Traders,
We had another fairly good rally day yesterday, which could continue – but PLEASE remember that nothing on the economic landscape has changed (unemployment has increased, more money going into Freddie, Fannie, AIG, and other banks, more bailouts) – that means – do NOT try to make sense of any rally and justify it because of any fundamental reasons. I am NOT trying to dash hope, but rather point to reality – meaning that you should HEDGE positions, lock in gains, get out of losses. This is an opportunity – nothing more or less. Could we continue to 7500? I said a few days ago we could, but the why is not important – it is rather WHAT you do with that opportunity.
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China’s worried about U.S. Treasuries….
As I have been pounding the table that China is our credit card (buying our treasuries) and at SOME point it will not make sense for them to continue to finance debt – I received emails over and over again saying I was wrong – based on ONE reason – the arrogant faith that we are #1 and the dollar is the safest thing in the world. However, if we ignore ideological patriotic faith and look at the math – anyone could see that buying something that is inflating (the debt and deficit) to get paid LOWER if any interest rates makes little sense. Would you loan someone money (with little or no interest) that continued to rack up more credit card debt, of course not. China has also be a large purchaser of Gold (record levels) – as well as other hard assets and mix currency baskets. The hadn’t (until now) said they were concerned, but their actions indicated they ARE concern.
We had another fairly good rally day yesterday, which could continue – but PLEASE remember that nothing on the economic landscape has changed (unemployment has increased, more money going into Freddie, Fannie, AIG, and other banks, more bailouts) – that means – do NOT try to make sense of any rally and justify it because of any fundamental reasons. I am NOT trying to dash hope, but rather point to reality – meaning that you should HEDGE positions, lock in gains, get out of losses. This is an opportunity – nothing more or less. Could we continue to 7500? I said a few days ago we could, but the why is not important – it is rather WHAT you do with that opportunity.
___________________________________
China’s worried about U.S. Treasuries….
As I have been pounding the table that China is our credit card (buying our treasuries) and at SOME point it will not make sense for them to continue to finance debt – I received emails over and over again saying I was wrong – based on ONE reason – the arrogant faith that we are #1 and the dollar is the safest thing in the world. However, if we ignore ideological patriotic faith and look at the math – anyone could see that buying something that is inflating (the debt and deficit) to get paid LOWER if any interest rates makes little sense. Would you loan someone money (with little or no interest) that continued to rack up more credit card debt, of course not. China has also be a large purchaser of Gold (record levels) – as well as other hard assets and mix currency baskets. The hadn’t (until now) said they were concerned, but their actions indicated they ARE concern.Well now we hear it, Premier Wen said, “We have lent a huge amount of money to the United States. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.” – They have their own problems and can’t be burden with taking on our debt as well. What upsets them (and other creditors) is that President Obama is SPENDING rather than saving. Obama did inherit a large deficit (we can all point fingers at Bush ) – however instead of acknowledging that he tripled the deficit, added a stimulus, more bailouts on the Freddie, Fannie, AIG side, and is on a massive spending spree. China is concerned because for the FIRST time EVER the U.S. is going to try and sell $1.7 trillion into the treasury market and expects countries like China to buy that debt (and at very low rates) – the interest rates do NOT match the risk.
Professor Deans, of Temple University in Tokyo makes the issue very clear, “China’s purchases of American debt have been one of the few bolts keeping the wheels on the global economy. If China stops buying where does Obama’s borrowing to fund his stimulus come from?”
“China is worried that the U.S. may solve its problems by printing money, which will stoke inflation,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country’s second-biggest lender. “If the U.S. can make sure this won’t happen, then China will continue to invest.”
U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.”
We NEED China more than they need us.
We NEED to stop spending and START reducing the deficit and debt. We will NOT be able to fund it!
Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aVq1dGC2ozoY&refer=home
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Berkshire (BRK) ratings cut…
Buffet has taken some serious losses and Berkshire – the gold standard – just had its ratings cut from the AAA status – citing concerns about more potential for losses on equity and derivatives.
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Merck Upgraded to out-perform
The long-term outlook for Merck is good according to Sanford Bernstein. Their recent acquisition of Schering-Plough has not only increased their offerings – but also potential market share. Expect to see other drug companies get boosted.
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Futures Pre-Market
The futures were up – but the media has latched onto China’s concern about financing debt. We are seeing a pull back in the pre-market to fair value.
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Support / Resistance
We got a good run, maybe too good for the short term.
INDU 7000 ? (Do we stay about 7k – that is the magic question. If we get a run – 7500 is the next stop.)
NDX 1100 (1150 is a short-term pause area – but support is down at 1100. At the other end expect 1200 to be a resistance area)
SPX 750 (A great run to 750, but we are seeing resistance at this level and more at 775. Closing above it is a good sign, however 700 is support.)
RUT 350 / 400 (We didn’t get to 400 – almost. We might just touch it – but I would get flat at those levels.)
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Gold 900+ (The news about China may boost gold this morning.)
Silver 12+
Oil 35-40 / 50+ (We are still above the support band and below the launching point of 50.)
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Conclusion
The Chinese news of them OPENLY saying what we have been seeing is very concerning – maybe not today or tomorrow – but for the long haul. They SEE just like Buffet, Faber, Pimco, Rogers, etc. that inflation is coming and could be coming faster and much more than anyone expects.
Hillary saying the “dollar is a safe investment” doesn’t make it so. The government continues to ignore math, but in the end will not be able to avoid it. This might put a serious damper on our recently rally as the reality of debt, the deficit, and the spending all equal to a dollar bubble that everyone is slowly waking up to.
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