The White House Budget Office Offers a "Scorecard" on Obamanomics

"Democrats have been running Congress for nearly four years, and President Obama has been at the White House for 18 months, so it's not too soon to ask: How's that working out?  One devastating scorecard came out Friday from the White House, in the form of its own semi-annual budget review."

"The message: Tax revenues are smaller, spending is greater, and the deficits are thus larger than the White House has been saying.  No wonder it dumped the news on the eve of a sweltering mid-July weekend."

"Mr. Obama inherited a recession, so let's give him a pass on the budget numbers for 2009. Clearly the deficit would have been large no matter who was President, even if the David Obey-Nancy Pelosi $862 billion stimulus made it larger than it otherwise would have been. What's striking about the latest budget estimates, however, is that the White House is predicting the numbers won't improve much through 2011, the third year of the President's term, which is still close to 10%.  And keep-in-mind these are estimates, which will probably be a whole lot worse."  (See the following table.)

For the full article, click-on "Wall Street Journal."

EU Banks Survive Stress Test (What a Joke!)

In the Opinion Page of today's "Wall Street Journal" entitled, Not So Stressful: Pass the Greek Valium, I have copied the following excerpts from the article (Please read the full article.):

1. "Two months ago, credit markets in Europe nearly went off the rails over concern about what a sovereign debt default in Greece would do to the Continent's banks. After last night's release of the result of a Europe-wide stress test, we're not much wiser."
2. "The EU's committee of national bank regulators repeatedly says that its stress test includes a "sovereign shock" scenario. But crucially, "a sovereign default was not included in the exercise."
3. "In other words, bank regulators in Europe think Greece, Spain, Portugal and the rest are too big to fail. Germany and France will always save them in the end, so the consequences of a default don't even need to be considered."
4. "Speaking of Spain, it has some €430 billion in national debt outstanding, as well as being home to five of the seven banks that failed yesterday's stress tests. A Spanish default, all by itself, would sorely test the ability of the EU to prop up its struggling sovereigns. But don't worry. A sovereign default in Europe has been declared impossible.

I am so glad that the EU did this stress test.  Now, we can all relax.  Right?  Thank you EU for your wonderful reassurance.

After reviewing the EU stress test for banks, I am even more comfortable with my inverse index ETFs.

Some day, very shortly (IMHO), reality will sent in not only on the Continent but here in American that there is a price to pay for all that outstanding debt.  What will happen then is not going to be pretty.  I am reminded of a question that General A.S. Johnson asked of a soldier following the defeat at the battle of Shiloh.  The shattered Confederate army fled for their lives in a panicked rout.  The General, desperately trying to rally his troops to stand and fight, grabbed a passing soldier and demanded, "Private, why are you running?"  The private hurriedly replied, "General, I am running cause I can not fly."  The take away from this story is that General will be the Federal Reserve Chairman, Ben Bernanke, and the Private will be everyone else trying to get out the door at the same time.

S&P 500 Weekly Update for July 23, 2010

The market was not kind to the "Bears" this week.  However, our EMA strategy still remains bearish for the third week in a row.  Overall, market volatility remains extremely high with the bull tarts hoping and wishing that everything is "ok" in the Land of Oz.  The market on Friday liked the "EU Bank Survive Stress Test that indicated its banks could survive if its economies decline by less than 1%.  And get this, only seven banks in Europe failed this test.  (Give me a break.  That is not a stress test.   It is not even a test at all.  What if the EU economies decline by more than 1%, say 3% to 5%.  Now, that would be a stress test for those European banks.)

I have included two charts for your perusal.  The first chart is illustrates the EMA strategy, whereby the 13-wk EMA < 34-wk EMA.  Please refer to the notes inside the chart.  The second chart depicts the Point & Figure Chart of the S&P 500.  As you know by now, the reason I like P&F Charts is because they demonstrate very clearly the four phases for each market cycle: accumulation, advancing, distribution, and declining.  Once again, refer to the notes inside the P&F chart.

Currently, I am 26% invested in the following inverse (200% Leverage) indexes: DXD, QID, TWM, and SDS.  My largest "inverse position" is in SDS.

Two Key Dates for the Bears

If the "Exponential Moving Average Strategy" remains bearish (13-wk EMA < 34-wk EMA) going into August, the Bears must have their proper allocation of inverse ETFs in place.  The key dates for the Bears are August 2 and 10 (+/- two trading days on the former and latter dates).  As of now, resistance levels for the S&P 500, which I mentioned in previous posts, are still 1090 to 1100.  My downside target is currently between 950 and 965 on the S&P 500.

