Dallas, TX
January 22, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Looking Back On A Wild Ride
What's Hot Today:
U.S. stock index futures are pointing to a slightly lower opening on Thursday. After a wild week, anything is possible today.

Today's Economic Calendar:
  • No data due for release today other than earnings.
News For Thought

Corporate political influence likely to rise significantly. According to The Wall Street Journal: "Corporations, labor unions and other political entities are gearing up to play a larger role in influencing elections in 2010 and beyond after a decision by the US Supreme Court to strike down elements of campaign-finance law."

Air America files for bankruptcy. Air America, the liberal radio network is out of business. The network had faced significant financial difficulties for some time. Only two other issues—national security and taxes—were named as most important by at least five percent (5%) of voters. Brown clearly had the edge on both. Among those who named national security as most important, Brown won 67% to 29%. For those who saw taxes as number one, it was Brown 87%, Coakley 13%."

California: no limits on medical marijuana. According to Miami Herald.com: "The California Supreme Court ruled Thursday that the state cannot impose legal limits on the amount of pot that medical marijuana users can grow or possess."

What a week we just had. Aside from all the market volatility, now corporations can give unlimited amounts of money to candidates, the left has no radio voice, and in California, if you say it's for medical purposes you can theoretically traffic unlimited amounts of pot.

This speaks for itself.

Looking Back On A Wild Ride
A Week To Remember
Wall Street is in shock after a wild and woolly week. Yet, as we look back, we can see that this could be the week that defines the next 6-12 months of trading, as well as what happens to the country.

The week started with a rally as the polls predicted that Scott Brown would win the Massachusetts special election, which he did. But after he won, the bottom fell out of the stock market as the election, and the response from the White House and Congress raised more questions about the future.

Wednesday and Thursday were abysmal days for the U.S. stock market, despite earnings. On the flip side, bonds rallied and the dollar showed some strength.

The White House grudgingly gave some ground, with the president admitting that he had miscommunicated his agenda to the public and worried about policy. Yet, he never acknowledged that he misjudged what people expected from him, and never suggested that he would make a move toward the center. Instead he suggested, in a roundabout way that people maybe just didn't get what he was trying to do. We think that people got it just fine, which is why he hasn't been able to get as much done as he wants.

Which brings us to the last issue of the week, the banking rules being proposed by the president, which the market didn't like on bit, and which accounted for the big drop in stocks on Thursday.

According to The Wall Street Journal: "President Barack Obama proposed new limits on the size and activities of the nation's largest banks - With former Federal Reserve Chairman Paul Volcker at his side, Mr. Obama said he wanted to toughen existing limits on the size of financial firms and force them to choose between the protection of the government's safety net and the often-lucrative business of trading for their own accounts or owning hedge funds or private-equity funds." Yet, the Journal noted, in the same article "Administration officials said they weren't trying to resurrect the Depression-era law—known as Glass-Steagall—that strictly divided commercial banks from the business of underwriting securities. Nor would their proposals force existing financial firms to downsize."

So which one is it? Are they going to force the big banks to break up? Or are they going to crimp their ability to do business? Is this another attempt to blunt another significant sector of the economy, as they tried to do with health care?

As we asked yesterday. What's the focus of these rules? Is it to cut down the size of the banks for political and ideological purposes? Or is it to put back the safeguards that kept neighborhood banks from becoming speculators on weird derivatives?

So far, it's not clear. And that's the problem. And there is more. Multiple reports suggest that even Barney Frank, the left leaning House Banking Committee chairman, and Secretary of the Treasury Tim Geithner have reservations about these rules. Others are being even more defiant. According to The Journal: "The fate of the Obama proposal is uncertain. The House already has passed a provision that would give regulators new authority to limit the scope and scale of banks. Congressional passage now depends primarily on Senate Republicans. Several Republican senators expressed skepticism about the Obama proposal Thursday. "Let's solve problems," said Arizona Republican Sen. Jon Kyl. "Let's not be finding a bogeyman so that we can turn public attention away from what they're doing wrong in the administration.""

Obama's failure to deliver on any of his major campaign promises, as well as his waffling on the wars in Iraq and Afghanistan have put him in a difficult position, both domestically and internationally. And his problems are not the same as his predecessor's. Mr. Bush was not well liked internationally, but because of his good relationship with the U.S. military, he was at least feared or respected to some degree. Mr. Obama doesn't seem to have that kind of aura about him, especially after the win by Scott Brown, and his fall in the polls to below 40% approval ratings.

One thing is clear. Despite his setback on health care, temporary or otherwise, he is focusing on Wall Street in a significant fashion.

Conclusion

Uncertainty is on the rise in the markets. The White House is clearly targeting Wall Street, but not in a very productive way.

Yes, Wall Street got us into this mess. But they weren't alone. They had lots of help, willing or otherwise from Congress and other politicians who put together an agenda and passed laws that allowed the subprime mortgage crisis to develop, unfold, and explode.

By ignoring that side of the problem, Mr. Obama looks as if he is trying to sink the U.S. financial industry, a development which could have significant, long lasting and very negative repercussions for the United States on multiple platforms, especially national security.

That's why the markets are increasingly nervous, as are we.

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Market Moves - Stock Of The Day
Goldman Sachs (NYSE: GS) Shares Figthing For Market Life
Shares of Goldman Sachs (NYSE: GS) are on the verge of something big. The question is what.



Chart Courtesy of StockCharts.com




Have you seen the price swings in Goldman lately? Wow, what a wild ride these things have had. Just on Thursday, the trading range was close to sixteen points. Let's put that into context, in the past two weeks, the stock has had about a 20 point trading range, which means that in one day, the stock moved about as much as it had in the entire two weeks.

That volatility has some significant implications. First, it says that traders are becoming unnerved with Goldman's prospects for the future. The potential for banking limits proposed by the White House could affect Goldman's ability to do business in the future.

Technically, the stock has been bouncing between between its 50 and 200 day moving average, which is an interesting situation. A move above or below this key trading range will be very significant.

More important, though, is what changes in Goldman could mean for the market and for the economy.

A whole lot of stuff is suddenly way up in the air.
 

 


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