Proposed Obamacare and Hillarycare: Déjà Vu All Over Again?

Excerpt from Raymond James strategist Jeffrey Saut's latest essay, published Monday (July 27th):

Last Friday, a Capitol Hill insider sent me the nearby schematic of the proposed Obama healthcare plan. According to her, said schematic is trying to be repressed for obvious reasons. As I sat there, attempting to decipher it, I was reminded of a similar schematic I used in a report titled “Crystal Clear?!” back in 1993. At the time “Hillarycare” was in full regale and equally complex.

Amazingly, the two schematics are strikingly similar. As I sat there contemplating the two, my phone rang. It was Helen, a long-time observer of the “Washington Waltz.” “Isn’t it interesting,” she began, “that Obamacare is so akin to the Hillarycare of yesteryear?” With that, I emailed her the two schematics. Upon receiving them her response was, “Is this “Déjà vu All Over Again?!”

Clearly, that’s a great question, for the proposed Hillarycare plan was potentially a disaster. So I asked Helen if we were destined to go down such a precarious road again. Her response was that Obamacare, as currently proposed, is “DOA” (dead on arrival). She went on to espouse that there are too many politicians, corporations, and “grass roots” objections to such a plan, which was why it was delayed last week.

Verily, “slow down you move too fast” (thank you Simon and Garfunkel). And, maybe that is why some of the healthcare stock sprung to life. As an addendum, Helen noted many of the smaller banks have nefarious “off balance sheet items” that are going to be brought back onto their balance sheets, thereby causing numerous bankruptcies. Accordingly, she continues to counsel being very selective on financial stocks.

While the President’s healthcare setback was a major topic of the week, by far the most ubiquitous question I received was about the notion that a Dow Theory “Buy Signal” was registered last Thursday. Consequently, in Friday’s verbal strategy comments I stated (repeated in writing due to popular demand):

“My phone lit up Thursday (7/23/09) with the question, ‘Hey Jeff, did we get a Dow Theory buy signal today?’ My answer to that question was a resounding – ‘Well, it depends on who you are listening to. If you listen to Richard Russell, long time keeper of Dow Theory, the answer is, yes.’ Indeed, Dick Russell is using the June closing reaction ‘highs’ of 8799.26 (6/12), and the June 11th close of 3399.88, for the DJIA and DJTA, respectively. He observes those levels have now been bested and therefore has replaced the ‘Bear Figure’ at the top of his market letter (it has resided there since December 16, 2008) with a ‘Bull Figure.’ Now, I have a great deal of respect for Dick, having read his missives on and off since 1971. I particularly remember his brilliant ‘call’ on the beginning of a new Bull Market in December of 1974 when he targeted the ‘low’ and opined that the Bull Market would be led by the steel stocks. That was indeed prescient as US Steel gained nearly 300% over the next year.”

“However, I have basically stopped reading Richard Russell since turning table-poundingly bullish the week of 3/2/2009, although I am certain I will read him again. As well, I curtailed reading all bearish pundits, not wanting to be influenced away from my own bullish leanings. And, even though Dick has put the ‘Bull Figure’ back in the box, listen to these ‘two handed’ comments from his letter of last Thursday (7-23-09):”

“‘The question – what are the Transports telling us? And my answer is ‘who cares?’ In the great majority of instances, we don't know the reason why the stock Averages are doing this or that. We follow the Averages blindly (via Dow Theory) the way a blind man follows his Seeing Eye dog. It’s clear to me that we are in a rally within a secular bear market (some will call it a cyclical bull market). In other words, it's coming within the confines of a long-term or secular bear market. Old timers saw this same situation during the 1966 to 1974 bear market. At that time we saw a series of cyclical bull markets, all coming within the framework of a long-term or secular bear market. In the end, that secular bear market ended the way most bear markets end – amid black pessimism and with blue-chip stocks (selling) at great values or ‘below known values.’ What was missing at the March 9 lows? Extreme pessimism was absent as were the great values in blue-chip (and) dividend-paying stocks sporting yields of 6% to 10%. One thought continues to haunt me. Can a 27-year bull market (1980 to 2007) be corrected by a two-year bear market? Most bear markets have tended to last from one-third to one-half as long as the preceding bull market. In other words, the bear market that started in 2007 did not last as long as I would have expected, nor did it produce the great values at the bottom that I would have expected. However, we take what the market gives us, but we also have free choice. We don't have to swing our bat on every pitch. The market will always be here and we can choose the pitches we want to swing at.’”