A Day with Bernanke and the Market

IWM: Illustration of Market Phases

In order to be a successful investor, one should know something about market phases.  There are four phases to any given market cycle -- Accumulation, Advancing, Distribution, and Declining.  From an investors perspective, we want to be invested in the "Advancing Phase."  The following chart of IWM illustrates these four phases.  IWM, which is the mirror image of TWM, is currently in its initial "Declining Phase."  Therefore, instead of IWM, TWM becomes the investment of choice, because it is in its "Advancing Phase." 

S&P 500 for Friday, July 16

The bear trend has been further confirmed by this week's action.  The exponential moving average (EMA) remains bearish with the weekly 13-wk EMA < 34-wk EMA.  Therefore, please trade accordingly.  Remember that the trend is your friend. 

S&P 500 for Thursday, July 15, 2010

The market has two majors items to contend with tomorrow, Friday, July 15, 2010.  First, it is option expiration Friday, which in itself always makes for an interesting day.  Second, GOOG's earnings and revenues came in less than the street's estimates.  What will the market do with these two items?  So far this evening (8:30 PM CST) with GOOG down 20 points, the market is yawning.  We will definitely find out. 

SPX 1110 to 1120: Critical for "TWO MAIN REASONS."

Investment Allocation: Thoughts

The following "Pie Chart" is my current thought process on how my portfolio is going to be structured over the next year.  Of course, those percentages may all change tomorrow; and they probably will.  However, as of now, I am 88% in Money Market Instruments and 12% Inverse Index ETFs.  For this week, I am anticipating that I will be adding to my inverse index ETFs. 

Sunday Thoughts on the S&P 500: Point & Figure Perspective

S&P 500 Weekly Update: Bearish Cross on EMA Strategy

We now have a "Bearish Cross" on the weekly EMAs (13-week < 34-week).  Therefore, one should trade accordingly.  Remember that the "trend is your friend." 

Negative Growth of M3 Equates to Deflation

Want to know the reason why the economy is deflating and not inflating?  Look no further than the following chart!  In spite of the expansionary monetary policy of the Federal Reserve System, zero interest rate policy (ZIRP), credit within our economy is contracting.  That is the very simple reason why we are experiencing a deflating economic environment.

SLV Update

S&P 500 Update for Thursday, July 8, 2010

TZA: Reverse Stock Split of 1:5

The new buy limit on TZA is $38.  See its following chart for more details:

Update: Buy limit on DXD was executed at $28.75.

Updated Buy Limits

My adjusted buy limits on the inverse index ETFs are delineated as follows:

1. Move buy limit on DXD to $28 from $29.
2. Move buy limit on TZA to $7.25 from $7.50.
3. Keep buy limit on TWM at $21.

My buy limit on SDS was filled today at $36 with a stop at $31.

At the close of the market, the 13- and 34-week EMAs were 1094.81 and 1096.81 for the S&P 500, respectively.  

Inverse (Index) ETFs: Buy Limit Orders

Buy limits for tomorrow, Wednesday, July 7, 2010, for the following inverse ETFs (index funds):

1. DOG (1:1 leverage) @ $52 or better
2. DXD (2:1 leverage) @ $29 or better
3. SDS (2:1 leverage) @ $36 or better
4. SH (1:1 leverage) @ $53 or better
5. TWM (2:1 leverage) @ $21 or better
6. TZA (3:1 leverage) @ $7.50 or better.

These buy limit orders are for tomorrow only.  I will update any changes, if necessary, on my Twitter account during trading hours tomorrow.  Otherwise, I will update these buy limit orders on the blog after the close of the market tomorrow. 

Bear Trend Renewed

Final confirmation of the renewed "Bear Trend" will be signaled at the close of Friday.  That is, if the 13-week EMA stays below the 34-week EMA. 

Timing of Purchasing Inverse ETFs

From my post earlier today about purchasing inverse ETF indexes, such as SH, SDS, DXD, and TZA, I received several questions about the exact timing.  First, the markets are very oversold on a daily basis.  That is, the "Full Stochastics, Commodity Channel Index, and Williams %R are all oversold.  I would expect a short-term bounce next week.  Expecting such a bounce, I will be scaling in my purchases as such.  Since the ETFs under consideration are leveraged between 200% and 300%, I plan on allocating only 30% to 35% of my portfolio into such instruments, with the remaining in Money Market Funds, preferably Treasury Bills for utmost safety.  Second, I will update any of my daily investment activities, as always, on Twitter.  You can follow me by clicking Twitter.

Enjoy your Fourth of July and do remember why we celebrate it. 

Generational Invesment Opportunites?

In my post yesterday, I mentioned that in my thirty plus years of using "Point and Figure Charts (P&F) that I have never seen as many perfect bearish set-ups for the various ETF indexes, such as DOG, SH, DXD, SDS, TWM, and TA, as I have seen in the past week.  So, why do I like P&F charts so much?  In using these types of charts, I am privy to visualizing the four main phases that all indexes and stocks go through during a typical market cycle.  The four phases are accumulation, advancing, distribution, and declining.

