Fed and Fed Agency Announcements

4-Week Bill Announcement
11:00 AM ET

3-Month Bill Auction
11:30 AM ET

6-Month Bill Auction
11:30 AM ET

Ben Bernanke Speaks
12:00 PM ET

Consumer Credit
3:00 PM ET

Consensus Highlights

And that would be typical.

Individual investors tend to exit the market during a prolonged downturn toward the end of the cycle, especially the one last year. That is baffling to me, too. Once you have lost 50% of your money, really, what do you have to lose? Selling only locks in the loss. But that is a typical investing pattern when small investors are run out of the market, and, they fail to jump in when the market trends upward.

If I were a long term investor, this market is a little scary, and Nouriel Roubini is once again issuing warnings about our economy.

The latest run up has made me grateful I am a day trader and scalper, because being in this market more than 15 minutes just plain scares me. The government has, as usual, pursued a policy of accommodation for the big investment banks, including giving them all billions of dollars to stay afloat. Whenever Wall Street bankers get their firms in trouble, be it junk bonds, credit default swaps, the leaders of our country are quick to dole out cash to bail them out. It’s always been that way, and keeping the Fed Funds interest rate at zero has been a boon to the investment banks community. I would also note that it has done absolutely nothing for Main Street citizens of our country.

Okay, I’ll get off the soap box. Here is the problem, though…

The market has gone up 50%+ since March, and the primary reason for this run up has been a policy of economic accommodation for Wall Street. I see nothing in the economy that is noticeably better since the most recent recession started. Unemployment is at an all time high, foreclosure rates continue to sky-rocket and the consumer has, by most measures, kept his credit card in his/her wallet.

The stock market, though, has continued it’s climb while Main Street suffers through the doldrums of the recession. Now you could argue that the market is pre-cursor of better times, that the market is a leading indicator, so to speak. Then again, you can also make a cogent argument that this run up is nothing more than a bubble of artificial origin. Unfortunately, Nouriel Roubini has made the latter argument, and he had a handle on the original problems last year. I hope he is wrong.

I would feel much better, though, if our government gave up it’s love affair with the banking community and investment bankers in general. These buffoons have a penchant for loading risk on their dinner plate and then come asking for an antacid when they get a stomach ache. If, or when this market collapses, at least the smaller investor won’t be effected so directly. There is some comfort in that.

I would point out that collapse is not imminent, but at some juncture the disconnect between Wall Street and Main St. will bear noxious fruit.

That was the headline news today on Research in Motion symbol RIMM so I decided to look at the chart to see what was going on in the “real world”. When I got to the chart, one thing immediately jumped out at me and that was the negative action that this market has shown in the past several weeks. Looking at this market a little closer I was able to see that our “Trade Triangle” technology was 100% negative and that our monthly “Trade Triangle” indicator had turned negative on October 28th at $63.38. This is a major negative in my mind for this market.

In this short video I show you exactly what we expect to see for RIMM in the future. I also share with you some downside targets that we are looking at which may surprise you.

Click here for this informative investment video on RIMM

As always our videos are free to watch and there is no need to register. I hope you enjoy the video and comment about it on our blog.

The five ETFs that we are referring to are going to play a major role in the future and you need to know about them today.

In this short video I show you the overriding trend and potential for each of these markets in the future.

As always our videos are free to watch and there is no need for registration.

CLICK HERE- Watch the ETF Video from INO

But that doesn’t mean I don’t think about things from time to time…and the recent rally in the stock market has me scratching my head some.  I think Benjamin Graham would be shaking his head some, too.  This chart is mind boggling:

spx daily chart

The market has shot up to extraordinary levels in recent months on news that…ah…ermm…earnings are down.  Huh?  It’s true, the economy as whole has stopped the free fall we experienced early in the current year, and we have had a steady stream of “it’s not as bad as it could have been” kind of economic reports.  But this news is hardly the stuff of “green shoots” some economists have portrayed.  To be sure, revenues are down in double digits percentage points from last year, and purchasing power, as measured by tax receipts, is off 22%.  Things aren’t nearly as rosy as many would have you believe.

To go a step further, where in the heck did all this money to fuel this rally come from?  Only 400 million dollars has flowed out of money market accounts and into the market.  So that kind of kills the “money was on the sidelines” theory.  It takes a major commitment of cash to run the market up to the levels we are now seeing.  Somebody is buying stocks in a big way.  But who?

Zerohedge nailed it, I believe:

Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer who net equity was almost negative on March 31, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn’t care less about leveraging themselves any more.

So I find myself thinking that essentially the Fed has subsidized banks who, in turn, subsidized the stock market with what is essentially “zero risk” money because, after all, these banks are “too big to let fail.”  Of course, the economic reality of this Dr. Strangelove-like dichotomy lies in the near future.  I would think, no, I know that the real investment is essential in the market, from real people, for any rally to sustain itself.

Did I mention someone, namely the banks, are making some obscene money, or what I term “stupid money” in this process.  Stupid money always begets a return to reality, and the reality of our current situation isn’t pretty.

Earnings are down, and fundamental theory is quite clear on this point.  Revenues and earnings increases are essential for a healthy market.  We have neither.  Broad participation from the entire investment community is essential…and I believe, with good reason, that the average investor has become risk averse as a result of the butt-toasting he/she has received in the last year, especially in their 401k accounts, that the farthest thing from the less-than-astute stock investor’s mind is to jump headlong into the market with the tattered remains of their retirement assets.  I just don’t see it.

The reality of the situation seems to be the rally has been financed and fueled by the quantitative easing policy and TARP funds the Fed has made available to distressed banks.  Having worked hand-in-hand with the investment banking hierarchy during my trading years, there is no length they will not go to so they might “game the system.”  But really, does the US taxpayer, via the Fed, need to be involved in creating stock market bubbles?

Because that is what I believe, we are experiencing another bubble in equities created by loose economic policy.  Unless earning and revenues show dramatic turnaround, how in the world can the current prices be maintained?  There must be some fundamental reason for equities to become more valuable..ie- their prices increase.  I just don’t see the justification for the whole mess.

And I think, in the final analysis, you will see another mess.

Trading slowdown steepest in decades

I don’t usually concern myself with broad economic themes but this graph intrigued me.   The number of shares traded on the major exchanges has begun to slow to a trickle, when compared with past years.  It is not unusual for trading to slow in the summer.  In fact, the volume and number of shares traded generally is less in the summer, as opposed to the beginning of the year.  But this year the trading has been especially slow.

What exactly, then, does this portend?

I suppose you could surmise that we will stay in a tight range of trading for the rest of the summer.  Volume is essential for any move, up or down.   For whatever reason, the general public doesn’t have much of an appetite for the stock market, and this understandable after the last year.  Many people lost large portions of their stock-based assets in the decline late last year and early this year, and there is a general mistrust of the regulation and operations of the equity markets.

Potential investors have also parted with goodly portions of their real estate equity as home prices continue to take a pounding.  Many experts continue to predict continued declines in upper end housing as the housing bubble unwinds the bloated prices of housing.

So maybe the current rally, which has been robust in terms of price gains, is about to take a breather and wait for new money to enter the market.  On the other hand, there are probably large stock gains waiting for profit taking activity.  I don’t make predictions on the direction of the market but some caution for longer term investors would certainly seem to be the order of the day.

The video is here:

Trading the ETF UNG