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Dallas, TX
November 3, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Business As Usual Is A Recipe For Disaster
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What's Hot Today: |
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U.S. stock index futures were lower on Tuesday morning.
Global markets were mostly lower overnight as Australia's central bank
raised interest rates for the second time in this cycle.
Today's Economic Calendar:
- FOMC Meeting Begins
- ICSC-Goldman Store Sales 7:45 AM ET
- Redbook 8:55 AM ET
- Factory Orders 10:00 AM ET
- 4-Week Bill Auction1:00 PM ET
News For Thought
Business bankruptcies on the rise. According to The Wall Street Journal: "Business
bankruptcy filings jumped in October, reversing two consecutive months of declining
commercial filings and indicating that bankruptcies could continue to rise as
the economy struggles to stabilize. Last month, 7,771 businesses filed for bankruptcy
protection, compared to 7,271 that sought shelter from creditors in September,
according to new data from Automated Access to Court Electronic Records, or AACER,
a private firm that tracks bankruptcy filings. After two months of decline, the
7% rise in commercial filings shows that businesses are still struggling to access
financing and are facing weak demand for their products."
Most voters still oppose health care "reform" as it is being proposed by Congress. According
to Rasmussen Reports.com: "The latest Rasmussen Reports national telephone survey
finds that 42% now favor the health care plan proposed by President Obama and
congressional Democrats. That’s down from 45% a week ago but unchanged from two
weeks ago. Fifty-four percent (54%) now oppose the legislative effort, up three
points since last week."
Here is more stunning data for the Democrats, who have made this their number
one issue. According to Rasmussen: "Nineteen percent (19%) of all voters say
passage of the legislation is Very Likely while 10% say it is Not at All Likely
to pass. Most voters offer an assessment in between those extremes, with 34%
saying the plan is Somewhat Likely to pass and 26% say Not Very Likely."
Congress doesn't really care about voters, says poll. According to Rasmussen
Reports.com: "A new Rasmussen Reports national telephone survey finds that 62%
believe that what the media thinks is more important to the average member of
Congress than what voters think. Just 27% say what voters think is more important
to the average congressman. Eleven percent (11%) are not sure. Those numbers
help to explain why 61% of voters say the news media has too much power and influence
over government decisions."
Even more to the point, and perhaps explaining why the mainstream media's revenues
and earnings are in decline, Rasmussen notes the following: "Compounding their
concern is the finding that 85% of voters trust their own judgment more than
the average reporter when it comes to the important issues affecting the nation.
Only four percent (4%) trust the average reporter more."
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Business As Usual Is A Recipe For Disaster
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IMF Director Misses The Point On Crisis Management
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LIfe is pretty good for financial institutions in many cases
right now. With zero interest rates and no real pressure to loan money, these
giants are literally making out like bandits. The problem is that by not changing
their ways, they risk going through yet another crisis without the benefit
of any real recovery from the last one.
According to The Wall Street Journal Dominique Strauss-Kahn, the the managing
director of the International Monetary Fund is worried about current events.
To be sure, the IMF isn't exactly a bellwether for crisis prevention. Yet, in
this case, Mr. Strauss-Kahn's comments are important, more because of what they're
saying than because they will make a difference.
The fact is that financial institutions have figured out that they can make money
in this environment. And that means that they'll use the current formula as long
as possible, if it continues to work.
Strauss-Khan suggests that the fact that global institutions are willing to work
together in a global, rather than a domestic fashion is good. But he's not sure
that financial institutions are following suit.
He noted that "the next six months or so will be decisive" as nations and financial
institutions weigh the risks and benefits or continuing along the current path,
or returning to their old ways of doing business full time. Perhaps the most
frightening part of his remarks to reporters is the fact that he believes that "said
the risks of the collapse of another big financial institution are now very low.
But he complained that "very little has been done" to make changes necessary
to reduce the risk of a crisis -- in part because the memories of the severity
of the most recent one already are waning."
Interestingly, the Journal reports the following: "Financial executives "are
not afraid anymore," Mr. Strauss-Kahn said. By contrast, politicians are still
wary, knowing that unemployment rates in their countries are still climbing. "It's
the fear of drama that makes you reasonable," he said." Yet, with high unemployment
in the U.S., and with public opinion against health care "reform" Congress and
the president continue to make that their marquee issue.
So, we're not sure whether Mr. Strauss-Khan is including the U.S. in his perceptions
and remarks. What is certain is that there is still a significant divide between
government and quasi-government agencies and the private sector. The former,
as illustrated by recent comments by U.S. politicians such as Congressman Barney
Franks, who wants even more government involvement in business, has the view,
expressed at least partially by Mr. Strauss-Khan, and more definitely by Mr.
Franks and others, that businesses aren't doing enough to mitigate the next crisis.
And to some degree, they are correct. Corporations are hoarding cash, laying
off workers, and trying to keep their expenses down. But by the same token, the
U.S. government is looking to raise taxes on high income individuals in order
to fund its health care "reform," which the majority of the public is against.
In other words, both sides are digging into their positions, rather than looking
for ways to make things better for the public.
Conclusion
A significant portion of public officials is blaming Wall Street for the current
economic problems. And they are partially correct. Wall Street is doing what
Wall Street is designed to do, figure out how to make money for itself no matter
what the circumstances are.
The problem is that this time is different. While in other recessions the damage
to the real world has been less, because of the repealing of the Glass-Steagall
act, which separated investment banks from commercial banks, the damage has extended
to Main Street.
This is what the government doesn't get, and what Wall Street gets, but isn't
verbalizing because it figures that as long as a bank is a bank, it can make
money no matter what the environment is.
If this crisis is to improve, the government is going to have to figure out a
way to separate investment banks from old fashion community banks that make loans
to people and businesses.
Only when the risk that investment banking brought on to the balance sheets of
non investment banks is taken away by design, will we see some kind of lasting
improvement.
So when Mr. Strauss-Khan says that we're about to make the same mistakes that
we've made before, perhaps he should be speaking to President Obama and Congress
who don't seem to get the fact that retail banks have no business buying and
selling mortgage based derivatives and holding them on their balance sheets.
Those banks should be in the business of attracting savers and making loans and
leave the derivatives and other funny stuff to the big boys like Goldman Sachs.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Goldman Sachs (NYSE: GS) Is Oversold, But Still In Down Trend
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Shares of stock market bellwether Goldman Sachs (NYSE: GS) are
oversold, but are clearly in an intermediate term down trend.
Chart Courtesy of StockCharts.com
Goldman Sachs delivered an excellent earnings report a couple
of weeks ago. But since the report, the stock has formed a
lower high and lower low pattern, which defines a down trend.
Even more important is the fact that the stock is now well
below its 50-day moving average.
The stock is off nearly 12% from its October 18 high and is now testing support
at 170, which goes back to August 2008. If it breaks down here the next support
is near 160.
Weakness in Goldman shares is a bad sign for the market. In fact, the S & P
500 made its intraday high for this rally on October 21, three days after Goldman
topped out, and is 5% off of that high.
There are other signs that this market is weak, such as the failure of the S & P
500 to bounce back above its 50-day moving average during Monday's rally and
the decreasing number of stocks making new highs as well as worsening market
breadth.
When Goldman shares show weakness and the market follows, it's a sign that more
trouble lies ahead.
Active investors should consider a small short position in the S & P 500,
such as via the Short S & P 500 ETF (NYSE: SH). Visit our Fallen Angels for
more details and entry point.
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