A House of Cards...

where the numbers keep falling:

The sobering forecasts for the housing foreclosures in the next few years is over roughly 8 million homes. And to give validity to these numbers, the source is as close to the problem as possible...the FDIC, whose responsibility is regulating the nations federal banks. The response from top officials at the FDIC is that programs to reduce the epidemic have been frequently discussed for the last year. However, they have pretty honest in their assessment of these programs so far by admitting that the problem continues to get worse.

The next dilemma is a large number of people, who are staying in their houses, are seeing the prices from that investment sharply dropping. Take the Standard & Poor's/Case-Shiller housing index. This measure the price movements of the 20 largest city and it describes a record 18.2 percent drop in November when compared to the previous year.

As the housing numbers fall, the unemployment numbers rise:

The housing numbers become even more sobering when you take into account that The Labor Department stated that unemployment rates across the states rose sharply in December, and leading the way was Indiana (my home state) and South Carolina with the largest monthly gains.

Now I have receive a few questions that range from:

~ Where does the economy go from here?

~ Will the government stimilus bill work?

~ What does this mean for the stock market, my city, or my job?

I will try to do my best to tackle the problem in a way that is easy to understand in my next few posts. Stay tuned!

Exchange Traded Funds (ETF) Mania...

There has been a lot of buzz about the ETF industry and the flexibility it gives the average investor of trading like the pros. You can buy or sell short industries and sectors and even multiply the effect of your returns 2x or 3x the daily amount. One ETF that I would like to discuss is Direxion Financial Bear 3x Shares (FAZ)

FAZ seeks to increase the magnitude of a decline in financial stocks by the tune of 3 to 1. When you pick up these shares be ready for the crazy ride you will be on. On any given day this ETF can fluctuate from a difference of over 10 points from the high and low prices of the day! With the banks desparate for the release of the second half of the 700 Billion dollar TARP fund this could continue to fuel FAZ's rise. I see one of two scenarios coming down the pipeline:
1. More investments from the government into financials mean more stock dilution; or
2. A program to get rid of the bad bank assets means huge write-downs for the banks

Use FAZ for no longer than a day as you can end up on a downward slide very quickly. I am already in the red on the timing of this play and will cut my losses short. However, I will intently watch the financial sector and during periods of weaknesses this will definitely be a way to use a little bit of money to maximize your returns.

You Are What U Read...

Time to play "What the Headlines Tell U"! Again I think reading is definitely fundamental and taking a look at the latest headlines can give you some insight into what's going on in the market and what direction it may be headed. Here are some headlines from today:

Parsons is in as Citigroup's Chairman
GE's earnings results are expected to drop
UK, US having thoughts of nationalizing banks
State Street downgraded
AIG losing key employees
Commercial Real-Estate could begin collapsing
Satyam could be sold
UK Pound hits 23 year low
Cold Weather makes Orange Juice and Nat Gas Prices Rise
Microsoft Earnings to Take a Hit
Dow Gains 280 pts, but at 8200

After going through some of the larger stories of the day. Here is what they mean to me. Citigroup, GE, State Street, and UK & US nationalizing banks all mean that the financial sectors is still heading lower. Note some of these banks received money from the government already through the Troubled Assets Relief Program (TARP). And if there earnings are still dropping then the outlook doesn't appear good.

Microsoft earnings to take a hit cannot be a positive sign for the technology sector. This will affect PC makers, chip makers, and retailers. A mainstay in the home like Microsoft is having softer sales and that can't be a good sign either.

Satyam is exploring options of selling themselves and this further highlights that transparency is needed and greed is bad. This Indian company's CEO managed to distort their earnings for years and billions of dollars were reported incorrectly.

The Dow was up yesterday, however notice the level is at 8200. Let's flashback to my post in November which called for the Dow to fall under 8000...like it did the other day and possibly see some resistance at the 7700 level.

Dow Prediction


Staying the course:

I have purchased the Direxion Financial Bear 3x, (NASDAQ: FAZ) because for a small investment I will be able to mimic the returns of shorting the financial markets...TIMES 3!

