Dallas, TX
December 9, 2009, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors

The Aging Population Time Bomb Is Set To Explode
What's Hot Today:
U.S. stock index futures were higher in early pre-U.S. market action. That's not surprising given Monday's action. The key is where the market closes.

Today's Economic Calendar:
  • MBA Purchase Applications 7:00 AM ET

  • Wholesale Trade 10:00 AM ET

  • EIA Petroleum Status Report 10:30 AM ET

  • 10-Yr Note Auction 1:00 PM ET
News For Thought

AIDS Funding likely to be cut in White House health plan. According to The New York Times: "As the White House unveils its global AIDS plan, the drive to put people on drugs is receding as emphasis shifts to prevention and to diseases that cost less to fight."

More of the same stuff that isn't working lies ahead for White House. According to The Wall Street Journal: "Obama pressed forward with an extension of his stimulus plan, unveiling job-creation proposals that largely build on the initial package."

Health care deal hinges on nuance over public option. According to AP: "Democratic senators say they have a tentative deal to drop a government-run insurance option from health care legislation. No further details were immediately available.

The Aging Population Time Bomb Is Set To Explode
A Wonkish Statistical Oddity Could Set The Course For Stocks For The Next 20 years
The long predicted baby boom retirement is coming, and the potential repercussions, especially in the current financial and political environment could have extremely meaningful consequences for investors.

O.K., we recommend that you read this slowly, as it took this scribe multiple runs through this to figure it out. But once you do, it's worth it.

First a few statistics, courtesy of Reuters and other sources, including Goldman Sachs:
  • "The share of the U.S. population aged between 40 and 65, when people typically prepare for retirement by building their biggest pile of financial assets, peaks in 2010 and this ratio has shown an uncanny link with real equity prices for 40 years."

  • The post World War II baby boom gave birth to 78 million Americans, from 1946 to 1964. By the mid-1980s, this demographic group earned half of the U.S. personal income.

  • "The proportion of the global population over 60 is set to double by 2050 to 21.8 percent. As birth rates fall and people live longer, ratios of retirees per worker is likely to soar."
So now is where it gets wonky. According to Reuters: "the U.S. ratio of those in prime savings years to the sum of under-40s plus those 65 and over is marked by a glaring market correlation and an obvious 2010 milestone. Goldman Sachs, for example, points out the stock price funk of the 1970s coincided with a three point fall in this key ratio. And its sharp 15 point rebound from 1982 to next year straddled an 18-year bull market on Wall St."

In other words, the portion of those who actually contribute savings to the overall pie is about to shrink as the other two extremes, the younger folks, and the aging folks are about to grow. And that means that the people who could theoretically pay taxes and fund the government at the levels at which it has been accustomed to being funded is about to drop.

And, according to the report, the ratio is "is set to decline once more and is forecast to sink six points over the next two decades." Now it gets gloomy. According to the report: "Comparison with Japan, whose aging profile is more advanced than those of western economies, packs a more ominous warning. When the prime savings age group topped out there in the early 1990s, Japan's Nikkei 225 .N225 entered a 20-year bear market that has more than halved stock prices since then." When you consider the fact that Japan's bear market, aside from coinciding with a key change in the ratio was also the result of the bust of a major real estate bubble, you have to scratch your chin, and take a couple of deep breaths.

So there is lots of nuance here. For one thing, Chaos, the ruling force of the Universe rarely allows any scenario to develop in an identical fashion. Thus, the predictable unpredictability of life can throw in a few curves.

For example: "it's not clear when exactly people will choose to retire in the current climate and, unlike U.S. retirees, Japan's situation was exacerbated by the fact workers there receive a fixed sum upon retirement that they then invest and live on." Also the recent "wealth crisis" has led to a boost in savings, which theoretically could modulate the potential results of the drop in the ratio.

And something else to consider is the effect of policy coming out of Washington and other world capitals, especially with regard to tax policy and public spending.

Conclusion

The global economy functions based on two contributors, businesses and governments. Yet, both are funded by consumers and taxpayers. If the number of aggressive consumers and taxpayers in the world's largest economy is about to decrease significantly, then it makes sense to expect that the trend will have some significant effects.

If you add the effect of politics, policy, and other major demographic trends to the equation, then you've got to think that the next 20 years are almost certainly going to be different than the last 20 years.

