Market comments for March 10th and some political comments as well

Not much has changed with respect to the stock market as a result of yesterday's action. As I said several days ago we have formed a wedge of an ever tightening range. This means we are getting closer to that breakout either to the upside (which I do not believe will happen) or to the downside, which is more likely in my view. Conditions in Libya are getting more precarious daily, as rebels are pushed back by Kaddafi's mercenaries. Today's jobless claims report rose more than expected and came in at 397K, just shy of the 400K. This set a negative tone in futures this morning.

The chart below of the S&P 500 shows that wedge and how the range tightens each day. Today the market is starting lower but it is down now almost 200 points on the Dow and may actually break below the range today. Watch for any breakout to confirm market direction going forward.

In Wisconsin, the Republican Senate stripped out the Collective bargaining section of a bill which had financial elements so the Bill could be passed with the Democrats away from the State to protest the maneuvers to kill the Unions. This issue is becoming a rallying point for Democrats who see Republicans tied to the business sector push to remove Unions from being a factor in the next election. The Unions have organized for Democrats and gotten out the vote and helped fund many a campaigns. Getting rid of Unions will allow big business with their hordes of cash to dominate the process, thus ensuring Republican candidates win. When they win they will remove all remaining regulations on Wall St. They are waging a war on the Middle Class and with this last effort, they are winning. The people must take to the streets or this illegal move will stand. These tactics are being pursued in 16 northern states,

UPDATE 7:00am
Here is the updated chart of the S&P which includes the early market trading. It clearly shows we have broken lower and outide the recent tight range!

Arrest of Mafia members

So I was reading the headlines and an article today about arrests of 127 mafia members. Here's the news clip and then I will make a comment as I have an interest in this because I am of Sicilian decent.

"NEW YORK – Federal authorities orchestrated one of the biggest Mafia takedowns in FBI history Thursday, charging 127 suspected mobsters and associates in the Northeast with murders, extortion and other crimes spanning decades. Attorney General Eric Holder made a trip to New York to announce the operation at a news conference with the city's top law enforcement officials.

Holder called the arrests "an important and encouraging step forward in disrupting La Cosa Nostra's operations." But he and others also cautioned that the mob, while having lost some of the swagger of the John Gotti era, is known for adapting to adversity and finding new ways of making money and spreading violence.

"Members and associates of La Cosa Nostra are among the most dangerous criminals in our country," Holder said. "The very oath of allegiance sworn by these Mafia members during their initiation ceremony binds them to a life of crime."

Ok, I understand and don't have a problem with the arrest, but when is Eric Holder going to arrest those on Wall St. who created worse crimes and have ruined our economy resulting in Millions of unemployed? Wall St. didn't commit murder but amy have contributed to some suicides. They certainly are responsible for "adapting to adversity and finding new ways of making money" that caused great harm and were illegal. If Wall St. wasn't extorting, then what were they doing?

The reality of the economy and the irrationality of the Fed and Wall St.

Yes my friends, new data released today defies the logic of the markets. First piece of news was that Michigan Sentiment came in lower than expected for December at 72.7. The prior months reading was 74.5 and the expectation for Dec. was 75.5. So much for that "good news"!

Then the Retail Sales number was reported at 0.6% for Dec. Expectations were for 1.0% for Dec. Nov. came in at 0.8%. So this clearly is in the wrong direction and includes the Christmas shopping data. Remember how they said it was a great season? Hmmmm.

The CPI came in at +0.5% for Dec. Expectations were for +0.3%, so that's in the wrong direction but Core CPI came in at only +0.1%, which excludes Oil for some reason. You don't need gasoline or heating Oil, right? That isn't a "cost" to you, right?

So how's the market reaction to this news? Well the markets were down before the news came out and now they are up! Go figure, it's QE2 at work distorting reality of the economy. Thanks Fed Chairman Bernanke!

America leads the world in "Spin"

Don't you just love how good our government officials, Wall St. and the media have become in the "spin" business. An example is today's Initial Jobless Claims numbers. Here are the facts first. Initial Jobless Clams came in at 410,000. Last week the data came in at 388,000. Expectations were for 405,000 and these expectations were published a week ago. I know as I check. One might therefore conclude that the numbers disappointed. In fact the stock market dropped on the news. So here is a Bloomberg.com article on the announcement. See if you can spot the spin. It isn't that difficult.

"Fewer Americans Filed Jobless Claims Over Past Month (Update2)
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By Shobhana Chandra


Jan. 6 (Bloomberg) -- Fewer Americans filed claims for unemployment insurance payments over the past month, indicating the labor market is improving.

