"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
The stock market is finally going to open down below our first entry target of 12,000 on the Dow. We have been waiting for a re-test of the lows set in January before we began committing additional cash reserves to the market.
The only reason- I believe- the markets have not already tanked is the interventionists (I.E. PPT- Plunge Protection Team) have been working overtime to prevent a large scale decline.
Based on this little tidbit of information, the lows we saw in January may hold. In case the markets don't hold above the January lows, we will stick to our discipline of adding to the market in thirds.
% Declines from DJIA High of 14,198:
10%= DJIA 12,749
15%= DJIA 12,041- 1/3rd
20%= DJIA 11,332- 1/3rd
25%= DJIA 10,624- 1/3rd
This morning's employment news came in much worse than expected as the February non-farm payrolls were down 63,000 versus expectations of +25,000. To add more fuel to the flames the prior two month's numbers were revised lower.
Prior to the release of the employment numbers, the Fed announced it would inject some additional monetary capital into the market.
Bad news is plentiful, and investor pessimism is very high. This is music to my ears. We have been saying for many months that investors need to prepare themselves for a recession, and a bear market that usually follows.
For traders, bad news and pessimism usually sets the stage for violent bear-market rallies that can be extremely profitable.
Stocks sold off sharply yesterday after the numbers for U.S. home foreclosures was released. In addition, Thornburg Mortgage (TMA), and the Carlyle Group both received default notices on loans and mortgage-backed securities.
From where I sit, our current economic crisis has many of the same characteristics as 1973-74. I have thought this all along, but yesterday's exchange between OPEC and President Bush pretty much solidified my conclusion.
The headline in the business section of yesterday's paper read "OPEC blasts Bush on Oil". A few hours later, the rebuttal came- "Bush blasts OPEC mistake".
So who is right? In reality, both are right.
OPEC is correct in saying that "US economic mismanagement has pushed oil prices to record highs". In reality, economic mismanagement has lead to the housing & mortgage crisis, higher inflation, and fewer manufacturing jobs due to outsourcing.
Bush is right in saying that it's a "mistake to have your biggest customers' economies slowing down as a result of higher energy prices."
In 1973-74 the economy cratered after the US was taken off the Gold Standard, and the dollar began to depreciate. Since oil is priced in dollars, a dollar decline caused oil producers to receive less per barrel than if a stable currency had been maintained.
Since Fed Chairman Ben Bernanke is ignoring the policy of a stable dollar, and focusing his attention on bailing out Wall Street, we have to live with a 1970's style inflation rate. No, not the made up rate reported to us by the watered down CPI data, I'm talking about the "real" inflation rate.
So, do I think we are lied to about inflation? Yes, and I think we are lied to about much more than that.
Here's the bottom-line; and the heck with everything else, Wall Street investment banks will be bailed out before anyone else. It's just that simple. Wall Street runs Washington, and Washington hires powerful Wall Streeter's to make sure the investment banks remain untouchable.
In recent years, many of these powerful Wall Street lapdogs have used their power to repeal the Glass-Steagall Act, which separated the activities of banks and securities brokers. Now look at the mess we're in.
Here are a few names of Wall Streeter's that hold or held jobs in Washington;
Bill Simon- Former Secretary of the Treasury- R. Nixon 74-77 (senior partner in charge of the Government and Municipal Bond departments at Salomon Brothers).
Donald Regan- Former Secretary of the Treasury- R. Reagan 81-85 (Chairman and CEO-Merrill Lynch).
Robert Rubin- Former Secretary of the Treasury- B. Clinton (Vice Chairman and Co-Chief Operating Officer- Goldman Sachs, Chairman of Citigroup)
John W. Snow- Former Secretary of the Treasury-G.W. Bush (Cerberus Capital Management- Hedge Fund).
Henry Paulson- Secretary of the Treasury-G.W. Bush (Chairman and Chief Executive Officer of Goldman Sachs)
Bill Donaldson- Former chairman of the Securities and Exchange Commission- G.W. Bush (Donaldson Lufkin & Jenrette & former chairman of the New York Stock Exchange)
One of the reasons I am buying the financials right now is I am naive enough to believe that Wall Street will always take care of their own first.
