Heading for the Exits

Just as everything looked so good, reality comes back to haunt us.  The long awaited monthly jobs number was reported this morning and much to the chagrin of market bulls, the number was a bust.  The unemployment rate again rose to the Springtime highs of 9.8% and a mere 39,000 net jobs were created in the last month.

We had been anticipating the stock market's test of the highs.  Normally, this is a three-week test of the high but with the Thanksgiving holiday last week, perhaps the market timing got a little displaced.  Seldom do things in the market play out "exactly" as one would expect.  Gee, the  market would be no fun if it were that predictable.  But this week, stocks played catch up, exploding sharply to the upside but still not getting above the 11,400 level.  It came close but whoops, not today.

It appeared that the market could take out the highs as pre-market trading was flat to positive, but then, the big number hits and markets sharply reversed course.  The Dow was up nearly 50 but now is down nearly 50 with normal trading still yet to begin.  It appears that we are going to fail this test of the high.  It is an Intermediate test of the high so the down draft could last for several months.  In fact, such a well defined test of the highs could mark a major top.  I can't see the Dow ever getting to 12,000.  While it may bounce around between 10,000 and 11,000 for another year or so, all signs indicate that we are going to go down and go down hard.  I predict a Dow 5,000 or even lower after 2012.

JURASSIC PARK ECONOMY

You know how that movie played out.  The mad scientist played around with genetics, making it certain that the animals couldn't breed on their own and all things would be kept under control.  Well, our Federal Reserve and other central banks around the world have been tinkering with nature and the outcome is going to be just as deadly.

With this in mind, you are going to want to position your portfolio VERY CAREFULLY.  There is a real danger of not only a major stock market collapse but also a fleeing from the dollar and treasury securities which could cause a major panic around the globe.  If you wish to immunize your portfolio against the potential hazards that are clearly evident, contact me for a free consultation.

Where Will the Fed's Dollar Debasing Policy Take Us?

While Treasury Secretary, Timothy Geitner, and Federal Reserve Chairman, Ben Bernanke, feel that the addition of $600 billion more to the money supply will help the US recover from a severe recession, the rest of the world does not agree.  Already, we can see that the dollar is at decades low levels against many of the world's currencies.

Over the past 10 years, the dollar has fallen from around 110 to the mid 70s.  With additional Quantitative Easing, or the addition of even more dollars into circulation over time, many expect the dollar to continue moving much lower.

Although interest rates are only now starting to nudge up, reaching about 2.75% on a 10-year Treasury Note,  the government's intent behind the additional Quantitative Easing is to make money even more cheap for the banks and investment institutions.

It's clear to see that interest rates have been extremely low over the past 10 years.  We are currently at levels reached nearly two years ago when the world economy was in crisis.  Yet, our government and Federal Reserve believe that interest rates need to be lower still.  Unfortunately, their actions may have serious consequences.  Already we see the price of oil again skyrocketing boosting gasoline prices.  Food also is moving higher in price.  And as the government tries to pressure China to boost the value of the Yuan, China's currency, if successful, prices of cheap goods, which American has come to depend on, will start to rise.  This will surely take its toll on the already pressured US consumer.

In a recent article by John Browne  A Bad Plan Poorly Disguised , Mr. Browne suggests that the US may be purposely devaluing the dollar to cheapen it's debt.  Although we do not have "official" inflation, the declining value of the US Dollar surely means inflation for average people who consume food and drive cars.

Eventually, China and other countries that are supporting the US's trillion plus annual budgets, will eventually say enough is enough . China has been warning us for well over a year now.  Yet the US appears to only show arrogance in the face of our new landlords.  The US may believe that China has no recourse but to continue buying US debt lest the value of these securities fall dramatically.  But it may just appear that we have China over a barrel here.  The US economy tetters on the brink of disaster.  A sudden sharp rise in interest rates will truly destroy our fragile economy.  How would the US support its already massive debt payments if interest rates would double?

