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Dallas, TX
December 28, 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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2010: The Year Of The Government
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What's Hot Today: |
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Stock investors will be trying to end the year on an up
note. Thus light trading may lead to more gains this week.
Today's Economic Calendar:
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
- 2-Yr Note Auction 1:00 PM ET
- Fed Balance Sheet 4:30 PM ET
- Money Supply 4:30 PM ET
News For Thought
Trouble Brewing: Iran, Iraq and Israel an uncomfortable triangle. Multiple
items appeared in the weekend press with regard to Iran and Iraq. Here is a sampling:
Suspected Hezbollah members arrested in Iraq. According to Stratfor.com: "Iraqi
security forces arrested seven suspected Hezbollah members in Iraq with links
to Iran, Al-Sharqiyah reported Dec. 27, citing an unnamed Iraqi security source.
Iraq’s Maysan Emergency Regiments arrested one of group’s leaders two hours after
he arrived in the province, and said the individual had received training in
Iran on carrying out militant attacks, and that the individual worked for the
Basra Oil Company.
Tensions between Iran and Iraq escalate. Hamas involved. According to
Stratfor.com: "A senior unnamed Palestinian official said Iran requested that
Hamas freeze the inter-Palestinian dialogue, refuse to sign any reconciliation
agreement, and attempt to carry out military operations in Gaza and the West
Bank after Iran received intelligence that Israel planned to strike Iranian nuclear
facilities in February, pro-Fatah Palestinian newspaper Al-Quds reported Dec.
26. Iran also asked Hezbollah and the Amal movement to conduct activities on
the Lebanese-Israeli border, according to the official, who said Iranian National
Security Council chief Saeed Jalili met with Hezbollah and Hamas officials on
the issue."
Standstill between Iran and Iraq over southern oilwell persists. Several
reports suggest that Iraqi and Iranian troops are within firing range of each
other at the disputed oil wells in southern Iraq.
Internal tensions on the rise in Iran. Iranian authorities clashed with
protestors in multiple cities. Unconfirmed reports of violence and sporadic deaths
appeared in the press over the weekend. Clashes between protestors and authorities
were reported by opposition press outlets in several cities including Isfahan
and Najafabad. According to Stratfor.com clashes and as many as four deaths were
reported in Tehran. Iranian government sources denied that deaths have occurred,
then confirmed at least 4 deaths. Other reports suggest that mobile networks
in Tehran were down on 12-27 and that a religious center near Ayatollah Khomeini's
home were attacked. Source of summary: Stratfor.com.
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2010: The Year Of The Government
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The Hand of Big Brother Will Be Everywhere
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The government now backs 9 out of 10 of newly issued
mortgages in the United States and plays a significant role in the economy. As
the election season approaches in 2010 it will be interesting to see how Big
Brother plays its hand.
2009 turned the Presidential Cycle onto its head. The first year of the cycle
is suppossed to be a difficult one for the stock market, as the Federal Reserve
raises interest rates. So goes the traditionally held view of those who adhere
to the cycle. Year two, if you're a believer is more of the same as the Fed finishes
the job, in order to drop rates in year three and the early part of year four.
The problem for the cycle is that the subprime mortgage crisis was a non-believer,
coming in year 3, and leaving the Fed with little to do but lower rates massively
and keep them low.
Yet, the net effect of the financial meltdown has been to turn the U.S. government
into a major player in the economy, giving Washington a big hand into virtually
everything that moves or has to do with the economy.
According to The Wall Street Journal: "the Bush and Obama administrations and
the Federal Reserve spent, lent and invested more than $2 trillion on one initiative
after another. If you owned a credit card or a money-market fund, had a savings
account, bought a Dodge pickup or even a hunting rifle, or borrowed to buy a
home or finance a small business, odds are good that the U.S. stood behind you
or the firm that served you."
In fact, whether you support bailouts or not, here's something to think about: "Even
if the government withdraws, business will expect bailouts in the next crisis,
and that will inspire another round of cavalier risk-taking."
In the near term, though, here are a few things to worry about, according to
the Journal:
- Despite what for now seems to be a statistical recovery "unemployment remains
a very high 10%. It is far from clear how strongly the economy will grow
when the adrenaline of stimulus is withdrawn."
