Feb 20

Tuesday was the first day of US Trading this week due to the Presidents Day holiday. The American markets started off on a good footing, with the Nasdasq up as much as 1.3% early on, but as has often been the case recently investor fears crept in, and by the end of the day all major markets closed with losses, the Dow Industrials lost about 11 points after earlier 100 point plus gains, and closed at 12,337.22. The Nasdaq closed at 2306.20, down 0.7% after the early gains. Volume was off slightly on both exchanges from Fridays levels.
I believe that the weak follow through day we experienced recently can safely be discounted at this point. We continue to trade in a mode that is classic of bear markets, and recent activities and reports do not offer a whole lot of hope going forward. The recent H3 report by the Fed shows just how badly the situation has gotten for American Banks and Financial Institutions, and in aggregate our banks have now gone through their own capital and are forced to borrow reserves from the Fed in order to keep lending. The H3 report is available at http://www.federalreserve.gov/releases/h3/Current/. This is not something that is going to be easily fixed, and I would expect to see continued unease in the credit markets. Things have gotten so bad that the Port Authority of New York recently could not get buyers for its bond issue until its rates hit 20%, six months ago it probably would have had to pay less than 6% on the same note. The same thing is happening to companies, municipalities and government agencies across the board. Not only is the level of fear high, there is simply no money to put to work even if they wanted to. We have gone from what was initially a liquidity crisis, and quickly see a very real solvency issue arising.
Energy and Food inflation continue to be major themes in American and Global markets. The very best sectors have been those related to Agriculture business and mining, with ETFs such as DBA, JJG (grains), USO (Oil), and SLV and GLD (silver and gold) putting in strong performances recently.
At this point in time there is not much of an edge to be found with heavy commitment to US equities. I continue to maintain a mostly cash position and do not see that changing any time soon. As the election cycle heats up those running for President have a lot of incentive to talk about how “bad” things are for the “average American”. In our consumer based economy this can only make things worse, and with the likely winner Obama's solution being more government, bigger government and higher taxes investor fears are not likely to be eased. We continue to see the effects of Globalization, which is a force that I don't think can be turned back.
Last note, I realize this is not the best and most put together article I have ever written, but I'm still recovering from some rather bad personal news and it's likely to take me a few days to adjust.