Post Market analysis Nov. 13, 2008

The market did what I had expected it to, it went down below 8,000 and quickly bounced back up and the market closed up about 550 points to 8,800. This was simply amazing. There are several pieces of information which tells me that the market is not ready to go lower at this time.

The first piece of data was that the Volume today was significantly higher than yesterday and ending on a high note, which is a good thing. Secondly, the ratio of Insider Buying to Insider Selling was significantly higher today. This has not been the case for weeks. Also there seemed to be a positive reaction when it was announced that Sen. Chris Todd said there were no votes from Republicans in favor of a rescue for the Auto makers. I do not agree with the Republican rejection of a bailout. I have clearly stated a number of conditions for a bailout, the first being GM files for bankruptcy and the shareholders lose their investment, management loses their jobs and their is a government oversight of the company with conditions favoring more environmentally responsive measures.

Getting back to the market. We will stay between the low of 7,965 to the recent high of about 9,700. To make money you will need to play the range and when the Dow Index approaches either end of the band, take an action to buy or sell. I tried to sell my Shorts but failed to do so. I should have had an order in that executed without my need for a manual trade. I learned my lesson and it won't happen again. I also was preparing a trade to Buy an Ultra Long ETF of the S&P500, symbol SSO, but I didn't make it in time. Lesson learned, move on. :yeah:

Should Congress Approve or Reject a $700 Billion Rescue Plan?

It depends on your current situation how one answers this question. First let me tell you what I recommend. I recommend a rescue plan be approved. I am self employed and can't get fired from my job. But many others will as the market melts down steadily and Retirement plans lose 20% of their current value or more, depending on the investment. Companies will lay off workers, they won't be able to pay off credit card debt, will stop going to their local restaurants, or retail stores and the entire system will go into gridlock. Cash will be King for those with enough. The rest will suffer.

I don't want innocent people to suffer. You are right it isn't fair, you didn't directly create this mess. But it doesn't matter who created it, it needs to be stopped before a Depression ensues. By approving a rescue plan we all equally share in the burden as taxpayers. But we may be able to keep this economy functioning. People need to stop being selfish for a change.

It's too late to undo this problem but leadership is required even if Bush, Cheney and the rest of the Administration got us here. Your belief that no one has been willing to "bail you out" is incorrect. This is YOUR bailout as the consequences of no action is a Dow of 8,000 instead of 11,000. Your job, retirement plans, home values, are hanging in the balance. It doesn't feel good to have a gun to our heads by the Bush Administration, Paulson and Bernake saying we are at the very edge of complete collapse and must pass this rescue/bailout. But let's be clear, they have put the gun right at our heads. Those that oppose the plan on idealogical reasons will be doing self inflicted harm or "cutting off their nose to spite their face." When you are suffering as you most likely will, unless you have wealth or nothing to lose, there will be nobody standing to help you. We must join together and trust we can fix this together. It's up to you now.

How does Middle America survive the financial crisis? Cut unnecessary expenses and raise cash!

This generation has not had to learn how to survive as many grandparents did during the Great Depression. So their survival skills have not been honed to even know where to begin. Are we headed to another Depression? No one knows but I can see people scared and wondering what they will do. People have time to still do what's necessary to prepare themselves. In the Great Depression that started with the stock market Crash in October of 1929 many people lost their jobs. If you have a lot of debt right now and are living paycheck to paycheck you might ask yourself the question, what will I do if I lose my job? How much time can I go before I have no cash? The wealthy always have plenty to live on but for the rest of society, many were encouraged to consume beyond their means. They were issued a lot of credit cards and credit was the way to buy "stuff". Those days are over. In the very near future, you will only be able to buy things with cash. I saw the very first changes leading this new reality on my last trip to Los Angeles from San Francisco. I normally use my credit card to pay for gasoline for my car but on the last trip I came across 2 gas stations that changed from credit cards to cash.

Credit is the problem today and the solution is an increase in liquidity. Liquidity is CASH! I am not worried that you won't be able to access your cash. But the prudent, conservative ensures that they don't have any more in their bank than is insured by FDIC, $100,000 for single account holders and $200,000 for joint account ownership.

Expect the unemployment rate to reach as high as 8-9% nationally and as much as $10-11% in states like California.

Do what you can to perform at an exceptional level in your job. As companies are forced to cut back, it will be the bottom 10% performers that will be let go. If you don't know what your employer considers exceptional performance, ask them and tell them you want to be in the top 10% of employees in the company. Then do the hard work to get into that select group. Remember, you can't control if your employer is successful as a whole, but you can give them a better chance of survival by doing a great job.

Look at your monthly expenses and get a handle as to where you are currently spending your money. Look at what you are buying habitually and ask yourself whether it is a necessity. Look at how many phone lines and numbers you have and ask if all are truly necessary or could you reduce the number. Look at how to reduce your energy bill each month. Look at how to reduce your driving by using the internet and video conferencing as a way to meet and talk to people or family, instead of driving to them. Look at planned trips or big expenses and ask whether it is prudent to spend the money given the unknown effect of this bailout on the economy.

It isn't going to be a pretty picture for a few years. Get use to thinking about this stuff now while you have time to act and not have to react. I don't want to alarm you but it is a little late for that now given the press over the weekend on the bailout/rescue plan. Ideally you will want to have a minimum of 1 years worth of cash to pay for everything you will need. More is better. GOOD LUCK.

UPDATE: The Dow today dropped 777 points for the largest point drop in history. Coincidentally, this post was my 777th Blog post since I started in May 2005.