1. The private sector (particularly households) is overly indebted. The level of debt households now carry cannot be supported by income at the present levels of consumption. The natural tendency, therefore, is toward more saving and less spending in the private sector (although asset price appreciation can attenuate this through the Wealth Effect). That necessarily means the public sector must run a deficit or the import-export sector must run a surplus.
2. Most countries are in a state of economic weakness. That means consumption demand is constrained globally. There is no chance that the U.S. can export its way out of recession without a collapse in the value of the U.S. dollar. That leaves the government as the sole way to pick up the slack.
3. Since state and local governments are constrained by falling tax revenue (see WSJ article) and the inability to print money, only the Federal Government can run large deficits.
4. Deficit spending on this scale is politically unacceptable and will come to an end as soon as the economy shows any signs of life (say 2 to 3% growth for one year). Therefore, at the first sign of economic strength, the Federal Government will raise taxes and/or cut spending. The result will be a deep recession with higher unemployment and lower stock prices.
5. Meanwhile, all countries which issue the vast majority of debt in their own currency (U.S, Eurozone, U.K., Switzerland, Japan) will inflate. They will print as much money as they can reasonably get away with. While the economy is in an upswing, this will create a false boom, predicated on asset price increases. This will be a huge bonus for hard assets like gold, platinum or silver. However, when the prop of government spending is taken away, the global economy will relapse into recession.
6. As a result there will be a Scylla and Charybdis of inflationary and deflationary forces, which will force the hands of central bankers in adding and withdrawing liquidity. Add in the likely volatility in government spending and taxation and you have the makings of a depression shaped like a series of W’s consisting of short and uneven business cycles. The secular force is the D-process and the deleveraging, so I expect deflation to be the resulting secular trend more than inflation.
7. Needless to say, this kind of volatility will induce a wave of populist sentiment, leading to an unpredictable and violent geopolitical climate and the likelihood of more muscular forms of government.
8. From an investing standpoint, consider this a secular bear market for stocks then. Play the rallies, but be cognizant that the secular trend for the time being is down. The Japanese example which we are now tracking is a best case scenario.

But then, if it does break that, it may not be too rosy after all,

considering the rather bad situation viz the rotting $US ...

Oct. 1, 2009, 12:01 a.m. EDT · Recommend · Post:

No reason to be spooked by October this year

Commentary: But markets should be wary of Iran

By Robert Maltbie

LOS ANGELES (MarketWatch) -- While some might get spooked by an often-volatile October, signs are that the markets are in strong shape.

Just the facts: My indicators are as bullish as they have been since March 2003, preceding a 26% upside surge in equity averages that year. Four out of five of our market indicators are bullish and one is neutral.

Let's start with the bear case:

The market is fully valued at 17 times earnings and it is too late to get in the market. But price-to-earnings is a backward-looking measure. If we use projected forward estimates, a different picture emerges. If we value the S&P 500 using 2010 estimates, which call for a 20% or greater increase in earnings, we find a more reasonable price-to-earnings ratio of 14, far below 19 where the market topped in 2007.

   
TRADING STRATEGIES: OCTOBER
Will the bull survive?
October is best known for spectacular market crashes. At the very least, the month's volatility can spook many investors. But many of our experts say there's good reason to remain in the market, despite whatever jitters you may have.

• Karabell: What about the China effect?
• Is October correction inevitable?
• Time to take a stand on rally
•  Eliades: March lows may come back  
•  Hennessey: Not as bad as everyone thinks   

/conga/story/2009/10/trading-strategies.html 31978

As for our neutral indicators, they are "sentiment" indicators showing that volatility and possibly fear have greatly diminished. This is evidenced by the CBOE volatility index /quotes/comstock/20m!i:vix (VIX 28.27, +2.66, +10.39%) which has retreated to 23 from a high of more than 80 a year ago when we were in free fall. Offsetting this is a bullish AAII pundit survey showing investment advisors are bearish, perhaps bracing for "seasonal harshness," by 39% bulls to 45% bears.

Our remaining indicators are all currently solidly bullish -- technical indicators, monetary data, liquidity measures and valuations. Our Ouiji board swigglies and charts show positive, lead by a strong breadth and upside volume that is recently supported by expanding new 52-week high-to-low ratio.

