No replies to this topic

[TTHQ Staff]

Dr. Joe Duarte's Market I.Q.
Fear On Eve of Election
	What'sHot Today:

Global markets were mixed overnight asearly gains faded in some parts of Asia,while Europe was cautiously higher. U.S. stock index futures wereneutral afterhaving given up big gains in early overnight trading. Today's Economic Calendar: 10:00a.m. Sep Construction Spending: Expected: -0.7%.Previous: Unch. 10:00a.m. Oct ISM Manufacturing Business Index:Expected: 41.5. Previous: 43.5. News For Thought China State Owned Enterprises see lower profits. Accordingto Stratfor.com: "Profits of Chinese state-owned enterprises (SOEs),excluding financial institutions, fell year-on-year in the first threequarters of 2008, Xinhua reported Nov. 2, citing Chinese FinanceMinistry data. SOE profits in the first three quarters were 1.11trillion yuan (US$162.27 billion), a 2.9 percent drop from the sametime in 2007." U.S. Drug efforts stamped out in Bolivia. Stratfor.comreported: "Bolivian President Evo Morales halted U.S. anti-drug effortsNov. 1, amid worsening relations between his government and the U.S.government, The Associated Press reported. Morales accused the U.S.Drug Enforcement Agency of spying and funding “criminal groups” workingto undermine his government. The U.S. anti-drug operations areasuspended indefinitely." The U.N. recently reported that much of thecocaine that flows to Europe and the U.S. comes from Venezuela. TheVenezuelan and Bolivian governments share close ties. Ethanol high flyer goes bankrupts. In what isclearly a sign of the times, Marketwatch.com reported: "The recentretreat in corn prices came too late for one of the nation's biggestethanol producers, as the twin blows of high costs and less creditpushed VeraSun Energy Corp. into bankruptcy. In a statement lateFriday, the Sioux Falls, S.D.-based company said it planned to maintainoperations while the company and 24 of its subsidiaries reorganize.VeraSun said it expects to reach a deal with lenders on additionalfinancing to fund its operations before a hearing Monday. It alsoexpects to get court approval at this hearing to keep paying employeeswithout interruption." J.P. Morgan rethinks mortgage strategies. Accordingto The Wall Street Journal: "J.P. Morgan Chase & Co. launched anambitious plan Friday to modify the terms of $70 billion in mortgagesfor borrowers who are behind on their payments or soon could be. Themove by the New York bank will cover as many as 400,000 borrowers.They'll be moved into loans carrying lower interest rates, smallerprincipal amounts or other more-affordable terms. The changes willparticularly focus on a type of loan structured in such a way that theborrower's outstanding balance sometimes grows month after month. J.P.Morgan inherited $54 billion of such loans with its takeover of thebeleaguered thrift Washington Mutual Inc. in September."