The following Point and Figure Charts are illustrations for assisting you in identifying Phase 2 - Advancing: 

 In regard to SDS, I plan on purchasing at $39 or better with a stop at $34.97.   

In regard to SH, I plan on purchasing at $56 or better with a stop at $51.97.

In regard to TZA, I plan on purchasing at $8.75 or better with a stop at $6.47.

I also like DXD at $32 or better with a stop at $27.97.

As I mentioned, I do consider these inverse index ETFs as generational investment opportunities that are definitely worth the risk, which I am willing to take. 

S&P 500 Update for July 2, 2010

Let's review the "Exponential Moving Average (EMA) Strategy.  The investment parameters for this strategy are very simple.  Go long when the 13(15)-week EMA is greater (crosses above) than the 34 (40)-week EMA. Go short when the when the 13 (15)-week EMA is less (crosses below) that the 34 (40)-week EMA.  Ok, what is the strategy currently saying?  Answer: The trend is still bullish but barely.  The 13- and 34-week EMAs have readings of 1100.56 and 1099.03, respectively.  The 15- and 40-week EMAs have readings of 1103.67 and 1093.82, respectively.  Therefore, the time has come that you definitely want to prepare yourself for a potential "cross over to bearish trend."  [Sidebar: In my thirty plus years of using Point & Figure Charts, I have never seen as many "perfect" bearish set-ups for the various ETFs indexes as I have seen in the past week.  That in itself is scary. I will follow-up with some of these charts over the next two day.]

Some of the inverse ETFs that I am currently following are as follows: DOG, SH, DXD, SDS, TZA, TWM, and QID.

Scariest Job Chart Ever Gets Uglier

Oh, So Very, Very Close Indeed!

S&P 500 Update for June 29, 2010

You better get that magnifying glass out to see if the 13-week EMA is above to penetrate the 34-week EMA.  Today, I was stopped out of my remaining 40% position in SPY at $104.24, which was my average cost.  Therefore, my investment portfolio is now 100% in cash. 

Where do we go from here?  My response is based on what the market is currently telling me.  It is saying that the majority of indexes are either currently in the latter Stage 3 (Distribution Phase) or early Stage 4 (Declining Phase).  This analysis is based on Point & Figure Charts of the various market indexes. 

S&P 500 Update

SLV: Neither Bear nor Bull!

I know that a lot of you that follow my blog are very interested in the precious metals.  That is why from time to time I have updates pertaining to GLD, SLV, and GDX.  Today, I want to illustrate a "Point and Figure Chart of SLV, which is as follows:

From a technical analysis perspective, these are my findings for SLV, which are based on the above chart:

1. Bullish uptrend since November 2008 (Green Line)
2. Cyclical Position for SLV: Late Advancing Phase/Early Distribution Phase
3. Major support at $17, which also corresponds to its 200-day EMA at $16.91
4. Price break of $17 would be the start of the Declining Phase.
5. Price break of $17 would give a downside price objective between $12 to $14.  $14 is the February 2010 low.

Bottom Line: $17 is definitely the critical support for SLV.  A break below $17 would probably precipitate a decline of 23%.  If it breaks $17, I would definitely hold off buying until I see what happens around $14.

Obama Administration Knew About Deepwater Horizon 35,000 Feet Well Bore

According to Oil Price, President Obama and Secretary of Interior Ken Salazar, Secretary of Energy Steven Chu, and Defense Secretary Robert Gates were informed that BP would drill an unprecedented 35,000 feet well bore at the Macondo site off the coast of Louisiana. In September 2009, the Deepwater Horizon successfully sunk a well bore at a depth of 35,055 below sea level at the Tiber Prospect in the Keathley Canyon block 102 in the Gulf of Mexico, southeast of Houston.

During the September drilling operations, the Deepwater Horizon drill penetrated a massive undersea oil deposit but BP's priorities changed when the Macondo site in the Mississippi Canyon off the coast of Louisiana was found to contain some 3-4 billion barrels of oil in an underground cavern estimated to be about the size of Mount Everest. It was as a result of another 35,000 feet well bore sank by the Deepwater Horizon at the Macondo site that the catastrophic explosion occurred on April 20.

According to the Wayne Madsen Report (WMR) sources within the U.S. Army Corps of Engineers and the Federal Emergency Management Agency (FEMA), the Pentagon and Interior and Energy Departments told the Obama Administration that the newly-discovered estimated 3-4 billion barrels of oil in the Gulf of Mexico would cover America's oil needs for up to eight months if there was a military attack on Iran that resulted in the bottling up of the Strait of Hormuz to oil tanker traffic, resulting in a cut-off of oil to the United States from the Persian Gulf.

Obama, Salazar, Chu, and Gates green-lighted the risky Macondo drilling operation from the outset, according to WMR's government sources.