The day of reckoning will come.  The Fed has been trying to manipulate the economy now for years and each period of effort has resulted in still another bubble.  First it was high tech, then real estate, and now bonds.  They say there is no bubble.  But they said that about real estate too!

Are you prepared for the day when the stuff hits the fan?  If you took big losses after each of the previous bubbles bursted, then you are probably not prepared.  Rising markets cause complacency.  But as discussed a month or so ago, I see the Dow back down below 5,000 perhaps as soon as 2012.  The Fed cannot continue their reckeless experiments.  Yet they cannot stop.  It reminds me of the Barings Bank or Orange County bankruptcies.  Once they set forth on this dangerous past, they have to keep doubling up on their bet to try to get back to even.  In the end, there is only one result.  Bankruptcy.

Few are telling you how to prepare for the debacle that I believe will come.  Contact me if you'd like more information

Fed Policy is Killing Us

As the 10-year rates fall below 2.9% and the 2-year rate falls to around 0.5%, it's becoming obvious that the economy is not what is driving the bond market rally, it's the Fed creating still another BUBBLE!!!

When will they stop creating economic bubbles for the benefits of their cronies? While I have been in the Bearish Stock Market camp since 2005 and still expect a test of the lows, I have been encouraged by the corporate earnings that have been coming out in recent weeks. There is an underlying strength in the economy that can come out if we let it. Yet, interest rates continue to plummet. WHY?

It's becoming obvious, although I will check the data, that as the Fed continues to lend money to banks at nearly 0%, the prudent thing to do for them is, of course, buy the treasury market and it's guaranteed return. As long as the Fed continues to provide funds for free, why shouldn't we expect those, who can get free money, to go crazy buying everything in sight?

It's not going to change. While I think that the interest rates HAVE TO GO UP based on the amount of debt we have, the bond market keeps rallying, shaking out the shorts with dramatic moves.

The European crisis is over. I should have staked my dough in the Euro instead of screwing around with a manipulated US system. At first, it appeared that we were derivative trades of Europe. But with Europe doing fine (basis the Euro which is now 130+ versus the dollar), it appears that there is something VERY WRONG with the US stock market and bond market.

After the Flash Crash in May, I got ALL OF MY CLIENTS OUT of the stock market to as much extent as possible. In fact, I don't even want to advise on the stock market anymore as it is now nothing more than a casino with the billion dollar hedge funds, with their computer algorhythms moving the markets. There is no real investment here. It's all a game.

The interest rates, which one would believe was a true reflection of the economy, now also appear to be manipulated or really, out of the market's hand. It doesn't correlate with the economic reality. If it does, then WE ARE TRULY IN A DOUBLE DIP RECESSION and are headed for a depression.

I am really sad. As those who have followed me have noticed, I haven't been writing at all for the last few months. My despair continues and my faith in the US economy wanes. I am not a politician nor do I work for a government. This is where all the money is going.

I suppose that the long-term rates are going to go down very low. This effect WONT STOP UNTIL THE FED RAISES RATES. How sad that the Congress has given the Fed even more rights to screw up our economy. If you are not a banker or a politician, expect that the worst is still to come.

I'm going to start looking at markets away from the US. I just don't think that they are fair anymore. Perhaps no markets are. Unfortunately, the alternative is to start your own business. But you can only do this if you are cash-flushed or have some rich friends.

Good luck America.

Markets Sell Off as Rates Rise

Markets reversed sharply this morning as interest rates rose. The US Dollar strengthened in response to rising rates. There has been a very strong correlation in the falling dollar and rising asset prices. As the dollar fell, stocks, bonds, gold and other hard assets rose in value. Rising rates have the potential to cause the "PERFECT STORM" in your investment portfolio as most asset classes may fall. Naturally, bonds fall as rates rise, but as higer rates invite investors to again move into the dollar, the stock market, oil and gold may fall as well. Those who are not using all of the risk management tools available may find themselves just as they were last year, bailing out of the stock market, trying to preserve whatever is left after a number of recent market crashes.

