potential decline back to 741.  Remember,741 is the line drawn in the sand. 

You have to love the liberal media.  This writer (after drinking the kool-aid last night) wrote that the Obama speech would inspire the markets.  She might be regretting that a bit.

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