WMR learned that BP was able to have several safety checks waved because of the high-level interest by the White House and Pentagon in tapping the Gulf of Mexico bonanza find in order to plan a military attack on Iran without having to be concerned about an oil and natural gas shortage from the Persian Gulf after an outbreak of hostilities with Iran.

BP still has an ongoing operation to drill down to 40,000 feet below sea level at the Liberty field off the north coast of Alaska.

New Home Sales Plunged in May

This is not good economic news.  According to the Commerce Department, the sharp decline in housing sales was worse than expected. Sales were down across all four regions. Economists surveyed by Dow Jones Newswires had estimated sales would fall 20.6% to 400,000 because of the April 30 end of a tax credit for first-time buyers that was enacted in February 2009 and extended.  The level of 300,000 homes sold was the lowest since the government begin compiling this data in 1963. The 32.7% decrease was also a record.

Who Knew What and When About the BP Problem?

It is being reported that the Deepwater Horizon problem started way back on February 13.  To make matters worse, this Administration knew about the issue.  However, there was no public dissemination of this information.  The following are some excerpts from the article:

1. It seems incomprehensible that the president and other members of the administration still have jobs when it is now being reported that the federal government was apprised by BP on February 13 that the Deepwater Horizon oil rig was leaking oil and natural gas into the ocean floor.
2. In fact, according to documents in the administration's possession, BP was fighting large cracks at the base of the well for roughly ten days in early February. 
3. Further it seems the administration was also informed about this development, six weeks before to the rig's fatal explosion when an engineer from the University of California, Berkeley, announced to the world a near miss of an explosion on the rig by stating, "They damn near blew up the rig."

Further, according to regulatory filings with the SEC, RawStory has found that Goldman Sachs sold 4,680,822 shares of BP in the first quarter of 2010.  Goldman’s sales were the largest of any firm during that time.  Goldman would have pocketed slightly more than $266 million if their holdings were sold at the average price of BP’s stock during the quarter.  Now, what did Goldman Sachs know?

Finally, Tony Hayward, CEO, liquidated about a third of his holding in the company one month before the Deepwater Horizon disaster.  Superb market timing, or did he use insider information to benefit from this knowledge?

SPX: Weekly Update for Week Ending June 18, 2010

Ignorance is not Bliss

For those of you that live in Illinois or know someone that does, you may want to move.  The reason because as a state resident of that fine state you are going to be on the hook for $45 billion.  You may ask, how so?  Illinois Teachers Retirement System's, after losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report.  That is, it has 40 cents of every dollar they need.  In other words, if you are a teacher in Illinois, your "PENSION" is dead.  If you are a taxpayer in Illinois, please bend over!

For the full report, here is the link!  Oh, my the way, the investments of choice were those credit default swaps (CDS), or derivative vehicles. 

A Family Affair

If the government can insist that your children are on the hook for all that federal debt outstanding, I guess you can likewise:

Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

With each passing day, I become more and more "Bearish," not only on our economy but also the stock market.  A prime example of my bearish stance is taken from Bloomberg this morning:  "The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed 75% of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history."  To keep things in perspective consider the following facts: "First, Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of AIG, GM (Government Motors), or Citigroup.  Second, Fannie and Freddie own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10, 2010  Federal Reserve report.  Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise."



I believe the worst case scenario of $1 trillion will occur.  What is the solution?  We must simply return to the days when the standard was for mortgagees to put 20% down.  What is the probability of the that happening?  Probably, zero.

Then, President Barack Obama sends a letter to Congress over the weekend urging them urging them to approve a tax and spending bill currently being debated in the Senate that already would add $80 billion to our nation's budget deficit.  He also requested another $50 billion in deficit spending earmarked for bailing-out state and local governments. Without this "emergency" money, the President claims thousands of government union jobs would be lost.  (Yes, you read that correctly.  It is all about saving union jobs.  Mr. President, what about non-union jobs?  Oh, I see now.  You want to unionize all jobs.) 

Folks, this deficit spending must stop in order to save our Republic.  We simply can not continue to have deficit spending that amounts to 10% to 12% of GDP.  Once again, the solution is simple.  That is, cut spending!

Are You Ready for the "Bear?"

The following S&P 500 chart illustrates the exponential moving average (EMA) strategy utilizes the 13-week EMA and and 34-week EMA.  It is simply an extension, so to speak, of the 15- and 40-week EMAs that I update on a weekly basis.  The only difference, of course, is time.  The 13- and 34-week EMAs are a little more sensitive, simply because of the shorter time frame. Also, I have included the PPO indicator.  I use the PPO indicator as my confirmation to the EMA strategy.  Notice what is happening to the EMAs and the PPO.  The 13-week EMA has turned down and nearing the 34-week EMA.  Also, the PPO has likewise turned down and closing in on "0." 