A final anchor of positive support is that the Dow, the S&P and Nasdaq all have broken decisively above 200-day moving averages and held their ground. These are characteristics of a market with healthy internals, good days are better and exceed bad days and more stocks are starting to participate.

Monetary Indicators: This is our most powerful market force, also called "Don't fight the Fed." Money stock is expanding at near 8% annual rate. The real rate is higher considered against the backdrop of a deflating economy which is what we have had for nearly two years now.

The yield curve is also very steep and positive in its slope. This is a powerful 1-2 punch for the market, the fed is pumping money into the markets and economy and rates are staying low. These two factors have been important catalysts of every major bull market since 1920.

Liquidity or the directionality of money flows is another bullish sign that is just getting started. After freezing up with the cataclysmic events hitting markets over the last year, corporate M&A is rebounding, stock buybacks are returning, and money is starting to flow back into equity funds, including exchange-traded and hedge funds.

Big-time mergers by Walt Disney Co. /quotes/comstock/13*!dis/quotes/nls/dis (DIS 27.46, +0.10, +0.37%) , Abbott Labs /quotes/comstock/13*!abt/quotes/nls/abt (ABT 49.47, +0.79, +1.62%) and Dell Inc. /quotes/comstock/15*!dell/quotes/nls/dell (DELL 15.26, +0.12, +0.79%) are starting up again, as these and buybacks have pulsed to nearly $50 billion in September. Meanwhile, money markets have experienced a $54 billion outflow lately.

These add up to more than $100 billion in possible additional demand for equities. Offsets of insider selling and IPO issuance although increasing, are still at non-threatening or neutral levels.

Last but not least, we must not forget valuations. This is also bullish both on absolute and relative levels. While we are at the onset of a new recovery in earnings, more stable indicators such as market capitalization-to-GDP and price-to-sales provide evidence of reasonably cheap valuations.

The market is at a 20% discount to GDP and relative parity to sales. In 2000, the market traded at 1.8 times GDP and the price-to-sales ratio was 2.3. It seems we've worked off a lot of excess over the last 10 years.

Our relative valuation measures are positive lead by an earnings yield to quality corporate bond yield ratio of 1.2, a spread last see in 1982. Stockowners are getting paid or reinvesting back in the company more than high-grade bond owners, and stockowners should see this earnings stream significantly grow over the course of he next two years or so.

Also, cash dividends on the S&P at a 2.1% tax-favored yield far exceed treasury yields out to 10 years. Cap this off with the fact that the Leading Economic Indicators index is now at 104 following four successive monthly increases.

With easy earnings comparisons and no inflation on the near term horizon we expect the Dow Industrials to break 10,000 in October -- barring geopolitical events.

Robert Maltbie is a CFA and principal of Millennium Asset Management, a California-based registered investment advisor that provides investment management services to high net worth investors. He is also Managing Director of Singular Research, an alternative independent research provider focused on small cap stocks for institutional investors. See his Web site at www.stockjock.com.

Post:

Are you in the rally, or out of it?

Commentary: It's time to make a choice

By Tom Lydon

NEWPORT BEACH, Calif. (MarketWatch) -- These days, no matter what the markets do, there are still those naysayers who are sticking to their guns with admirable tenacity.

Heard any of these before?

"This rally is overheated."

"Any day now, the bear is going to be back."

"There's no way this is going to last. I'm staying out of it."

Despite a rally off the market's March 9 low that has continued with just a few pauses and hiccups, the skeptics are still out in force. How history repeats itself.

   
TRADING STRATEGIES: OCTOBER
Will the bull survive?
October is best known for spectacular market crashes. At the very least, the month's volatility can spook many investors. But many of our experts say there's good reason to remain in the market, despite whatever jitters you may have.

