Dr. Joe Duarte's Market Intelligence Report, by Dr. Joe Duarte Options

[TTHQ Staff]

Dallas, TX February 1, 2010, 08:00 EST Dr. Joe Duarte's Market I.Q.

The Internet's Intelligence Digest Intelligence, Market Timing, And Trading Strategy For Traders and Investors Obama: The Personal Battle Front And The Consequences

What's Hot Today:

U.S. stock index futures were once again pointing to a slighlty higher opening on Monday. Asian markets tumbled and European markets were mostly lower. The market is clearly oversold, but still faces lots of pressure. Investors should also remember that the stock market has a seasonal tendency to rise at the start of a new month due to new pension money moving in. Today's Economic Calendar: Personal Income and Outlays 8:30 AM ET ISM Mfg Index 10:00 AM ET Construction Spending 10:00 AM ET 4-Week Bill Announcement 11:00 AM ET 3-Month Bill Auction 11:30 AM ET 6-Month Bill Auction 11:30 AM ET News For Thought Changes in the drug war approach appear. According to Reuters: "Convinced that the four-decade-old, U.S.-led war on drugs has failed, Argentina, Brazil, Chile, Ecuador, Mexico and other countries are relaxing penalties for possession and personal use of small amounts of narcotics. Critics warn drug abuse and violence will rise if the small-scale consumption of cocaine, marijuana and other drugs is tolerated, but policy makers in much of Latin America argue the new laws will free up resources to go after big traffickers and treat addicts. The shift away from zero-tolerance policies has picked up pace in the past year and U.S. President Barack Obama's administration has voiced little opposition to the changes. That is a dramatic switch after decades of Washington's resolute opposition to any easing of laws against consumption." UBS could "collapse" says Swiss Minister. Want a little drama? Check this out. According to Breitbart.com: "Switzerland's justice minister warned in an interview on Sunday that top bank UBS could collapse if sensitive talks with the United States over a high-profile tax fraud investigation fall through. "The actions of UBS in the United States are very problematic. Not just because they are punishable but also because they threaten all of the bank's activities," Eveline Widmer-Schlumpf told Le Matin Dimanche newspaper." Yeah, that would be a great thing to have happen on your watch; wouldn't it? When in doubt: create another derivative. Insurers now want to be protected against people living longer. According to The Wall Street Journal: "Eight investment banks and insurers have come together to develop an organized market to help them spread the financial risks and costs of an aging society more widely. The Life and Longevity Markets Association, which launches Monday, aims to take instruments known as longevity swaps into the mainstream. Most of these deals have so far been private, over-the-counter transactions between insurers and reinsurers. The initiative, which involves Deutsche Bank AG, J.P. Morgan Chase & Co.'s J.P. Morgan, and Royal Bank of Scotland PLC, as well as insurers Axa SA, Legal & General Group PLC, Pension Corp., Prudential PLC and Swiss Re, aims to replicate the success of insurance-linked securities markets. These enable insurers to pass on some of the risk from unforseen events, such as natural disasters, to outside investors like hedge funds." Seems fitting, since hedge funds bought into the supbprime mortgage market near the top, why not see if we can have them hold the bag one more time? If there is one thing that seems certain is that people that do what we do, find potential inefficiencies in the system and try to figure out what the potential outcomes, risks and profits are likely to be, have job security. As long as there are politicians, insurance companies, and banks out there. 2010 budget is another record breaker. The 2010 Obama budget is projected to raise the federal budget deficit by $1.56 trillion, according to the White House's own estimate. The overall initial impression seems to be that the White House is still "tinkering around the edges" of the deficit and that there will be some significant battles ahead. Today's news suggests that nothing has changed and that the U.S., will continue to trudge and carry a heavy load, politically and economically for the foreseeable future.

