My Strategic Forecast

CEO of Bank of America Ken Lewis is most likely in his final days as head of the nations namesake bank.  It seems a little unfair, as the story unfolds, it seems as though he was strong armed by the boyz in Washington to take one for the team/country.

Did he made a couple of blunders to set the ball rolling down the hill?  Maybe.  It’s possible they jumped too fast to purchase Countrywide Mortgage right at the beginning of the crisis.  It seems like they of all people should have had enough internal expertise and intelligence to see trouble on the horizon.  The other and most likely his downfall was the purchase of mother Merrill.  As the story unfolds in the media, there seems to be some smoke gathering around just how this deal went down.  Was Lewis forced into a bad situation?  Probably……  How do you think he felt after being told by Uncle Ben and Uncle Hank that it was in the country’s best interest for Bank of America to save Merrill Lynch.  If in fact that occurred, it was just a matter of time before he was toast.  No win situation.  There is no chance the proper due diligence was completed prior to the deal.  If it were, BofA would never have either bought the company or agreed to the price after realizing what exposure the balance sheet held. Our country’s leadership most likely thanked him for being so patriotic, at the same time they screwed him right in the keester.

Who ever coined this phrase must have been a genius.  This equity market is not being kind to shorts and continues to scare them away one by one.  There has been and continues to be upside potential all the way to about 10,000 on the DOW or about 1000 on the S&P500.  These numbers may seem like a reach to those that think the current rally is a litte over extended, however, if you follow market psychology, it makes sense that by the time we approach those numbers, the average investor, professional investor and the main stream media will have declared the recession, credit crisis, banking crisis, credit card defaults, automotive loans, etc… all a thing of the past.  That will be just in time for the next shoe to drop.  Stay tuned…

So the banks have undergone a “stress test.”  This seems like a no win situation.  Let’s say a bank fails the test, how do they handle the run on the bank?  Let’s say one of the “too big to fail” bank are close, but don’t pass - will they be honest with us, or just pass em?  Let’s say all the banks pass - was the test good enough?  The administration can’t win this one.  The reality remains the same, most of the big banks are insolvent, there are too many derivatives on the balance sheets that can make things worse, and nobody wants to admit it, clean up the mess and move on.  They just keep prolonging the story with more rhetoric, bailouts and make shift plans that change depending on the pressure from wall street, the media or self serving politicians.  What’s changed?  The communication is better, but the smell is the same.

Today was one of those “consolidation” days.  In the early hours, they used various data points as the excuse for the market sell off.  While the pundits on CNBC tried all day to talk the market up or downplay the down day, they were turned away while the market drifted into the close.  The likely scenario is another few down days to relief some of the overbought conditions, then more gov’t intervention or a possible feel good report to boost the market another time or two before the real sell off begins.

While we believe there will be much more volatility ahead and many more sleepless nights for many investors, we still think the market has more room to the upside, but only after a normal corrective pattern that should relieve some of the overbought conditions our work is indicating.  Therefore, look for a short term pullback in the US markets only to see further advances before “the big one” later this year.  Before the market washes out the last of the retail investor, it will feel like things are back on track and all indicies will appear poised to move into the next bull market phase.  Come find out how not to get sucked in.

How can you take advantage of these moves with precision and correct timing?  Our subscribers know.

As you may have heard, Goldman Sachs (GS) has posted better than expected earning/revenue, etc…  Similar to Wells Fargo last week, they may be a product of a slight change in accounting rules, but only time will tell.  There are many (and growing) speculators who claim Goldman’s accounting practices are suspect and should be reviewed.  We however contend that the market will always sort out any irregularities, no matter how long it takes.  We think GS will ultimately get theirs.

http://finance.yahoo.com/news/Goldman-1Q-earnings-surpass-apf-14915037.html

There is a convincing argument going on about how General Electric Corp. (GE) may have significant exposure to potential bad debt after all.  Many have said that GE was getting thrown out with the bathwater, but it seems more possible at this point that they may be just another gallon in a sea of financial ruins.  Let’s not forget, GE said the dividend was safe for 2009.  It wasn’t.  GE said its balance sheet is fine and has limited exposure to any bad/toxic debt.  GE’s credit was downgraded from AAA.  The issue is the market.  The market is usually correct and has assigned a value to GE far less than the existing leadership of GE would like everyone to believe exists.  The attached article seems to articulate a theory worth looking into.

http://www.businessinsider.com/henry-blodget-living-on-planet-ge-2009-4

Maybe becuase of the contant and most recent intervention attempts by our nations leadership, but the market appears to be settling down.  Don’t be tricked into thinking it’s safe to go back into the water.  This market is NOT in good shape and may continue higher for weeks before the trap door begins to open again.  Don’t forget, the fact of the situaiton haven’t changed, and the bear market will take no prisoners until the last retail investor has thrown in the towel.

Take heed and protect your wealth.

With some logic, you can profit from this and any market and economic situation.  Our forecasts provide regular insight and targeted forecasts designed to provide returns for our subscribers.