My advice is you better be very caution in the market near term.  The "Bear" might just be coming out of hibernation. 

Flash Crash

GDX: Declining Phase Dead Ahead?

Start of a New "Bear Market?"

Point and Figure (P&F) Charts are excellent tools for identifying what phase (cycle) the market is in for any give time frame.   There are four phases to any market cycle.  The accumulating phase, advancing phase (bull market), distributing phase, and declining phase (bear market).  The following chart depicts the various phases that the market has gone through over the past year.  I have used BGU for this illustration.  (BGU seeks daily investment results, before fees and expenses, of 300% of the performance of the Russell 1000 (Large Cap) index.)

That proverbial bottom-line is that the market has just entered the declining phase (Bear) when the major support (Green) line was penetrated on the down side.  I plan on using any market strength to exit my remaining SPY (40%) positions (unless stopped out) and start accumulating inverse ETFs, such as DXD, SDS, QID, and TZA.
 

Weekly S&P 500 EMA Strategy Updates Along with TNA & TZA

The weekly EMA strategy is still in a bullish trend as denoted by the 15-week EMA > 40-week EMA.  However, both EMAs have turned down along with the RSI being below 50.  (See the following chart.)

The next chart is TNA (3x Small Cap Bull ETF).

The last chart is TZA (3x Small Cap Bear ETF); which, of course, is a mirror image of TNA. 

A Tale of Two ETFs (TNA and TZA)

I am still waiting for TNA's PPO to turn positive before I reinstitute my position.  See the following chart for specifics.

The mirror image of TNA is TZA.  See its chart as follows:

What has happen to our Moral Compass?

S&P 500 Weekly Update for May 28, 2010

The EMA strategy continues to favor the bullish case, since 15-week  EMA > 40-week EMA.  Refer to the following chart.  I continue to hold 40% of my "investment account" in SPY with a stop at my entry price of $104.24.  As of Friday, the closing price for SPY was $109.37, which is 4.9% above my entry price.  (Refer to my posts of May 9 and 10 for my investment rationale at this time.)

Currently, I am long FXE (Euro) and short the dollar through UDN (inverse $ ETF).  In addition, I am long the TNA (3x Small Cap Bullish ETF).

True Meaning of Memorial Day!

Let's not forget to give thanks this weekend to the countless number of individuals that served and died courageously for the freedom that we enjoy today.  Freedom does have a price; and sadly for many, it has been their lives.  I want to thank each of you who have served this country.

So, You Want to Buy Gold

You know that gold is near at least a short-term top when when you can purchase gold from a vending machine, as in Abu Dhabi, or sell gold to your barber.

Video Update on SPY

You can view my comments on SPY over at Twitter.

Update on TNA (3x Small Cap Bullish ETF)

Twitter

For my inter-daily investment ideas and thoughts, check my Twitter.

S&P 500 Weekly Update for May 21, 2010

Weekly Investment Activities

For those of you who follow me on Twitter, know that is where my daily investment activities and thoughts are posted.  As of Friday, May 21, my investment position is basically neutral.  That is, I am out of my shorts [DXD (Ultra-short on DJIA) and DZZ (Ultra-short on Gold)].  The DXD trade was purchased on May 10 for an 11.91% profit.  The DZZ trade was purchased on May 17 for an 8.81% profit.  I did take a position on UNG (Natural Gas Fund) on Friday and quickly sold it for a 2.51% loss.  (I don't know why I even bother with natural gas.  It has never been kind to me.)  I am still long FXE (Euro) at $123.23 with a stop at $120.51.  That position has a unrealized gain of 1.73%. The price objective (IMHO) for the FXE trade is $129-$130. 

Overall, I am still bearish; however, the market is due for a bounce after declining 4% this week, which is the rationale for selling my bearish positions.  I plan to reinstitute the DXD position and probably add SDS and TWM to it when this rally runs its course.

For those of you that track the exponential moving average (EMA) strategy, I will have that updated later this weekend.

Q&A Relating to the Global Financial Crisis

Click here but no embedding options.  It's a satire but very profound.  Enjoy!

It's Just not Greece!

Note: To enlarge, double-click inside of it.
Not one single country in the EU is in compliance with its Stability and Growth Pact, which limits budget deficits to 3% of GDP. (In other words, where is the incentive for any country to be in compliance? Answer: Absolutely none. If the pact was enforced, it would discipline every single country for allowing its deficits to exceed the pact. What a joke!) And what is the EU's solution? Simply more debt, which is totally insane. You don't cure a debt problem with more debt. You just buy a little bit of time! And, that is what the EU has done. You may want to consider buying the following ETFs: EPV (200% short the MSCI -- Europe Index) and EUO (Ultra-short 200% Euro).

