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Weekly Market Wrap Up - 10/31/2010

Happy Sunday and Happy Halloween!  Drinking my cup of coffee and wanted to drop my weekly market wrap up for you.  This will be my first posted on SA, thanks for reading (if anyone actually does read it!)   LOL

Fundamental economic data has been completely thrown out the door these past couple months due to the federal reserve coming to the rescue with QE2.  As a result, commodities have been sky rocketing sending input prices to many companies way up.  This will cut into their margins and inhibit any kind of hiring.  This is one unintended consequence of printing money:  It takes more dollars to buy less.  As a result, we saw a little back peddling going on as to how large the additional QE is going to be.  We find out for sure next week. Until then the markets are going no where fast.

We saw one of the biggest Octobers for the market, gaining the most since 2003 despite all this bad macroeconomic data.  But with QE, bad news is good, bring on the printing!   We need stimulus!!  Despite such a huge rally over Sept and Oct, the overwhelming volume of corporate insider **selling** during the last six months is the worst we've has ever seen: 120M shares sold vs. 38,000 bought. Clearly, insiders are seeing great value only in cash. What do they know that we dont? 

The G20 met this past weekend with Geithner as our representative - Gee, great!  His broad message to Asian nations was to reduce their surpluses.  We have been going back and forth about China's huge trade surplus.  The irony of this is if they actually took Geithner's advice,it would take them to stop selling us as much of their production. If they cut down their trade surpluses, it would raise prices because of less supply of goods shipped to be sold here in the US.  Since we produce nothing, we rely on the manufacturing from abroad.  Asians make everything we buy.  Do we really want supply of consumer goods to be smaller so prices rise?  Yet another unintended consequence maybe not thought about.  Gotta love the geniuses that run this country.

We are looking at the more productive nations as though they are the problem. However, we are the problem consuming more than we can afford.  With 0% interest rates and quantitative easing, Americans are going to be incentivized to purchase things, not save.  GDP for Q3 was reported at an anemic 2.0% growth, and these are always revised downward.  The portion of private capital investment was extremely low while consumer spending was a bigger portion of that 2.0%.  So we are spending more money, but capital investment is way down.  That's the wrong direction.  We have too much spending and not enough saving, but this is what the federal reserve wants with 0% interest rates and QE.

The biggest alarm in my opinion about the G20 summit is that they are not going to intervene to prop up the US dollar like they've done in the past.  They usually do this, however this is the first time they are going to allow the market decide the value of currencies.  This is wildly bearish on the USD, and why you're seeing all currencies hit record highs against the USD.  Look at the price of commodities like cotton (doubled in price since April 2009).  They will continue to rise long term when valued in the USD, while going down for other countries paying in other currencies.  This trend is going to continue, and may lead us into a currency crisis where our money now buys 40-50-60% less that it used to.

Finally, GDP for Q3 was reported at an anemic 2.0% growth.  Let me emphasize this, if our country is borrowing money at any interest higher than 2% (which we are), this "recovery" means nothing unless we can grow faster, or debt interest payments will eventually become a drag on the economy when interest rates go even higher.  It only makes sense to borrow money to invest in your country if you foresee the return on the investment being higher in percentage terms than what you borrowed at.  Cash for clunkers, home buyers tax, and other bullsh!t programs are not investments.  They have blown the money from the first stimulus, and now on to stimulus #3 digging us even deeper in the hole.

Elections are coming up, please vote for those who address budgeting.  We may need to spend now to invest in the future, digging us deeper into debt short term..but I'm not even seeing a **plan** put in place from either side of the aisle, and it's disturbing.  I want to know what the plan is, not what you're going to do short term.   If your going to spend more, how are we spending it and how do we make up for this?  How is this "investment" into our future help us?  If you want to cut gov't, and spend less, how does that affect revenues, and how do you plan for that?  We deserve a plan, not politics as usual.

To add one more tid bit, as long as we have no manufacturing here in the US, our dollar is a bottomless pit and squandering opportunities of preserving domestic wealth. One example of a squandered opportunity: Out of all the cell phones t...hat are sold here in the USA, **NOT ONE** is actually manufactured here. I know we all upgrade our phones at least every 2 years, IF NOT EVERY YEAR! Those are jobs we should be keeping here. Consumer goods like clothing, shoes, computers, TV's, the things we use day after day should be made here. Washington should incentivize companies to manufacture here, not abroad, and this would close that trade deficit we have which negatively impacts our GDP and ultimately the dollar. Obama et al are making the same mistakes that Bush made, only on a much larger scale. Bush: 1% interest rates, Billions in stimulus created a real estate bubble Obama: 0% interest rates, Trillions in stimulus and its my opinion he's creating a gov't bubble. We will see that burst when interest rates go higher than 2-3%.

Why would home owners LOCK in 4% interest rates for 30yrs and think that was such a great deal, yet Obama and gov't only sell debt at 1-2 yr clips?? Isn't 4% record lows?? Answer: They can't afford the interest payments at 4%. Much like... adjustable rate mortgage owners, when these rates start to rise due to lack of demand for treasury bills, our interest payments on the national debt go from $300B to $1.5T. This would be a huge drag on a fragile "recovery" but there is no recovery....and when the gov't bubble pops, who knows what happens. Get out of the USD, smart money is! It's easier now than ever before, get your 401Ks in commodities, other currencies, companies that are not domestic and pay dividends in other currencies. It's easy to escape the dollar these days, just think outside the box.

Quick final note, the market sentiment is as bullish as it's been in 2.5 years
Contrarians to the down trend are making out fat in this up trend.  I'm now picking and choosing my shorts.  NFLX @ 181 covered friday for 5% gain.  Short LCC@11.44, 11.71 &12.21 - still holding.  Sold ABX@47.70 & GDXJ@35.35 friday for 4-5% gain. Holding MSFT & VZ, about 40% cash now. I'm feeling a sell day coming.

Disclosure: MSFT, VZ, ABX, GDXJ, LCC, NFLX