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U.S. Credit Rating Is In Danger

Unless you’ve been living under a rock for the last year or so, you are aware of the United States federal government has been trying to raise the debt ceiling to cover their cost of running the country. During that time, credit rating companies, Moody’s, Standard & Poors and Fitch have been debating whether or not to lower the credit rating of the U.S. from it’s current (and long time) rating of “AAA” to something else.

Congress and the Obama Administration have been wasting time of the last three months that has now left little chance of the country’s rating to stay the same. Last October, S&P wrote that they were keeping a stable outlook on the U.S. “AAA” rating on the ground of the current entitlement spending pressures wouldn’t really affect the country in any big way within the next three to five years. Then in April, S&P shocked Washington as well as Wall Street by changing their views and putting a negative outlook on the U.S. rating, saying that there was a one-in-three chance of a downgrade withing two years. It didn’t end there, last week Standard & Poors announced that there is a 50% chance that the credit rating could be downgraded within three months.

All three agencies agree that the U.S. must undertake a major deficit-reduction effort for the near term to stabilize debt levels and to preserve it’s credit rating. The reason for the quick deterioration of the agencies outlook is mainly because of the concern they have of Congress and the Administration not being able to work together. The federal government has forgotten how to work together. The political divide has grown too much to the point where the credit agencies wonder if they’ll be able to work together on other fiscal issues in the future. It doesn’t help that Congress hasn’t put forth a budget for over 800 days.

Even though Moody’s give the U.S. a little more room before they would lower the country’s rating, that’s because of the United States’s reserve currency status. S&P said that if the U.S. rating is downgraded, the country may see interest rates climb 25-50 basis points and reduce GDP by a similar amount.

For those of you who feel like I do about the stability of the country’s economic position, I’ve been increasing my position in the precious metal/commodities sector. I’m not sure if the federal government will ever do the right thing.

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Economic Recovery?

The Federal Reserve Chairman Ben Bernanke stated today that the economic recovery is sustainable. Along with the news of retail sales are up in the last month, one would think that this is the time to get in on the stock market. Well before you do, you need to be aware of a few things first.

The stock market (Dow Jones Industrial Average) has reached a new twelve month high after climbing 12% over the last two months and over 40 % year-to-date. Those are some great impressive gains, but does that mean that the markets will continue on this upward path? Well that’s anyone’s guess.

The last time the Dow was at these levels along with the S&P sitting at 1200, was in September of 2008. You have to ask yourself, “What was the condition of the economy in September 2008?” I did some research into this issue and found that this might not be the time to invest in the stock market.

In Sept., 2008, unemployment was at 6.2%. The foreclosure rate hasn’t slowed down. It’s estimated that 1 in every 538 homes are in foreclosure as of march 2010. The Federal reserve has printed so much more U.S. currency that it’s not even funny.

My point being that you should be waiting for a healthy pull back (8%-10%) before investing any capital.
You also have to look into the future of the economy too. Economics believe that the unemployment rate will still be at 8.4% at the end of 2011. Home prices will remain at near flat levels for the next two years. They also expect the economy to only grow 3% in 2010.

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New Home Sales Report For July