With Microsoft sales softening, I think again investors should consider owning the Exchange Traded Funds (ETF):

Proshares Ultrashort Semiconductors (SSG)

Welcome President Barack Obama...

Please join me in welcoming our 44th President of the United States of America! I am elated that we have a brilliant, young, motivating commander in chief to lead us our country. We must also realize that the odds are not in his favor as the economy continues to purge itself from years of toxic mortgage assets, greedy investment schemes gone wrong and overall lack of confidence. I realized that I too for a brief second thought that the market would forget all of its ills and start fresh, sorta like America is starting anew. However, the market reared its ugly head the day of the inauguration when we witnessed the Dow Jones Industrial Average drop below 8000!

But I am optimistic that a new direction is in store for us all and even the markets. Regulation, transparency, and sharing the economic pie are some of the ingredients that I would serve up during this time of weariness. So President Obama, good luck and if you need any advice...just call.

Been Busy...

Some would say being right on the money. Well lets look back at over four months ago, when we told you to re-allocate your portfolios because the worst ain't here yet. And what have we seen is that are call is right on. The Dow has continued to plummet to the level I thought we wouldn't hit for awhile. and that is roughly around Dow 8000. This is a compelling moment because months ago I said that I would recommend that we all start inching back into the market, but at this point the news continues to be bad. Just searching articles on the internet you may come across these themes: Banks Need the rest of the TARP Bailout - Citigroup is selling their brokerage unit! - Bank of America is showing signs of cracking Retailers are not looking good. - Even Walmart sales are declining - Circuit City can't find a buyer and is liquidating all their stores!! Unemployment rates continue to rise - GE Capital is set to shed 11000 jobs Downgrades send stocks to their 52week/all-time/all world lows There is no strategy when the headlines read like this. The only thing is to stay the course with the consistent message that we've had before. I repeat I am and have recommended that you are completely out of the stock market and fully allocated to Treasurys and cash assets. This is especially true for your 401K portfolio because it primary purpose is capital preservation...not appreciation. A portion of your portfolio needs to be exposed to the market and I recommend that you have your own trading account where you can DO IT YOURSELF (DIY)...I don't need Bernie Madoff or any other scandalous investors out there losing my money...when I can do that on my own. It this portfolio you should be shorting more that buying things. Find attractive price points (see previous posts on price points) for both buys and shorts:

SHORTS:
- SSG: ETF that shorts the Semiconductor Sector
- KBE: EFT that shorts the Retail Banking Sector
- Also short the retail, and credit sensitive sectors
BUYS: - BBY: Best Buy is primed for increased earnings now that Circuit City is going BANKRUPT
- V: VISA is down towards their Initial Public Offering (IPO) again after being downgraded

I'll be back to update this post later

Is the Stock Market Glass Half...

Empty or full??? Well if I were looking into what most economists have predicted for 2009 I would take the glass and break it!!! Now I know that isn't the rosiest outlook that you would like to hear but hey I am just being honest. The picture for 2008 wasn't pretty so I find it strange that all of a sudden once again you have so called web and tv stock "pro's" still telling you the coast is clear and head back into stocks just because we change the calendar year.

The strange thing is if you were to call or write in and have these pro's substantiate why they want you to get back in they give you the same tired response (this is my guess):

~ Treasury yields are so low, its time to get out and make some money.
~ Rebounds start 4-6 months before everyone finally recognizes the "recovery" period is happening...don't miss the rally
~ Many evaluations used to evaluate stock prices tell us that stocks are cheaply priced

Now my goal is not to sound pessimistic, but I want to be the voice from the other side that levels the playing field. DON'T MAKE THE SAME MISTAKES YOU DID LAST TIME! Follow the one thing that doesn't lie and that would be the numbers. I am not asking you to be an expert but find relevant information, like the fact that the unemployment numbers come out this week and read articles about those key numbers. I read that unemployment numbers are going to come in around the 690K level for the month of December. I read this and said WOW, I don't really know what this means...but its sounds important. Then I read further and they said the unemployment numbers for November came in around 490K job losses that month. Now I can start guessing what these numbers could mean. It didn't take me long to determine on my own that an increase from November to December has to be a very bad sign and this can be backed up when we read articles last month when people talked about how bad November's numbers were. The last trick is to read more articles that are consistent with this prudent thought that if unemployment continues to rise then the economy will continue to struggle. Seek out these articles over time and start to determine themes that surface around the key numbers that you are researching (i.e., major stories).

