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Posts Tagged ‘S&P’

Every intervention into our life by this government creates a new and uncharted course.  Big government and an ever increasing debt load on our country.  The absolute arrogance of this government to think that they can tinker with the future of our country in this manner and that everything will be just fine.  In the good old days, you really couldn’t see through the charades.  Politics were played behind closed doors.  Today, they are going to rob you blind right in front of your face.

It is a joke to think that these politicians are going to take the numbers from the Congressional Budget Office as reality.  Once these numbers came out last week declaring that this healthcare reform bill will reduce the deficit, there was a swing in the NO votes to YES.  Something that you need to know is that these estimates are based on fairy tale assumptions and in no way reflect reality.  It is the ultimate insult to intelligence that these politicians will use the CBO numbers as validation for voting on this healthcare reform bill.  One politician referred to being “giddy” in reference to them. 

OK, I will refrain from ranting about this abduction of our future and address the ultimate question.  How will this affect the markets?  It is so tough to say.   We have never lived in a time where there is so much agenda attempting to control.  You really have to look at the price levels of the stock market, separate yourself from the news, and see how investors feel. 

We haven’t talked about price levels in a while.  Price levels are important to watch because they tell you how the market is reacting to risk.  So, the current price level on the S&P 500 to watch is 1150.  This is the line in the sand.  As long as the stock market stays above 1150, then that signifies that the markets are OK with our debt-laden world.  However, the inability for the S&P 500 to stay above that price level indicates problems on the horizon. 

Last week, the S&P 500 confidently climbed over that level.  This week will test that confidence level.  I have learned (the hard way) one simple fact.  You can read the news and look at the world around us and draw conclusions as to what should be happening in the stock market.  You can look at all of the debt accumulating and the debt that we have yet to take on (see healthcare reform) and come to the conclusion that this is not sustainable and not good for the stock market.  However, the market might or might agree with that conclusion today.  Tomorrow might be another story. However, today the markets are focusing on other things.

 So, we have reached the line in the sand, which is 1150 on the S&P 500, and will watch to see how the stock market reacts in this environment.  Today is a new day in America as we continue to go through uncharted waters.  It started a few years ago as the Government hijacked capitalism using the financial crisis as the ultimate excuse.  Today, this agenda filled Government has just taken one more huge step.  This continues to create enormous risk in the markets.  However, it will not matter until the moment that the markets wake up to reality.

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Wall Street (which drives me crazy) calls even the smallest bit of good news “green shoots.”  The analogy is that grass starts to grow in the form of a “green shoot.”  Well, I have many “green shoots” in my yard right now.  Unfortunately, these green shoots are weeds more than anything.  John Mauldin made a very good observation in his latest writing.  He said:

“My premise for uttering the heresy “This Time It’s Different*” is that the fundamental nature of the economic landscape has so changed that comparisons with post-WWII recoveries is at best problematical and at worst misleading.”

His point is that Wall Street is looking at this recession through the lens of past recessions since WWII.  It is like comparing apples to oranges when you think of what makes up the problems that we face today.  Last week, the S&P cut their investment ratings on 22 banks.  Banks depend on strong investment ratings so that they can attract investor money.  The Consumer Price Index saw its largest drop since 1950.  Once again, it looks a lot like deflation more than inflation.  The reality is that there is a higher probability that we are in the throws of a deflationary problem which is something that only time can solve.  The problem with the weeds in my yard is that I cannot do anything about them unless I want brown spots all over my yard.  I will have to wait until next year and make sure that they don’t come back.  This is unlike any recession since the 1930’s. 

This week will have some interesting events.  The Federal Reserve Board meeting, that always makes for an interesting day.  The Treasury is set to sell billions of dollars of Government Bonds on the open market.  It will be interesting to see how interest rates hold up.  Once again, a rising interest rate environment is the last thing that a debt laden economy can handle.

As I write, the S&P 500 is below a critical price level of 900.  If the market were to close below that level, we would want to watch the next couple of days very carefully.  Once again, we want to evaluate whether this stock market rally is the beginning of a new bull market or nothing more than a bear market rally.  It is my view that this is nothing more than a bear market rally.  Thus, you want to be monitoring your risk very closely right now.  I will update more frequently this week as it warrants.

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