• Karabell: What about the China effect?
• Is October correction inevitable?
• Time to take a stand on rally
•  Eliades: March lows may come back  
•  Hennessey: Not as bad as everyone thinks   

/conga/story/2009/10/trading-strategies.html 31978

Missed opportunity

Big gains

Emerging markets: iShares MSCI Emerging Markets /quotes/comstock/13*!eem/quotes/nls/eem (EEM 37.95, +0.10, +0.26%) is up 84.1% off the market low

Steel: Market Vectors Steel /quotes/comstock/13*!slx/quotes/nls/slx (SLX 50.31, -2.42, -4.59%) is up nearly 130% since the low

Basic materials: iShares Dow Jones U.S. Basic Materials /quotes/comstock/13*!iym/quotes/nls/iym (IYM 52.62, -2.18, -3.98%) is up nearly 90% since the low

Banks: Financial Select Sector SPDRs /quotes/comstock/13*!xlf/quotes/nls/xlf (XLF 14.29, +0.01, +0.07%) is up almost 140% since the low

Real estate: iShares Dow Jones U.S. Real Estate /quotes/comstock/13*!iyr/quotes/nls/iyr (IYR 40.91, +0.05, +0.12%) is up almost 90% from the low

There's no way to predict whether this rally really has legs longer than a supermodel's, or whether it's going to stop short tomorrow. If you make the decision to begin taking part in it today, look for those spots trading above their 200-day moving averages and protect yourself on the downside with a stop loss.

Otherwise, sit back and enjoy the ride.

Tom Lydon is the editor of ETF Trends and president of Global Trends Investments, an investment advisory firm. Website is at www.etftrends.com .

Post:

Is October correction inevitable?

Commentary: Not if you study patterns of crash years

By Ethan Anderson

GRAND RAPIDS, Mich. (MarketWatch) -- Most investors seem braced for a big correction, but in my experience the majority is usually wrong.

In order to predict the future, one must consider the past and research similar market cycles to come up with a probable forecast for the future. After studying comparable periods to the one we are experiencing today, investors will realize that an October correction is not likely.

Consider the following:

We have not yet recovered fully from 2008. The market rebound after the crash of 1987 did not see a correction of 10% until 1990, which is more than two years later. Moreover, that correction was after "only" a 35% drop from top to bottom. At present, we are only six months removed from a 55% drop in the market.

   
TRADING STRATEGIES: OCTOBER
Will the bull survive?
October is best known for spectacular market crashes. At the very least, the month's volatility can spook many investors. But many of our experts say there's good reason to remain in the market, despite whatever jitters you may have.

• Karabell: What about the China effect?
• Is October correction inevitable?
• Time to take a stand on rally
•  Eliades: March lows may come back  
•  Hennessey: Not as bad as everyone thinks   

/conga/story/2009/10/trading-strategies.html 31978

On the fixed income side, TIPS is a good way to get some income and inflation protection. The Fidelity Floating Rate Bond Fund /quotes/comstock/10r!ffrhx (FFRHX 9.32, -0.01, -0.11%) still looks attractive. Blackrock Global Allocation /quotes/comstock/10r!mdlox (MDLOX 17.30, -0.25, -1.43%) is a wonderful fund with multiple asset classes.

For equities, Tom Soviero and some of the rest of the folks over at Fidelity Leveraged Company Stock Fund /quotes/comstock/10r!flvix (FLVIX 25.65, -1.12, -4.18%) are some of the best in the business, as is the team running the Kinetics Paradigm Fund. /quotes/comstock/10r!wwnpx (WWNPX 19.19, -0.57, -2.89%)

In conclusion, it is inevitable that a correction will occur in the market at some point, but research shows that an October correction is unlikely. A 3% to 5% pullback is conceivable for October, but do not prepare investments for a major selloff. You will regret it.

Ethan Anderson is a senior portfolio manager with Rehmann , one of the largest accounting, financial services and consulting firms in the Midwest. Anderson sits on Rehmann Financial's Investment Research Committee and has been recognized as a "5 star" portfolio manager by Morningstar Inc

For people who are reading and following my picks and advise . Congrats . You should be having a good gap from the price u bought the share till today . For those who isnt much risk taker might consider taking profit later as there might be downside in US tonight . BUt i dont foresee STI to be badly hit by that . So i will still suggest you to hold your winning ticket  :)

For people who has been following me for the past few days . Hope u all have earn quite abit . DJow has continue its Gain from yesterday with alcoa up nearly 4 % before profit taking . For those people who has listen to me and bought on monday . U are having a winning ticket . There may be some downside for US market tonite following By 2 days of rally . People might take profit after the annocement of the quarterly result by alcoa . BUT its all normal . Dont panic . Its still well on the upward track . HOLD your winning ticket . There are still room to go up for Djow . Which STI will keep in pace with .