S&P 500 Weekly Update for May 14, 2010

For those of you following the EMA Strategy, stay the course. Be prepared for a test of 1,100 on the S&P 500, which, of course, is the 40-week EMA.

DXD (Ultra-short DJIA)

I redeployed a third of the proceeds from the SPY trade this morning with a position in DXD at an average cost of $26.54. I am still interested in SDS and TWM.

Fannie Mae: Some Things Just Don't Change

Fannie Mae has again asked Mr. and Mrs. Taxpayers for more money after reporting a first-quarter loss of more than $13 billion. They have lost $137 billion so far and keep adding to it quarter after quarter, and are still allowed to operate. Don't you just love these government run businesses? Isn't America great?

Fannie Mae, which was rescued by Mr. and Mrs. Taxpayer, in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses. Why not, if Mr. and Mrs. Taxpayer has given billions to Greece, the least they can do is give $8 billion to Fannie. Right? (I should point out that Mr. and Mrs. Taxpayers only constitute 52% of Americans that pay Federal Income Taxes. For those of us that have this elite status, our taxes are going to sky-rocket!)

SPY: Pre-Market

I just sold my 60% position (pre-market) in SPY at $116.02. For the remaining 40% position, I have changed by sell-stop order from break-even ($104.24) to $110.95, which is 5% below its 50-day SMA of $117.10.

For the Love of Greece!

The International Monetary Fund (IMF) is lending Greece about piece $286 billion. Since the United States is "required" to contribute 17% of the IMF's funding, this means that you, Mr. and Mrs. Taxpayer, have just been hit for $48.6 billion to cover Greece's debts. In other words, the solution to a debt crisis is to pile on more debt at your expense, Mr. and Mrs. Taxpayer.

But, it even gets better for Mr. and Mrs. Taxpayer. The Federal Reserve System's "swaplines" have been reopened, which could conceivably pay for part or all of the European Central Bank foreign bond buying of up to $1 trillion. The Fed said that these facilities are designed to help improve liquidity conditions in U.S. dollar funding markets. (Wait a minute! The dollar is not under pressure. It is the Euro.) The arrangement with the ECB will provide them with the capacity to conduct tenders of U.S. dollars fro the Euro at fixed rates. And get this, these swap arrangements have been authorized through January 2011.

The DJIA in pre-market trading is up close to 400 points. Wow! The markets are loving it. That's right. Just pile on more and more debt. Its gotta work, right? My investment strategy has not changed from yesterday. I will liquidate 60% of my SPY positions and start to redeploy the investment proceeds into the following ultra-short ETFs (DXD, SDS, and TWM).

Weekly Update: Exponential Moving Average (EMA) Strategy for the S&P 500

The week was not kind to equity holders. Please review my comments within the following chart:

Note: To enlarge the chart, double-click inside of it.

Since September 21, 2009, I have been 100% long SPY in my investment account with an average price of $104.24. As of Friday, May 7, SPY closed at $111.26, which is a gain of 6.73% from my average price of $104.24. My strategy for Monday, May 11, is to sell 60% of my SPY holdings. With the remaining 40%, I will place a sell-stop order at break even ($104.24). With the 60%, I will start to acquire 20% positions in each of the following ultra-inverse ETFs: DXD (Ultra-short DJIA), SDS (Ultra-short S&P 500), and TWM (Ultra-short Russell 2000 Small Cap). Once again, this is my strategy, which is high risk, for my investment account. It is not a recommendation. You have to decide your own risk tolerance. Those of you that have been utilizing the EMA strategy and are comfortable with it, I would recommend that you continue to invest according to the 15-week EMA and 40-week EMA game plan.

Market Plunge Baffles Wall Street, Really?

If you have been "MIA" over the past several days, you might be wondering what happen to the market this week, especially on Thursday. Thursday was the day that the DJIA had its biggest "intraday" point drop of nearly 1,000 in its history. For the week, the DJIA dropped 628.18, or down 5.7%, which was the steepest drop since the week ended October 10, 2008, in the midst of the financial crisis. Why? There were the usual excuses. The one that I really like is "somebody's wayward finger got in the way." The rumor goes that a trader error was the cause of the fiasco. That is, the trader had mistakenly entered an order for $16 billion, instead of $16 million. Then, of course, you have the Greece situation and our own debt woes, which were nothing new to the market.

I, for one, like to look at various technical indicators for possible clues for the drop. (By the way, I will update the exponential moving average strategy for the S&P 500 later today.) Several of these indicators are as follows:

1. Mutual funds currently show only 3.5% cash. Everything else is invested. This 3.5% matches the all time low, which occurred in July 2007. If you forgot about July 2007, that is when the DJIA plus Dow Transports made its all time high.