Roubini Predicts Doom

It's not only me that has concerns about the current situation. Dr. Roubini, in an interview today with business channel CNBC commented that the dollar won't continue to fall forever and when it does start to strengthen, there will be a collapse in asset prices across the globe.

I'm sure that you've seen stories about how some people made BILLIONS of dollars profiting from the recent market collapse. Don't be a hostage to the whims of the market. You can control your profits in any kind of market through proper risk management techniques. To learn more about how you can protect yourself from disaster and position yourself for profits in the future, feel free to e mail me.

S&P Triggering Sell Signal??

Some techicians like to watch the Wilder's Parabolic stop and reverse indicator. The indicator provides a trailing stop (as reflected by the dotted line in the chart). When price moves through the dotted line, one closes out (in this case) their long position and takes a short position.

I have found that this indicator works very well in trending markets however, in sideways markets, it can mark a top or bottom and result in one selling the bottom or buying the top.

Seems that everyone on tv these days is so bullish. Few are calling for a test of the March lows. Many state that there is no possibility that this could happen. But not I. I'm sad to say that I have become totally cynical about the government and our financial markets. We have been lied to and deceived so often that you really have to close your ears to the noise and just look at the technicals.

I have been suggesting that you buy DXD or SDS positions as the market has been rising. These ETFs provide you with protection against a downdraft in the market. Also, I have discussed long-term put positions on Boeing and JB Hunt. These are just fun plays however as I was happy to get a 15% market gain in June. Realizing the fiction that we call the market, I was thrilled to get 15% in a market that may well again wind up providing negative returns.

The problem with most people though is that they cannot be satisfied with a 10% to 15% annual gain, especially when they see the market rallying sharply. But you must understand that rising prices acts as a magnet, sucking in more money as greed sets in. Without a discipline these days, you are going to get creamed and wind up broke.

Unless you are a banker and going to receive your millions in bonuses, I insist that you figure out what annual return you need to achieve your goals, dip your foot in the very volatile market, get your goal, and move to safety.

I'D BE WILLING TO BET

Yup, all of these banks paying off the TARP money, it's all a sham I think. They want to get their bonuses. Obama's Pay Czar will probably let them have it too. Then watch, these banks will be back begging for more bail out money. I'll bet you on this. There should have been some provisions, just like in a personal bankrupcy, that if you pay off the TARP, you can't come back for seven years. Nope, watch, these guys (and gals) are going to get their millions in bonuses and then BAM!, back to "bail us out or the economy and the entire free world will collapse."

If our politicians allow this again, then I totally give up.

Is the Market Ready to Crack?

The Dow average is rebounding this morning after dismal PPI data. The talking heads assure us that THIS DOES NOT INDICATED DEFLATION! Ten year interest rates fell to 3.47%. In another day, Rick Santelli on CNBC would be proclaiming "GOOD NEWS!!!" now we can refinance our houses and add more stimulus to the economy!!! Unfortunately, banks aren't lending anymore so bad news = bad news. But yet the market rallies still.

Whoops! I forgot to mention that the market looks forward. Yes, I am happy to say that someday, the market is going to be strong. It will be vibrant and market investments will thrive because the economy is strong and healthy. Oh, but by then, the market will be looking forward still and be looking for bad news. Ummmm, where does one turn? Who does one believe?

Do investors have an effect on the market? Or is it all the big institutions with whom we entrust our money? Look at the TURNOVER numbers on your favorite mutual funds. These guys (and gals) are often trading with reckless abandon with your money. Would you do the same? Probably not. Who pays for this? Of course, you do. You might not notice it, but these extra trading costs require that fund managers make more just to equal the market. Having to earn excess market rates REQUIRES that they take EXCESS RISK!!!

It's all a game. They make millions while they are right (with your money) and suffer minimal consequences when they lose (LOSE ALL OF YOUR MONEY). But they quickly get jobs at other firms and manage to gamble with your neighbor's money.