Fear On Eve of Election

Mr. Candidate X has a comfortable lead onmost polls. The election futures giveCandidate X an insurmountable lead. Yet, a handful of polls show the race tobe tight,and we have heard anecdotal evidence from some sources that suggestthatCandidate X's lead in states such as North Carolina may be larger than themainstreampolls show. That means that although the odds of an Candidate X win are fairly good,there is still the possibility of a win for Candidate X. The Candidate X campseems to genuinely thinks so. That means that there is a chance for arepeat of the highly contentious 2000 election. And this time, thepotential ills for the United States, as a country, not a splitelectorate, are different than they were in 2000. For one thing, we now live in a post 9/11 world, and we are in themidst of the very early stages of a possible, yet feeble recovery fromthe subprime mortgage mess. The U.S. now finds itself navigating uncharted waters, with thegovernment having become a significant shareholder in the privatebanking sector, both on the commercial and investment banking branchesof the sector. And the Federal Reserve, the SEC, and the Department ofthe Treasury have become a policy triumverate with no predecessor. The war in Iraq is at a critical stage, as the U.S. and Iraq prepare todefine the terms of the next stage of engagement, the political stage.The U.S. wants to stay in Iraq and build a low profile militarypresence there, with the inevitable intelligence infrastructure,similar to its positions in Japan and South Korea. But the Iraqigovernment, likely influenced by Iran is not having any of it. And more than anything else, the entire U.S. foreign policy is at risk,as any kind of major controversy will lead to significant activity fromRussia, Iran, Venezuela, and North Korea, countries who are looking touse any significant U.S. weakness to improve their position in theglobal influence and military race. As Stratfor.com puts it: "If there is a massive weekend swing (whichmay not become apparent until election night) that forces the electioninto recounts and litigation, the atmosphere surrounding this electioncould create political chaos in the United States, and that would meanthat issues from Bretton Woods II to the status of forces in Iraq, toRussian plans in the former Soviet Union would all be affected. Bush’sability to govern — as with all lame ducks — would be compromised, notransition would be in place, and the United States would be paralyzedpolitically. Credit Card LossesExpected To Be Next Major Problem It is possible, although it is still uncertain, that we are starting tosee a bottom build in the subprime crisis. Yet, aside from a worseningemployment picture, there is now rising risk of a major credit cardbomb exploding. According to Marketwatch.com, Citigroup went from having a $169 millionprofit in its credit card securitization in 2007 to a $1.4 billiondollar loss in the same business in the third quarter 0of 2008. And thecompany is expecting the trend to continue. Citing an SEC filing from Citigroup,Marketwatch added: ""Credit card losses may continue to rise well into2009, and it is possible that the company's loss rates may exceed theirhistorical peaks." And there are some grizzly details as the company has set aside "$3.9billion to overall credit reserves, including $2.3 billion for itsNorth American consumer business and $855 million for consumer businessoutside the U.S. Citi said the additional reserve to the North Americansegment was mostly due to a weakening of leading credit indicators,including higher delinquencies on first mortgages, unsecured personalloans, credit cards and auto loans." Conclusion The world is clearly watching the U.S. election. Any kind ofcontroversy will likely set some major wheels in motion on all levels. Politically and militarily, the usual suspects, Russia, China, Iran,Venezuela, and North Korea, not to mention Hizbollah, Al-Qaeda, andother insurgent groups, will be looking to make inroads into theirability to make life difficult for the U.S. Already we have seen violence increasing in parts of Southeast Asia,India, Pakistan, and the Middle East. South American governments, such as Mexico and Columbia. are havinginternal problems related to drugs and corruption Left leaning regimens in South America, such as Bolivia, are startingto unwind their associations with the U.S. That means that there are two potential issues here that couldaccelerate. First, the ability of the U.S. to influence policy in its ownhemisphere, and with allies abroad will decrease. And second,adversaries of the U.S. will see any weakness in the U.S. as anopportunity to advance their own interests. And for investors, it could be the end of the recent calm as the feeblyrecovering financial markets won't take kindly to anythingextraordinary happening, and that volatility could be back en vogue.The problem is that this time any volatility would start with themarket already down over 25% from its highs by any measure. This, of course, would mean that any down leg would be most unkind toanyone who is long going into the election.

Chart Courtesy of StockCharts.com Market Moves Oil Service HOLDRS Trust (AMEX: OIH)Tries Recovery Mode The Oil Service HOLDRS Trust (AMEX:OIH) has bottomed along with the stockmarket, but it's future trend remains in question. Chart Courtesy of StockCharts.com Energy investors have a problem. Oil and oil service stocks are cheap.Yet, with the price of oil having fallen significantky, and in theshort term thinking of corporate executives this could be anopportunity to decrease exploration and service commitments. That means that earnings for oil service companies could start to fallif the current push for more drilling and exploration falls by thewayside. The slowing in global demand for oil is another factor to consider. Ifthe subprime mess and the credit crunch abate, it is possible thatdemand will once again rise, and with supplies still capped at currentlevels, this sector could once again be on the move. One way to solve the problem is to take a very long term view and tobuild small positions in oil service and to monitor their activity. Ifthere is a major break in prices, then small losses should be taken andthe sector should be put back on the watch list. In other words, this is a sector that is most difficult to time at themoment. Make money whether the market rises orfalls. Get Dr. Duarte's All NEW "Trading Futures For Dummies." The TradingManual for All Seasons. Updated, revised includes new charts, and fullchapter on ETF timing.

© Copyright 1996-2008, Kollar MarketAnalytics, Inc., All Rights Reserved. Market IQ reports may not be redistributed withoutpermission. Disclaimer: The financial markets are risky.Investing is risky. Past performance does not guarantee futureperformance. The foregoing has been prepared solely for informationalpurposes and is not a solicitation, or an offer to buy or sell anysecurity. Opinions are based on historical research and data believedreliable, but there is no guarantee that future results will beprofitable.