Is there a Superman to our Markets

Now I know we would all love to look up in the sky and see Superman flying in to save the day but what we need is a dose of reality to face these markets. And instead of relying on one person which is what Wall Street usually hopes for, the President - elect may be taking the best approach of them all. With most people completely discounting the words of the current president, George Bush, everyone is turning to the guy who isn't the current president to make presidential decisions before he hits the office. Obama is going against the grain and this must be his motto at this point. The prevailing model has often been 1 man running- the- show and that one man gets the credit like in the days of Alan Greenspan or more recently as we've relied on Ben Bernanke and Hank Paulson. Well, this time around President - elect Obama appears to be naming a Super Team to handle this Super Crisis! Obama is naming people on both sides of the economic aisle in an effort to determine a way to bring us out of this mess.

Now my orginal story is trapped on another computer but here is the direction I was going while I was putting that together, what do we do from here. Here are snippets of what I am thinking and I will include my pre-written thoughts a few days from now:

Access Current Economic Environment: I have to admit that I am early or wrong in thinking that the recent economic declines would begin to push demand for regular goods high (i.e., inflation) while the government prints money uncontrollably. Well we have seen that the economic indicators are far worse and that is leading to a rapid decline in every good across the board which is more like deflationary pressures on our economy.

What Solves The Situation: One thing the market is looking for is clarity about what the future will look like and they haven't been able to get that from the Lame Duck President George Bush. I think Obama's team has taken a delicate but decisive approach and released 3 straight days of news that is addressed directly at the economy...something I would expect from our current President. And notice what the results have been, a strong response from the markets even with more bad news coming out. That is a very solid sign when bad news is coming out but the markets are "shrugging them off".

What am I going to do: I am taking an aggresive approach and dividing my world into 2 segments. My retirment world and my investing world is what I call them and here is the part that you are most concerned with. In my retirement world, I have sat on the sidelines with no cash investment in stocks for the last few months because of the uncertainty out there. I believe we may have taken the right approach as the markets have gone down further and tests lows not seen since roughly 2001-02. But the market has been bounced off of these levels and in my opionion I may shift back into the markets if and when we near those levels again.

In my investing world I am searching for the worst of the worst and trying to find opportunities for long term and short term investments. For instance I like the stocks that will benefit from the roughly 1 trillion dollars that we are currently throwing at the markets. So I am weeding through the financial sector, beaten down stocks, and then I am going to the other side of the spectrum and looking for those least affected by all of this.

Financial:

How about looking at Citigroup (C), at this point they appeared to be dying like a patient with a bad heart but they have been give recesitation by the government. This means dying is not a option and I would buy on any dips in this stock...of course I have a thing for 52 week lows, which means below $4!

Also, how about Discover Financial (DFS), who is stuck in the middle of all this credit crunch. They are exposed to credit consumers as they hold consumer debt, but have a transaction processing network and stand to gain from the legal battles with Visa and Mastercard. With recent run-un, I would again wait until this drops below it 52 week low and begin forming a base at around $6.50.

Limited exposure to credit consumers: There are transaction processors that are indirectly affected by the credit crunch but this group is not directly affected. The likes of Visa, Mastercard, and others may be interesting plays. Again I would take an agressive approach and buy at 52 week lows which is $43 and $113 respectively.

Just simply beaten down:

Sirius - this is trading @ 14c, can it go any lower
Jeffries - an investment bank still standing
Big Lots - discount retailer, and logic says consumers may start turning to this sector
Apple/Research in Motion - they make stuff ppl want
Radisys - 2 straight quarter of solid results and no huge move in the stock...only time they will figure it out

Give consideration at 52 week lows!

The Trend is your friend:
SSG - This ETF shorts the semiconductor sector. A great hedge as we expose ourselves to the sectors like technology, but if the market continues to go down we have a friend. Look at $140
S&P Financials - Is this too beaten down, maybe not because the TARP money will not be used to bail buy bad assets which means they will need to be written off. So short this sector!
Retailers - Short retailers, simply no one has any money to buy a damn thing! Even luxury retailers Saks, Coach are claiming they have to give discounts to lure "affluent" customers...I guess the trickle down effect doesn't work in this market



STAY TUNED! More to come

Bonds May Be Safe Alternative

Write now I stand by my earlier posts and believe bonds may be the best short term alternative. This markets is wilder than a rollercoaster going up 5% one day and down 7% the next. Further proof that people may follow our direction and head to safer ground was found is this article here posted by CNN:

http://money.cnn.com/2008/11/19/markets/bondcenter/credit_market/index.htm?postversion=2008111917

Bailout / TARP Abandoned

Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. I wrote here early, that this program was flawed for so many reasons. The biggest reason: "There was no way they could value the bad assets, manage them, or dispose of the assets correctly!!!"



Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.


What the Government Should Require:

- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)



Where do we go from here:

The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.