2. The VIX, a measure of volatility on option premiums, has been around its lowest level since May 2008.

3. The DJIA's dividend yield is 2.5%. The only market tops of the past century at which the dividend year was lower are those of 2000 and 2007, 1.4% and 2.1%, respectively.

4. The P/E ratio for the S&P 500, using four-quarter trailing real earnings, is 23, which is in the area of market peaks. As a point of reference, P/E ratios of 6 or 7 occur at major market lows.

So, where do we go from here? I believe, for what it is worth, that the bear market rally from March 2009 has ended. This bear-market rally was fueled by the FED's quantitative easing policy that injected close to a trillion dollars of liquidity into the financial system, which ended up in financial assets, like equities, not in productive loans to sustain an economic recovery. In other words, the FED's stimulative activities have been a total failure, except for Wall Street. Thursday's action (IMHO) is a precursor for further market declines. I will be taking some very defensive and bearish measures near term to position by portfolio for the ensuring bear market. As indicated, I will update the S&P 500 exponential moving average strategy along with some bearish ideas later this weekend.

Private Sector Adds 32,000 Jobs

Automatic Data Processing Inc. (ADP) reported today that private payrolls grew in April by 32,000, while layoff announcements fell to a near 4-year low. At least the addition of 32,000 private sector jobs is somewhat good news. The reason I say somewhat good news is that the U.S. needs to create about 150,000 jobs each month in order to simply balance the incoming supply of workers.

What I like about the ADP survey is that it tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm payroll data, which is to be released this Friday, include government workers. That is why my focus is always on the ADP monthly survey, because it surveys the creation of jobs in the private sector.

Primer on How Goldman Sachs Used Credit Default Swaps

Note: To enlarge picture, double-click inside of it.

Caterpillar Swings to Profit; Where are the Revenues?

Caterpillar swung to a profit in the 2010 first quarter, citing improved economic conditions, particularly in emerging markets. But wait, revenues fell 11%. Remember, the first quarter of 2009 was the depth of the recession, the so-called bottom. Everything has to be better when compared to the first quarter of 2009. Profits are up; but, wait a minute, revenues are down. (I thought we were in a robust macro-economic recovery as the New York Times tell it.) How can that be? Oh, Caterpillar improved its profit due to firing huge numbers of people. Now, I clearly see what has happened. And, it does not portend well for a turn-around in construction equipment sales, nor for a sustainable economic recovery.

FOXNews.com - Did GM Try to Pull a PR Fast One?

FOXNews.com - Did GM Try to Pull a PR Fast One?

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Cash for Tanners: A New Subsidy for Vacations

Have Europeans lost their minds or what? According to European Commissioner Antonio Tajani, visiting foreign countries is a "right." Yes, vacations are no longer a privilege but a right of all. The EU has a new "Social Tourism" project that advocates subsidized holidays for the underprivileged. Cash for tanners is also being touted as good economic policy. Has anyone in Europe taken a basic economics course? If not, they should enroll in one of my economic courses! (Once again, I am just not that creative to make this stuff up.)

This project targets the disabled, poor families, senior citizens and, youth. (By the way, in Europe a youth includes an individual up to 30 years of age.) At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." Now, I know why Spain is in that category of countries referred as "PIIGS."

Currently, "Social Tourism" is being touted only in Europe. However, I am confident that "Cash for Tanners" will soon find its way to our shores. If I were you, I would be getting vacation brochures from your local travel agencies. I know, I am.

Pay People for not Working, More People will not Work!

Who made the following three statements? You just might be surprised when you find out!

"To fully understand unemployment, we must consider the causes of recorded long-term unemployment. Empirical evidence shows that two causes are welfare payments and unemployment insurance. These government assistance programs contribute to long-term unemployment."

"Government assistance increases the measure of unemployment by prompting people who are not working to claim that they are looking for work even when they are not. The work-registration requirement for welfare recipients, for example, compels people who otherwise would not be considered part of the labor force to register as if they were a part of it."

"Government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer."

ANSWER

Vancouver Real Estate Bubble

And, I thought that our sub-prime real estate debacle was bad. Wait until you see what a $1 million will buy in Vancouver.

VAT Lessons from Europe

In today's (Thursday, April 15) "Opinion Page" of the Wall Street Journal is an excellent that explains the European experience with the "Value Added Tax (VAT)."

A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is approximately 17.2%. (See the following table.) In the U.S., the VAT would undoubtedly be levied on top of federal, state and local sales taxes that range as high as 10%.

Selective excerpts of the article are as follows:

"One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%."

"The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%."

"Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe."

"The very efficiency of the VAT means that it throws off huge amounts of revenue that politicians eagerly spend. The VAT thus becomes an engine of even greater public spending. In Europe, average government spending was about 30.2% of GDP when VATs began to spread in the late 1960s. Today, those governments are more than 50% larger, with spending of 47.1% of GDP on average. By contrast, U.S. government spending (federal and state) rose to 35.3% from 28.3% as a share of GDP in the same period."