Enough of my morning TIRADE. In the end, the market is just a casino and if you fail to recognize this, you are going to lose. REMEMBER THE HOUSE ALWAYS WINS. and YOU ARE NOT THE HOUSE.

BOEING BOEING GONE!

I can't begin to guess where an irrational market will take prices. As I have been mentioning since June, I got a 15% portfolio gain and hoarded my profits, only playing tactical plays to stay involved in the market so I can pass on my thoughts to you. Boeing continues to get squeezed into the pennant and that is good news if you want to play. As volatility dwindles, option prices also dwindles. While my bet is to the downside and as I mention, take your option positions out to at least Jan 2010 to be sure you can participate in the October meltdown that most agree will not happen. I hope that they are selling the put options that I am buying so that they can truly put their money where their mouths are.

As you can see, Boeing is mimicking the Dow average. I think that BA will be a leader in the next major move, whereever it goes. Throw away the fundamentals. If they were important, the market would surely crack. But the trillions of government stimulus money needs to go somewhere. In the end, the house of cards will fall. The emperor will have no clothes, etc. Unfortunately, I can't say when it will happen.

Back in 2005, I wrote about the impending market crash and I even predicted that it would fall to the Dow 6,500 level. And it did, three years later. As they say, the market can remain rational much longer than one can remain solvent. Yes, cliches abound this morning. I guess the secret is to always understand what is truly happening in the economy and take a long term position for this. Still, you must also play the short term whichever way it is going.

SUCCESS WITH OIL

I did this with OIL, an ETF that reflects the oil futures market. I added small positions every ten percent down finally buying at the 14 level. Oil did spike into the 20s and I made money. Now, I continually add DXD, SDS and TBT positions in small increments at 10% intervals. If the markets never come down again, oh well, this is irrationality outlasting me. But it is obvious that there are serious problems at hand. The government has guaranteed failing banks, failing auto companies and so forth. They are committed to keeping these badly managed organizations afloat. It is my fear though that when the truth about the banks risks and losses finally come out, they will not only fail but bring the government down with them.

I guess the lesson is, don't let market euphoria shake you out of your short positions. Always be hedged. As we've seen before, when the market finally cracks, 5% daily moves can happen in a blink of an eye. Remember, this is all but a big game for the institutions and billionaires. You and I don't count. If you can't see this or if you aren't willing to lose everything, you better not be playing.

More Evidence of a Market Top

Before any major market decline, specialists drive prices higher, generating big demand, that they sell short into. We might have seen such action in the stock market yesterday when prices, across the board, surged. The evidence of the breadth of the move is illustrated in the chart above. If you have followed my writings, you will know that standard deviation is at the core of my analysis. When prices move to extremes, it is generally not because of a change in valuation, it is a change in sentiment. When prices move to the +2 level, people are acting irrationally and chasing stocks to price levels that are not "normal."

I haven't looked at my daily data until just now as I was wrapping up the details for my monthly analysis. Yesterday though, if you had read my blogs, you would have sensed the frustration I felt as the bull run reached a ridiculous level in my mind. I instinctively sold just about everything and sold an S&P call to boot!

This is the opposite reaction that others would have. Others were instinctively buying into the rally. They were obviously (????) doing the wrong thing? Only time will tell.

LOOK AT THIS!!

Notice Point A and Point B on both charts. Point A came on January 2, 2009 when the S&P rallied to 931.8. It went up two more days then collapsed! Look at Point B, yesterday's trade. Another huge spike in overbought stocks and another market high? For reference, my database used in this study is 208 stocks, each the leader in it's industry. There is only one representative from each industry. In the January reading, neary 50% of the industries were overbought. In yesterday's reading, almost 35% of the industries were overbought. Since I haven't seen such a spike in between, I've got to take it as a good hint that specialists were distributing across the board and that the market will soon fall.