I have determined high unemployment is a bad thing. See I keep it simple! And recent headlines that seem highlight high unemployment, a cold winter, and people like you and me not wanting to spend our money on anything. So I take these points and turn them into trades:

Article "Intel warns for the 2nd time on their quarter results" - Confirms that people ain't got money to buy expensive gadgets and computers!
Trade: The easy one is Intel and if they are best in breed all chip stocks will suffer. BUY the ETF: Ultrashort Semiconductors (this is like shorting chip stocks twice...double your bang)

Article "Friday unemployment numbers above 670K) - Confirms job losses are rising
Trade: This one logically tells me more job losses mean that people won't be paying off bills and especially debt! SELL: Companies that sell consumer debt - Banks (Capital One, American Express, Citigroup)

Article "Cold winter across certain regions" - When I'm cold I turn the heat on, and you either got gas or electric! Trade: Natural Gas and utilities may be solid here because people need them in this weather and they traditionally offer steady dividend returns.

StockPicker Highlight:
This year I am playing the headlines...logically of course to spot trends. Look at the results from our bailout article. 3 out of the 4 auto parts makers we bought have risen...not bad.

And shorting Capitol One hasn't proven to be the smartest trade yet but this proves price is an important factor. I still like this trade but if I were to have this in my portfolio I wouldn't short it until it reaches 34.

Stay tuned.

2009...The simple approach to investing this year

As we bring in the New Year, I have learned how important it is to continually look into the future. 2008 was the year that we all would love to forget even happened from a stock perspective. Oddly enough, most of us would only like to forget the last quarter of the year as my portfolio didn't start its downward spiral until September/October. It was then my blogging activity picked up with a frantic pace and I was constantly tuned into the markets hourly. I can safely say in my brief investing life that I have never been a part of a market where new and relevant information was breaking rapidly throughout the day. I took a drastic approach and recommended that everyone take a defensive approach in their portfolio because I honestly felt the news and the data was taking the market in a negative direction. Looking back this may have been a solid decision and the leading indicators were: 1. The rules were been changed daily which caused volatility and panic; 2. Interpreting market data was critical 3. Some of the largest money managers tipped us off by reallocating their portfolio

Now as we look into 2009 what should we expect. Well the New Year has gotten off to a great start as the Dow Jones Industrial Average has just topped the 9000 mark, levels we haven't seen in awhile. Ironically, following Dec 16 where the Dow Jones again approached 9000 the next 5 five market sessions were downward days and bottomed at around 8400. I have repeatedly mentioned that I believe market history has given us a important level that may market a psychological bottom. I will have to go back and check to see how consistent the numbers that I have noted match with what some experts are now calling the market bottom on November 20th!

So what I am looking to do is gradually get back into the market. Taking the information we discussed above about where the bottom may be, I have recognized that 8400 is going to continue to be an important area where I want to get back into the market. I will be mainly shifting my RETIREMENT portfolio when these target levels are reached. As far as my investment portfolio I think people still need to take a defensive approach. As money has been and will be printed to get us out of this difficult economic time, I don't think things are improving on Main Street. And my gauge is the everyday person that you run into on the street. Simply polling my friends: less and less of them were actually going out and buying expensive party packages this year.

So I still believe shorting the financials whenever they run up, more exposure to bonds (corporate and high yield), less exposure to treasury bill (inflation may start creeping up), and buying oil, gas, and gold.

Stock Tracker Update: I really want the stock tracker to eventually do one of 2 things: 1. Reflect my actual portfolio or 2. Reflect the future stocks I'd like to buy/short... because currently it does neither!

Happy New Years!

I wanted to wish all a very blessed and prosperous New Year!