Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Markets at Cross Roads On Stimulus Plan

Stock-Markets / Financial Markets Jan 26, 2009 - 03:02 PM GMT

By: Chris_Ciovacco

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleProposed Economic Stimulus Plan May Not Stimulate Much

The new administration is proposing an $825 billion "stimulus" plan. Most of the package is geared toward helping existing or expanded programs such as unemployment assistance, law enforcement, food stamps, etc. Much of this spending will "save" existing jobs or keep existing programs already in place. This may help prevent things from getting worse, but it will offer little in the way of providing new stimulation for the economy. Another large portion of the stimulus plan is in the form of tax cuts. While depreciation incentives may spur some new business spending, credits to individuals may offer little incentive to spend given the state of their balance sheets and concerns about employment. After all the hype about infrastructure spending, only about 25% of the package is geared toward this area.


Tug of War Between Liquidity and Economic Weakness

The chart below was created on the website of the Federal Reserve Bank of St. Louis. It shows the eye-popping expansion of the money supply as financial institutions have swapped securities and other "assets" for cash via borrowing from the Federal Reserve. Borrowing prior to this crisis is barely visible on the graph. Recent borrowing is an extreme example of the term "spike" on a graph. Despite the never before seen tapping of the Fed, financial assets show little evidence of reflation taking place.


Borrowing From FED

U.S. Stocks: Downtrend Remains In Place

If you compare the long S&P 500 ETF (SPY) to the short S&P 500 ETF (SH), it is clear the short side of the market is in better shape. There is little in the way of fundamentals, except hope of government bailouts, to expect any change to these trends.


S&P 500 ETF - SPY - Long

Recent weakness in the S&P 500 Index leaves open the possibility that we will revisit the November 2008 lows around 740 (intraday). If those lows do not hold, a move back toward 600 becomes quite possible. On Friday (1/23/09) the S&P 500 closed at 832. A drop back to 740 is a loss of 11%. A move back to 600 would be a drop of 28%. These figures along with the current downtrend highlight the importance of principal protection and hedging strategies. SH, the short S&P 500 ETF, can be used to protect long positions or to play the short side of the market.

2009 Investing Deflation Inflation Outlook Strategy

Gold & Gold Stocks: Moves Impressive, But Still Face Same Hurdles

Friday's big moves in gold (GLD) and gold mining stocks (GDX) have some calling a new uptrend. While recent moves have been impressive some hurdles remain.


Gold At Important Levels

Gold stocks (GDX) look a little stronger than gold, but any entry in the market should be modest in size. If $38.88 can be exceeded, our confidence would increase and possibly our exposure.

2009 Investing Deflation Inflation Outlook Strategy

Run In Treasuries Is Long In The Tooth

Investments with the highest probability of success are those with positive fundamentals and positive technicals. Conversely, the least attractive investments have poor fundamentals and poor technicals. With the U.S. government issuing new bonds at an alarming rate, a continued deterioration in the technicals could signal the end of the Treasury bubble.


2009 Investing Deflation Inflation Outlook Strategy
TBT offers a way to possibly profit from the negative forces aligning against U.S. Treasury bonds.
2009 Investing Deflation Inflation Outlook Strategy

Strength In Bonds Shows Little Fear of Price Inflation

The government's policies are attempting to stem the tide of falling asset prices. They hope to reinflate economic activity along with asset prices. The charts here show:

  • A weak stock market (see SPY above), and
  • An improvement in many fixed income investments (below: LQD, AGG, BMT, PHK, and AWF).

Weak stocks and stronger bonds tell us the government's reflation efforts are thus far not working. If concerns about deflation remain more prevalent than concerns about inflation, fixed income assets may offer us an apportunity. With money markets, CDs, and Treasuries paying next to nothing, we may be able to find improved yields in the following:

  • LQD – Investment Grade Corporate Bonds
  • AGG – Investment Grade Bonds – Diversified
  • BMT – Insured Municipal Bonds
  • PHK – High Yield Bonds
  • AWF – Emerging Market Government Bonds

With the economy in a weakened and fragile state, we need to tread carefully in these markets. Some key levels which may improve the odds of success are shown in the charts below. Erring on the side of not taking positions is still prudent. The markets remain in a "prove it to me" mode where we would like to see the markets move through key levels before putting capital at risk.
2009 Investing Deflation Inflation Outlook Strategy


2009 Investing Deflation Inflation Outlook Strategy


2009 Investing Deflation Inflation Outlook Strategy


2009 Investing Deflation Inflation Outlook Strategy


2009 Investing Deflation Inflation Outlook Strategy

U.S. Dollar Remains Firm

From a technical perspective, the dollar continues to look strong. Its strength supports the continuation of concerns about deflation, rather than inflation. With a rapid expansion of the money supply along with large increases in government liabilities, future dollar weakness is almost a certainty.


2009 Investing Deflation Inflation Outlook Strategy

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in