Obama: The Personal Battle Front And The Consequences

What's On The Inside Will Shape The Outside

The stock market is clearly in correction mode, and money flows as we expected are moving into the U.S. Dollar. There are plenty of international reasons, especially the issues that face Greece and the European Union. What's interesting is that the conventional wisdom says that the dollar's rally is more out fear for Europe than expectations of improvement in the U.S. economy. The cynics point to the potential for gridlock in the U.S. as a reason to rejoice, as Mr. Obama's agenda is now sidelined. Yet, that's not a slam dunk, as the Obama thing is very complicated and has the potential to resolve itself in very unpredictable ways. Last week's most interesting development was Mr. Obama's visit to the Republican's retreat in Baltimore. And here's how we think it all fits together. Obama Ventures Into Lion's Den The media is having a field day with the president's visit to the Republican retreat in Baltimore. Lots of coverage points to the inevitable soundbytes about the president referring to not being a "Bolshevik," and the "testy" tone of the debate. Here's our take on it. We watched about ten minutes of it, sitting at a Sonic on Interstate 175, south of Dallas. Lots of common folks, truck drivers, farmers, and the like were in the restaurant, which shares space with a convenience store. No one but this reporter was paying any attention, despite the sound being on and the big flat screen TV being at a good central location. We paid attention, to the president, and to the overall lack of attention in the shop. It was a little creepy to be sure. What we saw on the screen was, pardon the vernacular, "way cool." The president walked into the enemy's den and fought for what he stood for. Now, here's what the media is missing. To us, it seemed as if the president may actually be torn. All of his life, he's believed that the left's ideals are the way to go. All of his life, he's waited for this moment, when he can put that plan to work. Now, he's there, he's got the backing, and very few are going along with him. That's got to be a shock, especially when the harder he pushes, the harder it gets. The polls don't lie. We talk to people all the time and they reflect the polls. Even some on the left, cling to the ideals, but wonder how much damage the president will do to them if he gets his agenda passed. So Obama will fight. But what he'll fight for is what's uncertain. The market may be catching on to the notion that the president may be wavering, internally, with what he believes, or at least the fact that no one is buying what he's selling. The problem is that he's in charge of the biggest country in the world. If he starts having doubts, many things may happen. And they are all very unpredictable. More than anything, the trip to Baltimore was for scouting. Obama is looking for a way to get something done, and he went to Baltimore to get a closer look at what he's up against. Maybe he even went there to see whether there was a chance of some kind of improvement in relations, an opening, a loophole, anything at all. That's a sign of rising doubt in his mind, not about his beliefs perhaps, but about his inability to get something done. What no one is saying, and this is the key to the whole thing, is that president Obama is learning on the job. He's finally figured out that this is the big time and that he's got to raise his game. The question is what is he learning, and how will he use his new found knowledge? Here's an interesting take from Peggy Noonan, who asked a person that she described as a Republican who is friendly with the president, why the president had not moved toward the center. The answer" "Because he is more "intellectually honest" than that, he said. "I don't think he can do a Bill Clinton pivot, because he's not a pragmatist, he's an ideologue. He's a community organizer. He mixes the discrimination he felt as a young man with the hardship so many feel in this country, and he wants to change it and the way to change that is government programs and not opportunity." The great issue, this friendly critic added, is debt. The public knows this; Congress and the White House do not. "To me the Republicans are as rotten as the Democrats" in terms of spending. "Almost." "I hope we have big changes in 2010," the friend said. Only significant loss will force the president to focus on spending. "To heal our country we need to get the arrogance out of the White House and the elitists out of the Congress. We need tough love. We need a real adult in the White House because we don't have adults in the Congress."" As far as we can tell, everything is now way up in the air, much more than when Obama was first elected. If we aren't wrong, and we don't think we are, President Obama is fighting for his soul right now, no pun intended. He is trying to figure out what he stands for, and how he will come out of this with something to show for it, without selling himself out. The problem is that some people think he already sold his soul somewhere along the way. No matter what, Within a few weeks, or less, more will be known. Until then, it will be big, huge levels of "high anxiety" everywhere. Maybe after that, things will get even worse. No one knows what lurks in the hearts of men, except The Shadow. Conclusion America is in play, and so is Obama. The problem is that we've never been here before, at least not like this, or to this degree. Presidents have usually been cut out of the same general mold. They've been mostly middle aged white males with a certain degree of education and a past book of things they've done to help us predict the future. Mr. Obama is not the usual guy. His background and life experience are different than that of other presidents' in recent times. This means that the way he looks at things, in some significant ways, falls outside of the standard view for past presidents. And while it's not necessarily a good or bad set of precedents, the fact is that these things are different. Put plainly, Mr. Obama is hard to figure out. No one can really tell if he's telling it as he sees it or if he's playing games. With Clinton, you knew that some kind of compromise lay ahead. And with Bush, it was his way or the highway. You didn't have to like what was coming but at least you knew which way things would roll. This time around, no one knows anything, and that's whay everything is up in the air. While Clinton wanted to look for ways to get things done, and Bush bulled his way through things, Mr. Obama wants to "work through" difficulties, suggesting a certain psychotherapy approach to work. And while compromise can work, and just being plain tough will often yield results, psychotherapy is much more muddled, with "working through" meaning that governing is something that is to be survived and conquered, instead of something that will provide results that will do the public some good. What that means is that Mr. Obama is a fundamentally different animal than his predecessors, and that we're going to head into some kind of high volatility and high uncertainty scenario, as Mr. Obama and the Republicans figure out which way they're going to play this thing out. As far as the Democrats go, we wouldn't be surprised to see them get shut out of the whole thing altogether. And there are few thing worse than a party scorned. But then, we're just speculating here. Because the truth is that we don't know how this is going to turn out any better than anyone else.

Market Moves Gilead Sciences (Nasdaq: GILD) Bucks Down Trend Gilead Sciences (Nasdaq: GILD) rallied last week, in the midst of an otherwise dreary market. Chart Courtesy of StockCharts.com First, it's good to see that Gilead can rally during a tough market. That's a sign of relative strength, and it makes the stock stand out and worth consideration for ownership. So the first inclination is to see why the stock rallied. Off we went, and lo and behold, there was a reason, the company is buying back stock. To be sure, there are good reasons to buy back stock. One is that by buying back stock the balance sheet is improved, although there is an outlay of cash. Also by reducing the amount of stock outstanding, earnings look better as there are fewer shares among which to divide the gross profits. Still, you'd like to see a biotech stock rally because it has a blockbuster drug or a killer pipeline, not because its' buying back stock. And then you have to wonder if the company can't find anything better to spend its money on, such as maybe developing better drugs or raising employee salaries during tough times. Sure, the company's HIV drugs are selling briskly, but that was announced three days before the buyback. Yes, the stock rallied on the news, and then it rallied further on the buyback. But the big question is what about the future blockbusters? Shouldn't that billion dollars be used for drug development or something along those lines? What's the bottom line? The charts rule, but they serve you better if you look behind them once in a while. We'll be watching Gilead closely, but are holding on to our powder here. What would make us change our mind? A continued rally in Gilead may lead us to reconsider our position, at least on a trading basis.