Where is the Market Going?
Research for Online Investors

by John Dalt

4/04/11

Where does the market go from here?  We feel like a kid in a dark stairway, trying to open the overhead door into the attic.  The S&P 500 is pushing against the record 1343 from Feb. 18.

We cleared resistance from early March and have our eyes set on another jump higher, but can we get it this week before earning season starts?  We wonder what news will roil the markets.  It seems like the wondering violence and protests in the Middle East are mostly priced in to trader’s risk profiles.  Japan is a wild card.  Good news from either would probably cause a spike in some stocks or a drop in some energy markets if the Middle East would settle down.

The European Central Bank (ECB) is widely believed to be ready to announce an interest rate hike this week.  This may cause some turmoil in currency and credit markets but is probably priced in.  Congress is struggling under a deadline to extend spending authority by Friday.

This effort seems to be the most difficult, and largely ignored by the markets.  In many cases, like the nuclear contamination in Japan, the market tries to price in the worst case scenario.  Uranium stocks were crushed.  The same with violence in the Middle East, crude oil has shot higher out of fear the violence could spread to other countries.

The U.S. has been on the brink of running out of budget authority so many times before and the congress always seems to stick a band aid on the problem.  I don’t have the same confidence this time.  The two sides are a long ways apart.  Compromise seems to be defined as the conservatives giving up all of their cuts.  I don’t think that is going to happen.

Another problem is one of timing.  The Republicans put in a rule that all bills have to be filed 72 hours (three days) before the vote.  According to Reuters, democrats are offering cuts to defense and some other programs that are transfers based on qualification.  With the action in Libya, who won’t vote for a supplemental appropriations bill in the future?  The money is spent and now has to be replaced for Afghanistan and Iraq to continue.  The transfer demand payments would be subject to similar replacement if the money was needed. In other words, the democrats are offering a hollow cut.

From our view, it looks more and more like a showdown.  Each side may believe they can extract a political advantage from a government shutdown.  The republicans win what they want in a shutdown, as the government doesn’t spend money.  The democrats win if they can spin the blame on republicans.  Who loses in this deal?  Who wins?  It is all perception.

Obama declared his candidacy for re-election today.  He sent out an email with a video to encourage supporters to get involved.  His campaign plans to raise one billion dollars.

To the mailbag:
Did you hear Barack Bush justify his reason for us being involved with Libya?  His speech reminds me of one that I heard in 2002 or 2003.  Could it be that our glorious leader is plagiarizing prior speeches or just using the same script writer? Do I sound like a skeptic?—paid up subscriber R.A.

John’s reply:  One big difference.  Bush got congress’s approval.  Obama left town in a hurry.  Harry Reid, Kerry and Clinton forgot they voted to authorize force in advance.  There should be impeachment proceedings.

Great article on Paid Pump and Dump. As a former business person you know honesty and integrity build great businesses in the long run. In the end all we have is our integrity and honesty.—gulch member G.L.

John’s reply:  Thanks. I agree, shortcuts never work.  The guys that take money to pump stocks occupy a small dark corner of life.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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