- Big banks haver recovered, but small banks are having a harder time than
they did before the meltdown and the bailouts. According to The Journal: "Although
smaller banks have long had a higher cost of funds than big ones, the gap
has widened. The gap averaged 0.03 percentage point for the first seven years
of the decade, but it jumped to a 0.66-point disadvantage for smaller banks
in the four quarters ended Sept. 30, estimates Dean Baker of the Center for
Economic and Policy Research, a liberal think tank. That suggests investors
think the government would bail out big banks, but not small ones, if crisis
erupted anew, he says."
- The potential for rising deficits in the future is significant as "The
International Monetary Fund estimates U.S. government debt will swell to
the equivalent of 108% of annual economic output in 2014, from 62% in 2007,
absent politically difficult steps such as raising taxes or cutting benefit
programs. As federal debt climbs, an ever-greater fraction of the budget
goes just to pay interest, much of it to overseas creditors. The bill will
worsen if interest rates rise from their current low levels."
- "Interest on the debt cost $182 billion in the fiscal year ended Sept.
30. Robert Pozen, chairman of MBS Investment Management, worries that within
a decade, the interest bill could rival the defense budget, which was $637
billion last year."
Conclusion
The government is the soup. There is no doubt about it. And the only thing that
business can do is blame itself for its irresponsible behavior. To be sure, not
all folks that are in business are to blame. Indeed there are plenty of honest
folks out there trying to do the right things and to provide goods and services
that do what they're supposed to do.
The problems arise when the government decides to inject political goals into
the real world. One of them was to liberalize home mortgages. This was likely
influenced by homebuilder lobbyists. The other was the repealing of the Glass-Steagall
act, at the behest of Wall Street and former Fed Chief Alan Greenspan. What was
old Alan thinking at the time? And why would he ruin an otherwise outstanding
legacy as "The Maestro?"
Yet, here we are again. Government is injecting politics into the economy. It
runs the banking system. It runs the mortgage sector. And it runs two thirds
of the U.S. automotive sector.
Soon it will run health care. Then it will raise taxes. And then it gets into
the realm of nobody knows what they'll do next.
So let's bring this back to the beginning. 2010 was an unusual year. The stock
market rallied in a big way. But government grew even bigger. And aside from
a stock market rally, lots of folks are still out of work.
This isn't a Democrat problem, or a Republican problem. It's a government problem.
And it's one where incumbents are likely heading for some surprises.
So what will 2010 do? It will surprise us all, in ways that this scribe can't
even imagine, except for one: everything will be more and more dependent on the
government.
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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S & P SPDR ETF (NYSE: SPY) Makes New High
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The S & P
SPDR ETF (NYSE: SPY) made a new high on 12-24.
Chart Courtesy of StockCharts.com
The low volume didn't take away from the concept. The S & P
500 finally closed at a new high from the March bottom.
Now, it has to stick around this level as volume returns
in the new year, or the party won't last.
So Santa Claus finally showed up, and those who hung around got a bit of a Christmas
present. Now what happens?
If the market's seasonal tendencies hold true, maybe a bit more of a gain before
the year is out, and perhaps even more up side action in early January.
Still there are plenty of worries. Terrorists seem to have returned. At least
one attempt over the holidays took place. And the health care debate is just
beginning.
Iran, Iraq, and Israel are sarting to heat up. Dubai may or may not be the only
glowing pearl in the world that sinks into debt related problems.
And the price of oil is starting to climb, as are interest rates. Finally, if
the dollar continues its upward trend, other things will change. In other words,
the S & P has its work cut out for it.
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Technical
Look at the Market |
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S & P Hugs New Highs - SPY ETF Remains at 4-stars
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It's hard
to predict what's next, given so many crosscurrents in
the market. The key is whether traders want to take prices
higher or if they will
walk away for the year leaving little but thin trading
influenced volatility behind.
So the technical aspects of the market are increasingly important, and that's
why the shrinking volatility bands are very important to keep an eye on.
The bottom line is that it pays to be careful.
Summary of Start Rating System
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)
S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing
price on 12-21-09 111.33. Short term support is at 109.57. Resistance is at 111.74
and is being tested. A sustained move 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
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