Bespoke Investment Group correctly noted that the S&P 500 broke above its 50-day moving average yesterday. They predict that many technical analysis fans will now rush to buy based on this factor alone.

It should be pointed out that similar broaching of the 50-day MA occurred in early May and late July just in time to suck people in at inopportune moments. Anyone with a medium to long-term orientation would have been better served by buying in late June or late August when the momentum crowd was still feeling negative and shares were much cheaper.

Dr. Paul Price

www.BeatingBuffett.com 

www.OptionsProfits.com

For seventeen straight weeks ‘mom and pop’ investors have been heading for the hills when it came to equity based mutual funds. They’ve withdrawn huge amounts ever since the market peaked in late April and accelerated their pace after the ‘flash crash’.

Particularly noteworthy is the fact that even as retail investors have been exiting en masse, the S&P 500 held virtually unchanged from mid-May through August.

What does this tell us? As often happens at crucial moments in the stock market, shares have been moving from weak hands to strong ones. The public panicked and gave away their shares at bad prices to professionals who knew better what the merchandise was truly worth.

This would also explain why we’re starting to see much improved volume in merger and acquisitions. Private equity investors and companies alike are seeing enough hidden value in other firms to offer premium priced takeover offers that still make economic sense. This is perhaps the one saving grace in the Fed’s ‘near zero’ interest rate policy. Financing costs are now at historical lows for companies that need debt to do deals.

Dr. Paul Price

Just one week after posting the most Bearish optinions since March 9, 2009 the AAIA survey shows much more bullish/less bearish readings. Nothing like a 255 point up day in the DJIA to sway people’s attitudes.

Eddy Elfenbein’s Crossing Wall Street listed some interesting statistics concering the behavior of the DJIA from Mid-term election years through Presidential election years…

September 1, 2010 A Look at the Mid-Term Rally

The stock market has historically done very well from its low point during a mid-term election year to the high point during a presidential election year. Check out the numbers:

The Dow’s lowest YTD 2010 was 9,686.48 on July 2^nd.

 An average, 57% rally, would bring the Dow to over 15,200.

Even the lowest 22.40% gain would take us back up to 11,856 again.

The San Diego daily newspaper reported today that their fine city had the highest budgeted cost per firefighter in America at $210,648 per man annually.  This number includes pay and benefits but does not take into account unfunded pension liabilities which are now projected to be huge and growing.

Police and Firemen are eligible to retire after just 20 years regardless of age. In many states they qualify for pensions based on  (2.5% times the average of their highest 3-years of earnings including overtime). That means that in San Diego someone who started at age 20 could retire at age 40 with 50% pay for the rest of their life. With many men now living well into their 80’s and 90’s the stream of pension checks could easily extend for 45 years after a 20-year retiree left active service to the community.

If the actual salary averaged $125,000 over the final three years pre-retirement (very conservative for big cities today) these 40 year olds would collect $62,500 (plus any future cost of living adjustments) per year. If that 40 year old lives to 85 he will have received $2,812,500 before any COLA adjustments.

If this same fireman had continued to work for 30 years to age 50 his pension would likely have been about $112,500 per year or a cumulative $3,937,500 by age 85.

It is any wonder our states and cities are all nearly bankrupt?

President Obama just finished speaking about the economy. He said nothing other than the usual political blaming of the opposition party for keeping him from getting America working again. Here are the charts of four major areas of the economy as of mid-August…

Durable goods orders have leveled off after a partial rebound from the 2009 lows.

Initial unemployment claims are rising again.

New home sales have continued their multi-year sales trend decline.

Existing home sales have plummeted in the wake of the two absurd homebuyer home credits that were set to expire in November and actually ended a few months later.

Virtually every policy Obama has implemented has failed to accomplish his goal of creating jobs. The enormous expenditures, however, will depress the economy for years to come.

I continue to own stocks as one of the few asset classes that could survive the inevitable collapse in the foreign exchange value of the $US. Bank deposits and dollar denominated debt are likely to lose buying power dramatically when the rest of the world refuses to roll over their $13 trillion plus in US government paper.

These are some powerful quotes to see back to back.

What you think about them will depend on which side of the fence you live on.