"It is precisely this revenue-generating ability that makes the VAT so appealing to politicians. Even liberals understand that at some point high income tax rates stop yielding much more revenue as the rich change their behavior or exploit loopholes. The middle-class is where the real money is, and the only way to get more of it with the least political pain is through a broad-based consumption tax such as a VAT."

"In Europe, VAT has also meant lower levels of income growth and job creation. From 1982 to 2007, the U.S. created 45 million new jobs, compared to fewer than 10 million in Europe."

I believe the above facts speak for themselves. Once again, you have been forewarned.

Why The Coming Wall Street Movie Really Does Portend Another Crash

Some things just never change. We will soon find out!

Repo 105

Great video that explains how Lehman deceived the investment public through an accounting technique referred to as "Repo 105." For example, if Lehman owned a bond that was worth $105, it would sell it on the repo market for $100. (Technically, the seller of the repo agrees to purchase it back, say within day to a week.) The "105" in Repo refers to the fact the bond is worth at least 105% of what the seller (Lehman) was receiving for them. Since Lehman was only receiving $100 for $105 worth of collateral, Lehman could record it as a sell of securities and not a loan. However, for all practically purposes, it was a loan.

Why did Lehman institute Repo 105? By instituting Repo 105, it made its financial position look a whole lot better than what it really was. Let's assume that Lehman had assets of $105 and liabilities $100 and equity of $5. Therefore, Assets = Liabilities + Equity. Given these financial numbers, Lehman's "Equity Multiplier (Assets/Equity)" is 21x, which would indicate that Lehman is highly leveraged. Not good! Enter Repo 105. Lehman sells $50 worth of securities through the use of Repo 105. (Keep-in-mind that it does not have to record this financial transaction as a loan because of the Repo 105 rule.) It immediately takes the $50 and pays off $50 of its debt, which is reduced to $50. Now, the equity multiplier is only 5.5x, which is a drastic improvement from 21x. The equity multiplier of 5.5 is what gets reported to investors and everyone else. Once the reporting dates pass, Lehman has to reverse everything and the equity multiplier is back to 21x.

Lehman did not disclose its use of Repo 105 to the rating agencies, SEC, investors, or to its own Board of Directors. Doesn't anyone remember Enron, especially its auditors during this time?

Repo 105 from Marketplace on Vimeo.

I thought these types of accounting gimmicks ended with Enron. Where are the auditors? I know, everything was done within the standard framework of guidance promulgated by the GAAP. But, something is terribly wrong with such standard guidance.

Weekly Update: Exponential Moving Average (EMA) Strategy for the S&P 500

Note: To enlarge the chart, double-click inside of it.

What will the market do going forward? I don't know. I can give you a thousand reasons why this market can not go higher. However, I have learned one thing during my career following the stock market. That is, the market trend is your friend. And, that is why I am a trend follower. As long as the 15-week EMA > 40-week EMA, the trend is bullish (buy stocks). When the 15-week EMA < 40-week EMA, the trend is bearish (sell stocks). It really is that simple. It all comes down to the KISS concept.

Deleverage, Deflation, and the Federal Reserve

Thanks to "Contrary Investor," the following chart further confirms my believe that the deflation through deleveraging will continue throughout 2010. The long-term average from 1980 indicates an average "House Debt as a % of GDP" of 66.4%. Currently, that percentage is approximately 95%. Reversion to the mean, anyone? I, for one, do believe that the reversion will take place, which means that deleveraging still has a long way to go.


Now, what does this mean for Fed monetary policy for the remainder of 2010? Take a look at following table.


Over the last year, the FED has purchased approximately $1.25 trillion of U.S. Treasuries, Mortgage Back Securities (MBS), and Government Agency Securities out of thin air. What is interesting about the FED purchasing $1.25 trillion of "questionable, quality assets, is that the money supply (M2) hardly increased, something like less than $50 billion. What happened? Well, deleveraging occurred. See, when deleveraging occurs, the money supply decreases; because individuals are paying off their debts. When you pay off debt, you write a check; and the money supply decreases by the amount of the check. Or, when banks write off defaulted commercial and consumer loans, money supply also declines. That is why inflation has not been a real problem because of deleveraging. The deflationary factors of deleveraging have exerted a greater influence that the FED's inflationary forces of injecting $1.25 trillion into the economy.

I firmly believe that the FED will provide another mega dose of liquidity into the economy as it tries to reflate the economy this year. The last thing that the FED wants to occur is an outright decrease in the money supply. As long as the FED provides liquidity in its attempt to stem the tide of those deflationary forces, financial assets, especially the stock market, should benefit directly as it did in 2009. The reason being is the liquidity has to go somewhere, because banks are not making loans.