January 25, 2010

Global Market Comments
January 25, 2010

Featured Trades: (SPX), (TBT), (GLD), (FXA), (UNG), (WHEAT), (CORN), (SOYBEANS), (CYB), (OAKLAND BAY BRIDGE)

1) At the Friday close, technical analyst to the hedge fund stars, Charles Nenner, put out his long awaited sell signal on the S&P 500, with the market's definitive break of the crucial 1,125 support level. From here you sell into the rallies. The SPX is going to plunge 10-20%, Treasury bond interest rates are going to soar (TBT), and gold (GLD) has peaked out. There are tradable shorts setting up in all three of these markets that will run for the first half of 2010. These calls are the product of Nenner's proprietary Cycle Analysis System, which he has spent three decades developing, and generates calls of tops and bottoms for every major market in the world. I have diligently analyzed Nenner's approach for a couple of years now. It appears to consist of multiple overlays' of traditional technical analysis, some mathematically derived time and momentum indicators, and a dash of Elliot Wave for good measure. The result is reliable enough to make a living, as long as you learn how to read him and don't bet the ranch (or the windmill?) on any single trade. Nenner sees a trading rally in the dollar setting up which could deliver a strong greenback until May, when we should then re-establish shorts, especially in his favorite, the Australian dollar (FXA). The scientist turned technical analyst argues that major bull markets in wheat, corn, and soybeans will begin this year, sectors for which I am also hugely bullish long term. He sees natural gas (UNG) retesting the old lows at $2.40. Farther out, Nenner sees a new major bear market beginning in 2013 that will take both stocks and bonds to new lows. Nenner has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years as a technical analyst at the noted vampire squid, Goldman Sachs. To learn more about the approach of his firm, the Charles Nenner Research Center in Amsterdam, please visit his site at www.charlesnenner.com. To hear my in depth, extended interview with Nenner where he outlines all of his views for 2010, please go to my website by clicking here .

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2)Friday lunch had me sharing a cold, congealed chicken salad with Bill Clinton's Secretary of Labor, Robert Reich at San Francisco's Fairmont Hotel, who says that easy money is creating new bubbles around the world, especially in China and commodities, that will only end in tears. The Middle Kingdom is the first country where inflation may break out to the upside. There is also a new form of protectionism that has emerged under the guise of competitive devaluations, where counties printing paper money are racing to the bottom, which will eventually force a revaluation of the Chinese Yuan (CYB). A US GDP that is 71% dependent on consumer spending is unsustainable, since they can no longer afford it, can't get credit, no longer have a personal ATM in the form of home equity loans, are worried about losing their jobs, suffer under a huge debt burden, and are now unexpectedly having to save more for their retirement since their houses have dropped in value by half. Scott Brown's surprise win for the Massachusetts senate seat will only cause uncertainty in Washington to explode, not exactly a stock market friendly development. The Obama administration committed a major error by devoting one third of its massive $870 billion stimulus program to tax cuts, which in this environment, will get saved, not spent. The TARP money, while succeeding in rescuing the financial system, only ended up in Treasury bills and never made it to Main Street. The best way to revive the economy is to give money to the states directly, which, unable to run deficits, can only cut spending and raise taxes. This will create a $350 billion drag on the economy during 2010-2011, in effect an 'anti stimulus' that cancels out a third of the federal government's reflationary efforts. I took two of Bob's economics classes at UC Berkeley, and know too well his wry humor, acid wit, and preference for backing up arguments with mountains of empirical data. Bob warned his guests not to take his investment advise, as he bought his home in Berkeley at the 2006 market top, and has since had to to eat a 10% cut in his Berkeley professor's salary forced on him by state budget cutbacks. A Rhodes Scholar who dated Hillary Clinton at Yale and ran for governor of Massachusetts, Bob is never without an original thought, nor a stranger to controversy.

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3) The first 300 foot, 6,800 ton segment of the new approach to the Oakland Bay Bridge was delivered this week. This massive wing shaped piece of steel is the first of 28 to be delivered that will be used to rebuild the 73 year old symbol of the Foggy City. Out of towners may recognize this as the bridge that terrified motorists by partially collapsing during the 1989 Loma Prieta earthquake, paving the way for a ground up seismic retrofit. Where was it built? You guessed it, China, where inferior steel, shoddy welds, and poorly translated plans caused a 15 month delay in the fabrication, pushing completion of the new structure off to 2014. Despite delays caused by an El Nino winter, the new component made it over from Shanghai on a specially designed ship in only 22 days. Local unions bitterly opposed the offshoring of the project to the Middle Kingdom, even though a wholly American made bridge would have more than doubled the anticipated $6.3 billion cost. Looks like I'll still have to hold my breath while driving over to San Francisco, even after it's finished. It says a lot that the Chinese can rebuild one of America's greatest engineering icons, ship it across the Pacific Ocean piecemeal like a giant Lego set, and erect it here at half the cost of the local help. It's another ominous 'tell' on the future of the global economy.

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Out With the Old, In With the New



'Isn't it funny when you walk into an investment firm, and you see all of the financial advisors watching CNBC'”that gives me the same feeling of confidence I would have if I walked into the Mayo Clinic or Sloan Kettering and all of the doctors were watching the TV soap opera General Hospital,' said a bond manager friend.

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