The average number of applications for jobless benefits over the past four weeks dropped to 410,750, the lowest level since July 2008, Labor Department figures showed today in Washington. Claims for the week ended Jan. 1 rose by 18,000 to 409,000, in line with the median forecast of economists surveyed by Bloomberg News.

Firings have been waning in recent weeks, a necessary step toward gains in hiring that will help boost consumer spending, which accounts for 70 percent of the economy. A report tomorrow is projected to show employers added to payrolls in December for a third month as the U.S. expansion gained speed.

“The recovery in the labor market is continuing to move along at a gradual pace,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut, who forecast claims would rise to 410,000. “Employers are getting to the point where they are becoming a little more confident about the strength of the recovery.”

You be the decider!

What's it going to take to get out of our economic funk? It's contrary to what you think!

We are all concerned about the economy and the stock market. The talking heads on CNBC and other networks like Bloomberg are asking questions like these: Will the Fed's Quantitative Easing work this time when it didn't seem to work last time? What's it going to take to get more confidence back to Consumers? Will the individual investor return to the stock market or have we lost a generation of investors? I have given these questions some serious thought and with my background of understanding people and the psychology that drives them, there are answers which will seem contrary to what the experts in the Fed and the markets are currently providing. Here are some of my answers to these questions.

For confidence to come back, the stock market must go down and have a retest of the lows! It is the only way where people will be convinced that the market is reflecting the economy. Without the drop, which by the way had been predicted by me incorrectly for the past 6-9 months, people believe the markets are being manipulated (which they are) and therefore an unsafe place to invest or to make money. It is the very avoidance of market turmoil, which has driven the lack of confidence in the connection of Wall St. to Main St. I am not saying it won't scare people, but they will feel relieved if there were a successful test of the lows and that there is the all clear sign with respect to investing in the market and the economy. The economy needs a spark right now and the Fed can't provide it. It has shot its wad already and it failed. The government isn't responsible for creating jobs, it's the Private sector. The Private sector won't until the mood of the Consumer is more optimistic and they are spending somewhat more than they have been.

I am afraid without the market drop, hordes of people will stay in a funk, things will remain depressed and many will feel there is no hope of recovering. The world needs the boldness and courage of the American people to lead the world out of this mess. The answer is NOT to try and protect the stock market but to allow it to reflect reality. We need the stock market to fall and retest the lows successfully so that we can reset the psychology of the public.

Bad economy, jobs lost, huge government debt: Do you want this to change? Then wake up and pay attention to what has happened!

Ok, I am on a rant and while I am at it I wanted to comment again about why we are in trouble as a country and how each political Party over the past 25 years has advanced or tried to eliminate some of the problems. As I said in my last post, Republicans say they are against big government. I don't think any Republican out there would argue against that claim. But as you can see from the chart above, (and please click on it to enlarge it and take a real good look at it), it is much worse than even this chart has shown, the Republicans have created most of the debt of this country. This is indisputable and based on the facts. Now they tell him to "Reduce the burden on our children and grandchildren (which they created). It makes sense they would do this from a values perspective when you think about it. What better way to shrink the size of all government than borrowing money for things like tax cuts and wars of choice (Iraq) and putting the government into a debt so large that the only thing anyone can do is either raise taxes, which Republicans are so much against, or shrink the size of government. That has been their strategy for the past 25 years. The Republicans have deliberately raised the debt so there isn't any money available to solve problems like healthcare for all or paying teachers a decent wage based on how important it is to be able to compete in the world with a first rate education.

President Obama and the Fed are trying to do everything they can to help get us out of the most recent mess, which by the way wasn't created by most Americans. It was created by the Free Enterprise program run amuck by a relatively small number of greedy individuals through a push for deregulation in both Banking and Insurance. It is those same greedy people who want as many tax breaks as they can get, some not even willing to pay their fair share of taxes. For them, it's all about me philosophy. Most of the social change that has happened in this country has been the result of the Democratic Party, like Social Security, Medicare and Medicaid.

So I guess I am more of a Democrat these days than a Republican. I am more left than right leaning and I voted for Reagan when he ran for President. But the Republican party of the past 25 years is nothing like the Republican Party of 25-50 years ago. They were more rational, tried to do the right thing for Americans and were more willing to work in the middle of the spectrum with Democrats. Those days are over as is the former Republican Party. We became a debtor nation under Republican leadership. I am totally behind our President for the changes we had hoped for. He will succeed if we get behind him as this is still our country. The voices against him are the ones who created all of our mess. Get behind him or you will lose your country for good. There, now I have said it!