Yesterday the news came out that new home sales jumped 9.6% for the month of July. It was the fourth straight increase in sales. Sales rose to an annual rate of 433,000, up from June’s rate of 395,000. Many are saying that the bottom is definitely in and now is the time to buy, but is that really the case.
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Yes, sales are up more than 30% from the bottom in January, but nowhere near the peak of four years ago. Of course that’s was because of the inflated bubble that was created by the Fannie Mae and Freddie Mac sub-prime loans.
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So does this really mean that the bottom is in and we can expect the economy to turn around? I doubt it. Why I think that is because of the fact that the numbers are (I feel) are mis-leading. Many of the new home sales that have been happening in the last month or so were first-time home buyers. That’s because of the government’s incentive plan for first-time homeowners who qualify for an $8000 tax credit. That in itself is misleading on the fact of it’s a tax credit, not a rebate. Which means of you don’t have enough of tax liability, you won’t be able to write off all of the $8000.
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What does that mean for the industry? Well, home builders saw a jump in their stock price today, but will it be able to maintain those levels? I doubt that too. mainly because when the program will be terminated at the end of November. I believe the market will dry up again with sales. As it is, some builders have already seen a dip in home sales. In Arizona, A.F. Sterling Homes stated that sales in July stalled because the builder couldn’t guarantee the homes would be completed in time to qualify. The industry (real estate agents and builders) are really leaning on Congress to extend the the credit on the grounds of the sales could reverse from their current trend. As a matter of fact, Randy Agron, the vice president of A.F. Sterling Homes was quoted as saying “The real estate market is really a fragile thing. It’s not the right time to take (the tax credit) away”.
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With that in mind, do you really think the bottom is in? It has been proven in the past that when the government gets involved with trying to “save” the economy, it actually extends it by not letting the free market follow it’s natural course. With this program as well as the financial bailouts and “Cash For Clunkers”, we have three major industries being manipulated within the American economy.
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All I can say is…hang on, it’s going to be a bumpy ride.

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The Dow At 9000, Where Do We Go From Here?

Who would have thought that this could have happened so soon? Either way, it was reached. The DOW close above 9000 (9069.29 to be exact). The S&P 500 has been on a tear, closing at 976.29. Lets not forget that the NASDAQ is now at 1973.60. The past two weeks of trading have been great for the markets.
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With that being said, what are we to expect in the coming weeks? If you’ve been listening to the talk on the street, you’ve heard both sides of the possibilities. “It’s only going to get higher” or “the markets are going to correct themselves”. Those are the only two choices.
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After listening to all the opinions that where flying today, I would have to agree that the markets are due for a correction. How can it not? I don’t know about you, but I don’t really see a reason to be all optimistic about the stock market. Add on to the fact that many traders and investors have made a lot of money in the last four months. There will be some profit taking very soon.
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With all the talk about health care and the Cap and Trade bill, if these two bills pass, corporations are going to find it hard to keep making the earnings that the investors want to see. The taxes that will be imposed onto these industries are going to break them as well as the country’s GDP.
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In the last few months I’ve made some great gains in the markets and I’m not willing to give them back anytime soon. At this time I’m sitting more than half my portfolio on the sidelines, while I wait for the other shoe to drop (and it will). Don’t get me wrong, I do believe that there will be some gains to be made in many other sectors and that’s why I’m watching the tech sector. They (tech sector) don’t have the government issues to deal with, like most of the others ones.
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Which ever way you plan on playing the markets in the coming weeks, do your due diligence.

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Second Quarter Earnings Report Season

It’s that time of year again that comes every three months. That’s right, it’s time for earnings reports. Alcoa (NYSE:AA) is the first company to come out with their results for the second quarter for 2009 (actually it’s just that they are the biggest company to report). Alcoa will release their report after the closing bell on Wednesday July 8th.
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After last week’s debauchery, who really know what to expect. I not expecting anything good from any one company, so I will be watching the companies that I favor to buy on the dips. I’ve again back out of a lot of the positions I had in the past couple of weeks, so I’m in a good position to pick up some of the companies I was in at a lower price. Unfortunately, I’m not all that comfortable with the way the government and the Federal Reserve are handling things right now, that I just might sit out for the next month or so.
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Of course with me doing that, I just may miss out on some great moves, but when in doubt, sit it out.
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On Thursday the DOW lost 223 points. It started off bad in the morning and was pretty much steady all day until the end when the rest of it fell out. The whole week was trading on light volume, which makes it hard to really see which way the markets could have gone. It’s not easy to get a feel for the markets during a holiday week.
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I will wait until tuesday to get a feel for the market tread, but the way the markets have been lately, it’s doesn’t stay one way or the other for long. Take your time and do your research carefully, like you should do all the time.

