Tuesday, June 15, 2010

Another Big Decision

I’m going to make this real simple. The markets have the potential of topping right here, with the S&P at 1,106

The top could be a pause for a day or two and then a breakout above this trading range, or it could be a high that sets up a retest of the 1,040 lows.

The other option is that price clears blast through this 1,106 range.

You can see how important 6/14 is on this chart. Upside resistance above 1,106 are 1,128 1,143 1,173 and 1,260

Downside support is 1,040 1,010 960 and 910

One way or the other, when price breaks out of this range, there is a heck of a lot of money to be made. The Bulls have their shot right here to make things happen. If they fail, then the Bears will get another crack at it.

There is really nothing to predict. All you can do is watch what is happening, anticipate potential outcomes and react to them.

Sunday, June 13, 2010

It's Still All About The Euro

The last trading days, the Euro has been rallying. It has now touched the old breakdown point at about 1.215

The Euro has that classic reversal pattern on the hourly chart, so a reversal down from here would not be unexpected.

Let’s see what The Euro does in the morning, because it has controlled the course of risky assets since it started to implode in April. A break above 1.215 that sticks and the lows for the correction may be confirmed.

I am by no means suggesting that The Euro is out of the woods. It has a lot of work to do to undo all the damage it has sustained.

New $50 Billion "Stimulus"

Back on May 26th, Larry Summers (Senior Economic Advisors to Obama) started to talk about the need for a $200 billion “Second Stimulus”. This package would be specifically designed as a gift to states so that they would not have to go through a massive round of public employee (think unions) layoffs to balance their budgets.

Yesterday –

“President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid "massive layoffs of teachers, police and firefighters" and to support the still-fragile economic recovery.”


I am assuming that this will not be a bad thing for Municipal Bonds, but I am wondering if they have already priced this in.

This new money should allow the Unemployment Rate to remain artificially low into the election and help Democrats for the time being. The game of borrow from your kids to maintain your lifestyle of excess continues. Keynes may be dead in Europe, but he is alive and well in Washington…

Here is the chart that best shows what the Fed, the NYFRB and Washington are doing with our money. It shows who borrowed how much new money in Q1 2010 (annualized). You can see that the big borrowing has been done by the Federal Government. They borrowed an extra $1.446 trillion, while the banking sector saw its borrowing shrink by $1.336 trillion.

The Federal Government is stepping into to fill in the whole left as Wall Street deleverages (risk passed from bank shareholder to taxpayer). The two numbers show you that the Government is more concerned about holding the status quo than seeing massive economic expansion. Obama begging for $50 billion to prop up the payrolls of the states is simply a mechanism for maintaining employment, rather than actually creating productive new jobs. Think of this as Corporate Welfare, where Government is the Corporation.

Clearly Obama was terrified by the horrible Employment Report from a few days ago.