Good News and Bad News

by Larry Levin

Yesterday's huge rally couldn't last longer than the initial 30-minutes of today's market. From that period's high, the markets slowly fell. No matter; we had a good trading day despite the two-sided action. In the end, today was a "balancing" day, which is normal after large breaks or rallies. After all, the market often needs time to contemplate if such a move was rational, or not enough. Tomorrow could be interesting. (Remember to trade June Thursday; it's top step.)

The following is a piece from the Casey Report. I hope you enjoy it.

The Bad News

As fully anticipated, with its first budget plan, the Obama administration has fired a salvo into the side of the productive classes. (For those of you who are not U.S. citizens, feel free to use Team Obama as a proxy for what is likely to occur where you reside.)

Yes, we expected the $1.75 trillion budget deficit, which will, by the time all is said and done, come in a lot closer to the $2.5 trillion number anticipated some months ago by our Chief Economist Bud Conrad.

Yes, we expected the government to begin raising taxes, which they are proposing to do with vigor - starting with an increase of $1.4 trillion on the people who earn in excess of $250,000 a year. "Right on!" shouts the mob, on the way out the door to burn Porsches (which, Bloomberg reports, is now becoming something of a trend in Germany's capital, Berlin).

For no other purpose than to keep the record straight, it's worth noting that thanks to the government's steady dose of inflation, $250,000 today will only buy you 77% of what it would have in 1998...and 56% of what it would have in 1988.

A decade from now, given the inflation rate we expect, the dollar's purchasing power will erode by another 50%, and probably a lot more than that. In fact, at the current rate of money creation, by the time the dust settles, $250,000 might be the annual wage commanded by burger flippers.

But, hey, look at the bright side, at that point everyone will be rich!

The further details of Obama's budget plan are a hodgepodge of this and that, some of which we even agree with (like cutting business subsidies). On the whole, however, the overarching mandate appears to be to thrust the hand of government, like some motion picture kung fu villain, deep into the heart of American enterprise.

And government's expansion is far from over. The news continues to pour in...

Citigroup to get another $25 billion bailout from the U.S. Treasury.
Treasury officials work on bailout plan for auto parts manufacturers.
President Obama exploring automatic workplace pensions and an expansion of unemployment insurance.
AIG, now a government lap puppy, takes another big loss, and is again looking to its master for another handout.
Speaking of lap puppies, Fannie Mae has lost another $25 billion and is looking for $15 billion more from the Treasury. The value of this zombie institution's net assets is now a negative $105 billion, and eroding. Great investment of your tax dollars, eh?
Then there's the new administration's cap-and-trade green tax...a stunning new initiative that will bring many U.S. businesses to their knees.
There is more, so much more, including a $638 billion reserve fund for healthcare reform in the president's budget that loudly broadcasts that, "Yes, we're going there." There being nationalized health care.

However, there's also some good news to be found in the way things will be.

The Good News

My fellow citizens of planet Earth, it is now abundantly clear that the trend toward socialism in all its many disguises is about to, once again, shift into high gear.

We've been here before, encouraged by the words of Karl Marx, a distinctly unsuccessful individual (to read his life story is to read of almost unending misery, poverty, and discontent) but a decidedly successful phrase-coiner, knocking the world off its axis with his "From each according to his ability, to each according to his need."

While no one with any real sense of history, not to mention economics, can take any overt joy at the prospect of the dark clouds of collectivism looming high in the sky above us, there is, if you pay close attention, a very big opportunity in all of this.

Namely, we are now presented with a relatively rare chance to see with some clarity into the future.

Imagine if eight years from now you could step into a time machine and zip right back to this very moment. How much money do you think you could make?

Well, just because the chattering masses have the blinders on as they march forward to their collective penury doesn't mean we need to join them. And, if we are even a little bit careful, we won't.

So, what is it about the future we can now see? Some broad strokes...

Currency depreciation.
More taxes.
Rising interest rates.
A price capitulation in real estate, with a collapse in commercial.
Exchange controls (now that Team Obama is raising your taxes, you don't really think they're going to let you pick up your wealth and leave, do you? The window for global diversification will soon be closing.)
The return of mega-labor unions.
Trade wars, shooting wars, and other forms of heightened geopolitical tension.
Provided you keep your personal wealth-profile low (there was a reason Sam Walton, founder of Wal-Mart, drove a beat-up pickup truck), your financial powder dry, and, maybe most important of all, retain your sense of humor, the opportunities in the unfolding crisis will be abundant.

Whatever you do, don't be complacent about what's coming.

We are long past the point where doing nothing is an option. Review your personal finances, cut out unnecessary expenses, talk to your accountant about tax planning, and, if you're a U.S. citizen, consider moving at least some of your wealth out of the country while you still can (but please, don't try to hide it...that's a fool's errand). If you own gold, only you and your spouse, if you have one, should be aware of it.

Ask yourself, "If I just dropped in from eight years in the future, what measures would I take?"

Now, take them.


Trade well and follow the trend, not the so-called experts.


Previous Day's Trading Room Results:

Trade Date: 3/10/09

E-Mini S&P Trades*
(before fees and commissions):

1) Engf buy @ 9:30am at 727.50 = -.50 (1-lot)

2) Algorithm positions (3)...combined SofT and Algo total...+8.00


Electronic (YM) Mini-Dow:

1) Sell @ 9:30am at 6,992 = +18

2) Sell @ 11:15am at 6,956 = +14

3) Sell @ 1:35pm at 6,893 = +4

4) Buy @ 1:50pm at 6,907 = +25...+$305.00 net



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