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Finance, Energy And Politics, Oh My

It seems that the stock market doesn’t react the way it should when important economic news is released. Over the last two months there has been negative news reports released that would normally cause the indicies to drop, but instead they have responded in the opposite manner.

The same goes for the good news that is also released. Look at how the news came out yesterday about the billions of dollars that will be paid back by ten of the major banks. You would think that the news would make investors and traders want to invest in these companies, making the price rise, well it’s wasn’t the case. As a sidebar comment, It amazes me that the money isn’t being returned to the Fed’s, instead it will be held by the Treasury Department just in case it will be needed again. My opinion is that the money will be used in the department’s slush fund and never returned to the tax payer.

The talk is out again about drilling in the Gulf of Mexico. The talks should have never halted. How are we to ever take control of our economy if we are depending on foreign countries to supply us with our energy needs? Oil is abundant in the gulf and we are not taking advantage of it, but I guess it’s OK since Russia is working with Cuba to drill in the gulf. That’s real good that they are doing so, this way they can also sell oil to us and we won’t be dependent on the Middle East. If you’re not sure, that last comment was a sarcastic one. Keep an eye on the alternative energy sector for some good gains. When oil gets above $70-$80 per barrel, solar and wind energy becomes more feasible and profitable as an investment.

The politicians are not doing the job that they were sent to Washington to do. The spending in this country is way out of control and needs to be pulled back. The private sector has to take charge of their future. We can not expect the government to come to their rescue. If the company can’t make a profit, then it needs to close no matter how many people it will affect. In the long run, having the Federal government get involved will only hurt more than it would have originally.

Keep your eyes on the stock market and be ready to raise capital (cash). I expect a pull back soon enough.

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Bear Market Rally

What a week this has been for some great gains. Just more to add to the already increasing portfolio since the DOW hit the 6500 range. On March 9th the DOW was at 6547.05. In less than three weeks the market now sits at 7924.56 going into Friday morning trading. I don’t know about you, but if you haven’t taken your profits and locking in those gains, you are just being greedy.
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Everything points to this movement to be nothing but a bear market rally. In the last three weeks the Dow increased 18% while the S&P 500 and the NASDAQ jumped 20% during the same period.
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We are not out of the woods yet. The economy is still in disarray and current Administration doesn’t have all the answers. Whatever the reason for the stock market performance, it’s not going to last or even to be able to sustain these levels. Just because Jim Cramer has stop screaming “the sky is falling”, because he says the “Great Depression II” is off the table. Remember that after the initial crash in 1929 to the actual “bottom” in the stock market, there were quite a few bear market rallies.
Yes, the prices of stocks fell over the long three years, but in between those years there were times when the market experienced a nice 10% to 20% gains in relatively short periods of time, only to drop back down to it’s bottom or even lower levels.
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I’m quite happy with the 22% gains I’ve made this month. I started scaling back my position and taking profits on Monday. The prices of the stocks have continued to climb after I sold many of the shares. I’m not going to get greedy and think about if I didn’t sell any of the shares I would have had more profits than just 22%.
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No one can ever predict a “bottom in the market or in any one stock, the same goes for trying to do the same at the “top”. The whole idea to never buying all your shares at once is to lower your dollar cost average. The idea of scaling out of a position is to secure your profits.
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Be ready for the pull back in the stock market as it’s exactly what I’m expecting to happen in the next three weeks. I’ll pick up the same shares I sold, but at a lower prices.

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Pork Barrel Spending Stimulus Package