The Economy and Unemployment: A discussion of current times.

I thought a discussion was in order since the release of the 10.2% Unemployment rate data on Friday. It is difficult for most Americans to really see the impact of these numbers but I am going to share some observations with you on how America is slowly changing like a faucet dripping water or the boiling of a pot of water, it takes time to really notice the change.

Let me start with a quote from Haver Analytics which was published on Saturday.

"The official unemployment rate continues to pale in comparison to the rate which includes "marginally attached workers" and those who are working part-time for economic reasons. It rose to a record 17.5%. Another tally of joblessness indicates that with "discouraged workers" the unemployment rate rose last month to 10.7%. Not only are more individuals unemployed or have stopped looking for work, but the median duration of unemployment jumped last month to a record high of 18.7 weeks. The ranks of those unemployed for 27 weeks or more rose to 5.594 million (145.9% y/y), also an historic high."

Here are some historical facts. The unemployment rate for the years 1923-29 was 3.3 percent. In 1931 it jumped to 15.9, in 1933 it was 24.9 percent. It then steadily decreased until 1941 when it stood at 9.9%. In 1942, after U.S. entry into World War II, the rate dropped to 4.7%.
(Source: US LABOR STATISTICS.) Looking at the data announced on Friday, October's unemployment rate jumped a whopping 0.4%, one of the highest jumps in over 5 months according to the chart above. You see we may be starting a higher monthly rate increase than the previous 5 monthly increases.

Let me put a face on the above quote by using an example. Last time I walked around the famous Newbury Street area in Boston, a prized Chic upscale shopping area, I noticed how many small shops and sizable buildings had "For Lease" signs plastered over windows of empty store fronts. Some advertised whole Floors in the multistoried buildings For Lease. The streets were full of people and bustling from one place to another, but not many carried bags of purchased goods. I grew up in Boston and in all my years I have never seen so many empty store fronts in this neighborhood. You see it isn't just the lower class areas being affected by this economy, it is the upscale enterprises as well. This is a change in American's behavior of seismic proportions. With more Small businesses going out of business, it will mean more layoffs, more foreclosures, more vacant apartments and more suffering for far too many people. I am afraid this is going to be commonplace in the next year. I saw the same thing in an Francisco neighborhoods as well.

The importance of this isn't just in the Retail Sector, it is affecting all Small Businesses because credit has dreid up for most or their savings and cash reserves for a rainy day are spent trying to hang on until the economy turns around. But wait, you say the experts have said the economy has begun to turn around and the stock market is up, The Fed has proclaimed the recession is over and we will be coming out of this eventually. Call me a skeptic, but I do not see things getting better any time soon. The next big shoe to drop is Commercial Real Estate. And with all the small shops closing you can see the ripple about to happen to the buildings too. There will not be buyers of these properties until the prices drop more. And so it goes on and on.

Think about the airlines now for a moment. With much business being curtailed for small business and the number of layoffs in large companies still continuing, the airlines will be standing next in line for a bailout. I purchased 2 tickets to go from the East Coast to San Francisco one way and non stop. Can you guess what the price was for the combined tickets? It was less than $270 total! That's less than what it costs to pay for gas to drive across the country. This can't be good for the airlines. They are selling tickets across the country for about $135 a piece. This is amazing and can;t be profitable when you consider the costs of airplanes, the salaries and benefits for pilots, flight attendants, mechanics, ticket handlers, baggage handlers and all the corporate office functions needed to run a company like IT, accounting etc.

The American Consumer is going through a fundamental seismic change in sending habits that will be permanent for this generation. We are not at the end of this economic downturn. If it were a baseball game I would say we are in the 5th inning with still more baseball to come. Cash is KING and will be for some time to come as well. It has been the American Consumer who has spurred our economy the past 30 plus years. They have been responsible for 70% of our economic growth and for now and for years to come, they are going to be restrained. A good test of this hypothesis is to ask yourself about your planned spending for the holidays. My guess is that it will be about as restrained as it was for last year.

You can try and fight this tend or you can go with the flow and accept it for what it is. Some are calling this period, The Great Recession. Does it remind you of another similar phrase? It does me and for good reason! No wonder Consumer Confidence is way down. And the differences between Wall St. and Main St. need to be reconciled.

For another commentary on the unemployment data read this article from Seeking Alpha titled, "And Bernanke Didn't Think Unemployment Would Reach 10%."

Markets will be down for the coming week. Why?

