The Put to Call Ratio warns again. Are you listening this time?

It should be a quiet day today as the Banks and Stock Markets are closed here in the U.S. for observance of Martin Luther King Day. For those missing market action I decided to recap where we are and what data, if any, was noteworthy from Friday. Well, I found one small piece. It was the Put to Call ratio at the close on Friday. It came in at a 0.57 reading. I thought you would need a context for that reading and so I have included 3 charts below. The first is the Put to Call ratio from Oct. of 2003 to the close on Friday.

As you can see from the above chart, a reading of 0.57 is on the rare side and falls outside the normal range of data with a 95% confidence level. I have identified various dates when a reading this low or lower occurred. Why is this reading important? Well, it is because often it is a sell signal for stocks. I said here, often, not always. The other two charts below are of the Dow. The same dates have been identified on those two charts. The first chart is the Dow plotted linearly and the second chart is the same data plotted on Log scale. Log scale shows a more dramatic change than a linear scale does. Here are those 2 charts.


I think it is quite clear that in all cases in subsequent days following the readings the markets dropped. Some times, like Mar. 16, 2006, it was a small drop of about 800 points and other times it was the massive selloff we experienced where the Dow dropped almost 8,000 points.

We may still rise a few days or a couple of weeks, but we are in store for another correction of at least that 800 points but we could also be at that tipping point of thousands of points again. According to Elliott Wave Theory, we are in for a doozie of a correction all the way to the depths of hell by the time it is complete. These things don't happen in a matter of days months or year. It can take years to unfold but one thing is for sure, when they do come they bring sizable pain. I am not expecting the same levels of depth as does Elliott wave Theory prognosticators, but I do see a drop of at least 5,000 points for the Dow coming and a retest of 6,400 low registered in 2009, which I believe will fail as well in the end. Even the Fed won't be able to stop it when it starts. Not only won't Bernanke be able to stop it but all the Kings horses and all the Kings men won't be able to put Humpty Dumpty back together again!

The real important question to ask yourself is this. What if what I am saying does happen? What actions will you take? Will you start to buy on the dips as the market starts dropping and be buying too prematurely, only to see you selling the stocks you bought and repurchasing them again a bit lower? Or will you just Hold on to your stocks in hopes of a quick turnaround? Or will you be like a Deer in your headlights and be frozen into no action at all? These questions are worth asking yourself. You see they can be grouped in categories like these: Reactive, Responsive and Proactive. Which strategy will be best for you and what does that actually mean? As I learned as a Boy Scout: Be Prepared!

Now for a little light humor. You might call this post today in honor of Dr. Martin Luther King: I have had a Bad Dream!

President Obama has a "Not losing" strategy on healthcare, not a winning strategy.

Today President Obama unveiled his proposal for Healthcare (insurance) reform, which closely mirrors the Senate approved Health care bill, with a few minor tweaks. He took this most conservative approach, while at the same time 20 Senators have signed a letter wanting the Public Option included in any Healthcare Bill signed into law. If President Obama had a "winning strategy", he would have put that into his proposal as well. But his strategy is clearly in a "not losing strategy". It is very difficult, if not impossible, to put up a "win" in healthcare reform, if he isn't trying to win. Let me give you an example using the Olympics as the metaphor.

In the contest yesterday between the US and Canada's hockey teams, the US had a winning strategy, not a not losing strategy. The US took the game to Canada by continually bringing the puck to Canada's Goal Keeper in almost all 3 periods. This lead to more scores than Canada going into the 3rd period. If they were playing defense and surrounding their own Goal keeper to prevent Canada from ever scoring, they would have lost the game. Defensive postures rarely result in wins. I must admit in the last few minutes of the 3rd period, the US did start playing defensive and that was when Canada scored on them and I was thinking they might lose their advantage and the game. But they came through in the end. Just for once I would like to see President Obama put it on the line and go for victory on something, anything, and let it all hang out. Healthcare reform is as good a cause as anything. But I am afraid he is still playing a "not losing" game with his latest proposal, which ha nothing of his own mark on it. It is merely the Senate version of the healthcare plan. Where's the backbone Mr. President?

By the way, CONGRATS to the US Hockey team and Coaches. And Canada, you were good too and have nothing to be ashamed of. You gave us all an entertaining evening. Good luck to all in the rest of the Games.

New idea on Afghanistan strategy for President Obama

There has been breaking news on the issue of the war in Afghanistan. Evidently it has been reported that the President didn't like any of the options presented to him by his Military advisors or State Dept. officials like Special Envoy, Richard Holbrooke, and has scrapped all of these alternatives and sent the Generals back to the drawing board with new instructions. Journalists report that President Obama wants an exit strategy to the war in Afghanistan.