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The stimulus package was passed last week and Wall Street is letting Washington know that they are not happy. Since the package was passed, the DOW has dropped nearly 500 basis points, reaching a twelve year low of 7077.35 and closing at 7114 on Monday.
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The current stimulus package will cost American tax payers $778 billion. That’s after they’ve cut out all the unnecessary spending that was originally in the plan. Unfortunately, the Democrats that control the House are now in the process of passing another bill that will add up to about $410 billion in what they are calling “needed to fill the gaps that the first stimulus package left out”.
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This administration has only been in office for one month and they have already passed bills that will spend more money than the previous one did in it’s last year. Something that this administration campaigned on not doing.
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All this spending is going to have to be covered by some sort of tax increase and the one that will be hit first will be the capitol gains tax. It presently sits at 15%, but as President Obama stated on the campaign trail is that he feels that it needs to be raised to 25%-30%. If that is to happen, then expect the stock market to drop well below the 7000 mark.
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As this administration start to show their true agenda for this country, Wall Street will have no choice but to pull out their money to avoid unnecessary tax burdens.
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As for the economy, it won’t be any better. How can a company increase their profits, as well as their work force, if they become more tax burdened. If a business can not make a good profit, it will not attract stock holders. It all ties into one another.
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For the last couple of months, I’ve only been trading stocks that have taken a beaten because of the market as a whole has dropped. I don’t have the confidence in the stock market any longer and will do what I can to pull out the capitol that I have out of it. I stated before that I don’t typically short stocks and in times like this it too doesn’t sound like a great idea, but in bad economies, it’s much easier to make a profit shorting stocks than it is to go long.
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Whatever you decide to do with your trades, be aware that this economic turmoil is far from over.

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The Stimulus Plan Doesn’t Stimulate Anything

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Well, it’s been three weeks since Obama has taken office and he’s already having a hell of a time trying to get his administration candidates approved as well as the stimulus package. To top it all off it seems that Wall Street along with Main Street have not confidence in the new President.
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The Dow had a horrible day today because of all the “politics as usual” mentality going on in Washington. The government laid out it plan for the financial bailout which basically told us nothing in regards to specifics. It seems that all that Tim Geithner told everyone was that the government will spend more than $1 trillion in private and public support, but really nothing else.
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Wall Street went on a selling spree to unload many stocks to take refuge in safer investment like gold and bonds. The DOW fell 382 points today which is over a 4.5% drop.
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The Treasury’s plan is to restore the credit markets. To work towards removing the bad assets from the bank’s books. They also state that it would help open the path for consumer and business loans. If it is anything like the first TARP plan, they know that they’re going to spend $1 trillion, but they have no clue as to how they’re going to spend it.
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All I got to say is that after last night press conference and today’s treasury announcement, they’re proving to me that this administration has no idea on how to fix this problem and take care of their lobbyist and other cronies at the same time. It’s sad to think that if they really wanted to end this nightmare of a recession, all they have to do is stop the federal spending, cut the taxes and the rest will take care of itself in a short period of time.
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Why would the government need to raise taxes if they aren’t spending as much money? If they have to cut jobs, so be it. If the corporate taxes were less along with payroll taxes, companies would be able to hire the people they would be laid off from the federal jobs that were cut to save on spending. I’m not a genius, but it doesn’t take a rocket scientist to figure that out. Go to any Ivory league college and ask an economic professor and they will tell you the same thing. The less they spend, the less they will need to raise taxes.
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As for the stock market, the DOW close at 7,888 and at this level it’s nothing but a buying opportunity for traders who are looking to a few good deals. Do your research and buy incrementally.
Happy trading.

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Automakers Running Out Of Gas

On Capitol Hill the battle heats up as the U.S. automakers sit idle and wait to see what their fate will be. The Republicans are fighting the bill which will not give the Democrats enough votes to pass the bill.
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I agree that they industry shouldn’t be bailed out of the mess that they along with the UAW created. If you follow this blog or have read my previous post on the issue, you know that I say if you can’t run a business properly and profitably then you should be in business.
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Needless to say that the stocks are being hammered today because of the uncertainty of the situation. Which makes it a great buying opportunity for the preferred stocks of GM and Ford. I suggest that you don’t buy it unless you believe that the bill will get passed eventually.
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I’m sure that many of you have been watching this intently to see the outcome, if you have been seeing the whole picture through open eyes and with an open mind you will see that the companies have done this to themselves with the help of the UAW.
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Watch this video and you may see why I feel the way I do about unions and why I feel that they are destroying this country.
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