I have been thinking about the market drop on Friday on accelerated volume. I was trying to come up with some possible reasons which have not ben the usual suspects. This is difficult to do as I have been expecting this pullback for months and I seen signs everywhere that things aren't going to get better any time soon on the economy even though Wall St. seems to defy Main St. So what did I come up with this time and what would be the rationale that this time the market drop is for real and will continue at least for Monday or Tuesday and then possibly on Friday.

So first, Treasury Secretary Geithner was interviewed on Meet the Press by david Gregory. Geithner when pressed seem to say Unemployment will continue to rise even while the economy is recovering as employment is a lagging indicator. But there was more in Geithner's head tilting, a sign of not wanting to answer directly the questions as he knows more than he is saying. I think Geithner knows that next weeks announced Unemployment numbers for October are going to take us over 10% and then the heat will be on. That happens on Friday I believe.

But besides that big piece of news, there are elections being held in several States for Mayor's and for Governors as well as a Congressional opening in Upstate NY, which will reflect a defeat for Democrats which Republicans will play up with the media, as they should. One can rationalize President Obama has had only a short time to fix the problems and one could argue that he may have made some problems worse. But that will be decided by historians and I am not a historian. But I believe that this gives impetus for the markets to correct specifically at this time. It is before Thanksgiving and the start of Christmas Shopping season, so the damage might not be that much of a drag on business than what the economic conditions are already saying about Consumer Spending this year. So what better time for a correction.

This is also in advance of proposed legislation for Regulatory reforms which have already passed Rep. Barney Franks Committee. There is nothing Wall Street would like more to do than to cause alarm to be slow about imposing additional regulations as the market is fragile, they will say. Gee, all this at a time when Executive Compensation is being ratcheted down in 7 of the largest firms bailed out by the Fed. Oh, and late me remind you that this past Friday was the end of the year for many Funds. So, yes, this is the best time politically, financially, economically and emotionally to have this correction. It is all part of the manipulation we have come to expect. To me it is long overdue and I have been saying so for months. But heck, what do I know, I'm only the 200 lb. Gorilla in the room. :) Yes, the market should end down for the week. Hedging with some ETF Shorts might be a smart play for some quick profit.

My Direxion 3x Short of the Russell index, symbol TZA, was finally up for a week. It went up 19.4% since last Friday, Oct.23rd. I see it going up another 20-30% this week as well. It closed Friday at $14.28/share. The ETF of the Financials, symbol FAZ, also moved up this week gaining 18.5% since Oct. 23rd.

UPDATE: 5:30PM PST
The NIKKEI has taken the lead tonight and is down over 250 points. The reason for this can be twofold. First, it could be a reaction from the Dow drop on Friday but it could also be because CIT has announced it is declaring bankruptcy protection.

Best 4 days in a row in the stock market in a long time.

I was very, very pleased to see the markets rise again today for a 4th straight day. I find myself wrestling with my Ego here wanting to say it was inevitable, given my earlier premise that Wall St. wants the consumer to forget about their stock portfolio's and go shopping. But on the other hand just happy I was able to point the way for some to make money this week. It was the best week in a long time.

Here's what I did today. I wanted to report that I sold my Ultra Pro ETF shares, symbol, SSO, for average price of $25.10/share. These are the shares bought at $19.35, so I have a lot to be thankful for a 24% profit in less than a week. Also I purchased 20,000 more shares of Ford Motor Co. at the open for $1.70. And lastly, I was able to buy the ETF Ultra Short of the S&P 500, symbol SDS, for $90.50/share. The idea here is that if the market drops next week due to very poor Retail Sales, I will make money on these shares. These are the same shares I bought at $88/share and sold at $118 last Thursday. The idea here being to make another round trip if the market goes down.

With the additional major news item of the day being a terrorist attack in India, the markets have a lot of pressure to go down next week. On Friday, you might consider buying this same ETF, symbol SDS. The Dow closed at 8,726 today. If you believe we are in a trading range and most likely will stay in that band, then playing it to your advantage is important. I believe the top of that band on the Dow is about 9,500 and the bottom is at 7,000, the half way point is 8,250 and we are above that point. That would mean there is better than a 50% chance we will pull back some. However, we are not that much above the mid point so it can just as easily continue up for a few days but we are still just below the 20 day Moving Average on the Dow and S&P 500. What I do in that case is to start buying 1/3 of the total shares I want to purchase of SDS at $90/share and buy 1/3 more at $88 and another 1/3 at $86/share.

Happy Thanksgiving.