That means that astute investors have to consider the possibility that at least for some folks, for some of the time ahead, life is going to be a bit more difficult.

As a recent OECD study concluded: "The recent financial turbulence has highlighted that financial systems are prone to occasional turmoil and that triggering events are difficult if not impossible to foresee." Yeah, and these guys get paid big bucks to tell us that they don't know any more than the rest of us.

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.

 

Market Moves - Stock Of The Day
Goldman Sachs (NYSE: GS) Plunge Is Increasingly Worrisome
The S & P 500 (SPX) is struggling to rise above 1100. But shares of Goldman Sachs (NYSE: GS) are well into an intermediate term decline





Chart Courtesy of StockCharts.com


Shares of Goldman Sachs made a new low since their October high on December 8. You could argue that the market was falling and Goldman was just another stock that fell on a bad day. But, if you look at the chart, you can see that Goldman seems to be falling on days where the market rises just as often.

That means that there are lots of sellers out there, and that the stock is no longer held in favor.

When you consider that Goldman is Wall Street's biggest investmen house, and that it makes money hand over fist, no matter what the environment, you have to wonder what's going on in the minds of the sellers.

And while that's hard to figure out until something happens, you have to consider that Goldman shares tend to rise or fall significantly before the overall market moves in the same direction.

In other words, if Goldman doesn't bounce back in the next few days to weeks, we are going to take it as a sign that the overall market could be in a difficult position at some time in the not too distant future.

Technical Look at the Market
1100 Foils Bulls - SPY ETF Remains at 4-stars
The S & P 500 failed to hold above 1100 on 12-8, a negative for the bulls, and the kind of action that suggests that patient investors should probably be more out of stocks than into them at the moment.

And as the politics heats up in the next few weeks, we may even see more volatility, especially as taxes start to take center stage in the debate.

So a lot of what's going on now is technical and depends to a large degree on which way the majority of traders that are still working at this time of the year decide to go. If they decide to go with the season, the trend is up. If they decide to go with the economic news, then things may be volatile.

That translates into a climate where investors will do well to track each position on a daily basis and keep what's working while getting rid of what's not working.

Raising cash is not a bad idea as long as investors are culling losers or paring back positions.The key to success remains sector and individual stock selection are still the most important aspect of trading this market. With an employment report due out on Friday, anything is possible.

We are adapting our star based rating system to the S & P SPDR ETF (NYSE: SPY). In this section a 5-star rating for SPY is a signal that down side risk is very low and that the chances of a further rise in prices are greater than those of a fall. A 4-star rating Means that the risk is less attractive but that the odds of a rise in SPY still outweigh the risks of a fall.

A 3-stars rating on SPY suggests that the odds of a rise and a fall are even. 2-stars and 1-stars suggest that down side risk is on the rise.

In no way is this star rating system intended as a series of buy and sell recommendations. The system is intended as a guide to the general trend of the market and the S & P SPDR ETF.

Star ratings can change rapidly based on the market's action. Followers of the ratings should review them on a daily basis.

Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-8-09

S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing price on 12-4-09 111.01. Short term support is at 109.57. Resistance is at 111.74. A move above 111.74 would raise the rating to 5-stars. A move below 109 would drop the rating to 3-stars.




Chart Courtesy of StockCharts.com




Chart Courtesy of StockCharts.com

 

 


Other Subscriber Reports are located on the website (log in required). These
reports are updated on a weekly basis (or as conditions require) and are not emailed:

S&P Timing  /  Bond Timing /  Dollar Timing /  Energy Timing
Gold Timing /  Tech Timing /  Biotech Timing

© Copyright 1996-2009, Market Timing Strategies, Inc., All Rights Reserved.
  • Market IQ reports may not be redistributed without permission.
  • Joe-Duarte.com is independently operated and solely funded by subscriber fees. This web site and the content provided is meant for educational purposes only and is not a solicitation to buy or sell any securities or investments. All sources of information are believed to be accurate, or as otherwise stated. Dr. Duarte and the publishers, partners, and staff of Joe-Duarte.com have no financial interest in any of the sources used. For independent investment advice consult your financial advisor. The analysis and conclusions reached on Joe-Duarte.com are the sole property of Dr. Joe Duarte.