As much as I respect Dick Russell, those words are indeed reminiscent of the proverbial two-handed economist. To wit, “On the one hand this could happen, or on the other hand this could happen.” Moreover, he has basically missed the entire rally from the March 6, 2009 “low” of 666, basis the S&P 500 (SPX/979.26), into last Thursday’s yippee-yahoo high of 979 (a 47% gain). Additionally, we think the bear market actually began with the Dow Theory “Sell Signal” of September 1999, which would certainly satisfy his “duration” requirements. So, we take his newly found “Bull in the Box,” cyclic Bull Market within a secular Bear Market, comments with a grain of salt.

Meanwhile, you should know that while we have been bullish since March 2, 2009, we have always noted that while we think this is a new Bull Market, we are leaving that official macro “call” to OUR interpretation of Dow Theory. As stated, by our pencil for that “call” to be made requires the DJIA and DJTA to better their respective January 6, 2009 closing highs of 9015.10 and 3717.26. The DJIA did just that last Thursday, but the Transports are / were a large 181 points away from confirming. Regrettably, even if the Transports eventually confirm the Dow’s stampede, our guess is so much energy will have been expended on accomplishing that feat, the stock market will be a short-term “sell” on the event.

Even more worrisome, the Transports could fail to confirm the upside, leading to a giant Dow Theory non-confirmation. So, if you didn’t “buy ‘em” on our “trading call” of Tuesday two weeks ago (7/14), or “buy ‘em” on the reiteration of that “call” early last week, the only way we would buy the indices right here is with an appropriate short-term downside hedge. That said, if you have to buy something, we still like GaveKal’s “bull call” on Japan. For our purposes, we are using the closed-end funds of Japan Equity Fund (JEQ) and Japan Small Capitalization Fund (JOF), both mentioned in last week’s letter, and both breaking out in the charts to the upside. As always, the terms and details for these “investment positions” should be checked before purchase.

In conclusion, we find it interesting that when President Obama took office, vehemently voicing his three major tenets of “Healthcare,” “Cap and Trade” and “Card Check,” the equity markets experienced a mini-crash. However, when he began “softening” his approach to those tenets the equity markets have rallied. Our sense is all three tenets will fail in their current form; and that, ladies and gentlemen, is one of the reasons the equity markets have rallied over the past few weeks. Our hunch is the SPX will now “rest,” oscillating between 940 and 980 as the overbought condition is worked off and our indicators re-energize themselves, and then rallies again toward our long-standing target of 1050.

The call for this week: Over the weekend the astute Lowry’s service wrote,

“The rally from the March lows has consistently conflicted with the probabilities drawn from our history since 1933. For example, this is the first time in 76 years in which an almost five-month rally has occurred on diminished volume. This is also the first time that such a rally has occurred with our Buying Power Index dropping to new lows. . . . (But), the ‘All Issues Index,’ as well as the S&P 500, have rallied to new reaction highs. (And), our Average Power Rating Index rose to a new high!”

Meanwhile, earnings revisions are now positive for the first time since August of 2007, money market funds are still 36% of market capitalization, and corporate profits have surged due to productivity improvements. Accordingly, despite the fact that 85% of the S&P 500 stocks are above their 50-day and 200-day moving averages, and are consequently overbought, we remain constructive and think the S&P 500 will vacillate between 940 and 980 for awhile and then re-rally.

Hillarycare

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Obamacare

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Comments

[atlasman:]

"I've had people come to us and complain, "Well, if you do that, I can't make any money." The answer is that's not my job. We're not here to help you make money. We are here to help have a system in which you will make money as an incident of your providing funds to those who will use it productively."
-B. Frank

I guess Obamacare is what Mr. Frank believes is a productive use of our tax payer funds.
-AM

Jul 28 07:35 AM

[billt431:]

As the Congressional Summer Recess is winding down, socialist Democrats may be thinking that the worst is behind them when it comes to having to face their constituents and explain their support of socialized medicine, aka Obamacare. They are wrong. The tea parties are back and Obamacare has been invited to each and every one of them. The same groups who made the "tax tea parties" possible in April are organizing anti-Obamacare tea parties in all 435 congressional districts for this weekend. For information on the tea party in your congressional district visit, recessrally.com.
Bill
theconservativenation.com

Aug 21 11:27 PM