I would like to give the President my idea on Afghanistan. I think we should leave Afghanistan as soon as we can and cause a vacuum there that the bad guys want to fill. Once we have drawn sufficient numbers back there from places like Pakistan, our drones should make mince meat out of them. This protects our soldiers and allows us to engage those who would wish to plan to destroy us from this "safe haven". Leave Afghanistan to the Afghans and let them decide what society they want to have. We gave them a chance and it looks to me that they never rose to the occasion.

What Machiavelli could teach us about how to deal with Somali Pirates (UPDATE)

The U.S. faced its first test on dealing with the Somali Pirates plaguing other governments for a long time. What did we choose to do when confronted with the Situation? We chose to engage in a military way and eventually shot and killed 3 of the Pirates by sharpshooters about the U.S. Bainbridge. What happened as a result of this effort? They saved and freed the Captain of the ship. We are all thrilled for the freedom of the Captain, who by the way lives in Vermont, my home for 20 years. What has been the Somali Pirates reaction to having 3 of their members killed and one captured? They have vowed revenge against the U.S.

From yesterday to today 4 other ships have been hijacked. None of them with American crews but it is only a matter of time and you know what will happen. I pity any of the sailors and crew members of the ships taken as there will be killings for sure. How would Machiavelli have dealt with the situation?

Well first he would have said to never strike at an enemy unless you plan to totally destroy them. Unless we were willing to go to their home base and to engage and destroy them there, we should never have agreed to start the violence in the first place. No sailors have been harmed as a result of these Pirates. They just wanted worthless paper called "money" which is being printed faster than it can be counted by government printing presses. Now we face a significant escalation by a people who while thugs and criminals are just trying to survive as we all are. Now don't mix up understanding with leniency or understanding with being soft, as I am not soft as many of my friends will tell you. My point is this, we don't have a winning strategy here and by our actions have guaranteed an escalation of events and the killing of innocent people next time, ours!

Unless we are willing to take the battle to Somali itself, Machiavelli would have done either nothing or been willing to go all the way. It doesn't seem like the world has the will to go all the way as they have all paid their captors ransom. Now some of their innocents are in danger as well. You might be interested sometime to read "The Prince" by Machiavelli. It will be an eye opener in how best to deal in crisis.

UPDATE: 9:00am PST April 15th

Here's the latest news on the Somali Pirates response to the killings on the Pirates by American forces.

Somali pirates vow to hunt down, kill Americans

By ELIZABETH A. KENNEDY, Associated Press Writer – 15 mins ago

MOMBASA, Kenya – Somali pirates vowed to hunt down American ships and kill their sailors and French forces detained 11 other brigands in a high-seas raid as tensions ratcheted up Wednesday off Africa's volatile eastern coast.
Pirates fired grenades and automatic weapons at an American freighter loaded with food aid but the ship escaped and was heading to Kenya under U.S. Navy guard.

The Liberty Sun's American crew successfully blockaded themselves inside the engine room — the same tactic that the Maersk Alabama crew used to thwart last week's attack on their ship. They were not injured in the attack Tuesday night but the vessel sustained some damage, owner Liberty Maritime Corp. said.

One of the pirates whose gang attacked the Liberty Sun said Wednesday his group was specifically targeting American ships and sailors.
"We will seek out the Americans and if we capture them we will slaughter them," said a 25-year-old pirate based in the Somali port of Harardhere who gave only his first name, Ismail. "We will target their ships because we know their flags. Last night, an American-flagged ship escaped us by a whisker. We have showered them with rocket-propelled grenades," boasted Ismail, who did not take part in the attack.

The French forces launched an early morning attack on a pirate "mother ship" after spotting the boat Tuesday with a surveillance helicopter and observing the pirates overnight.
A "mother ship" is usually a seized foreign vessel that pirates use to transport speedboats far out to sea and resupply them as they plot their attacks. The ship was intercepted 550 miles (900 kilometers) east of the Kenyan city of Mombasa.

The French Defense Ministry said the raid thwarted the sea bandits' planned attack on the Liberian cargo ship Safmarine Asia. The detained pirates were being held on the Nivose, a French frigate among the international fleet trying to protect shipping in the Gulf of Aden.

The attack on the Liberty Sun foiled the reunion between the American sea captain rescued by Navy snipers and the 19-man crew of the Maersk Alabama who he saved with his heroism.
Capt. Richard Phillips had planned to meet his crew in Mombasa and fly home with them Wednesday, but he was stuck on the USS Bainbridge when it was diverted to help the Liberty Sun. The crew left without him, flying to Andrews Air Force base in Maryland in a chartered plane.
Despite President Barack Obama's vow to take action against the rise in banditry and the deaths of five pirates in French and U.S. hostage rescues, brigands seized four vessels and more than 75 hostages since Sunday's dramatic rescue of Phillips.

That brought the total number of sailors being held by Somali pirates to over 300 on 16 different ships — a distinct surge in the number of captives over the last few days.

Pirates can extort $1 million or more for each ship and crew seized off the Horn of Africa — and Kenya estimates they raked in $150 million last year.