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Delayed Gratification Less Fun, Better For You

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Quick government fixes not in economy's best interest.

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It wasn't pretty but the market climbed out of the abyss yesterday. On a technical basis certain numbers are beginning to really stand out.

$144 for crude oil, when it doesn't hold the pullbacks, has been stunning. Sure, crude is down because the global economy is feeling the pinch but why is that news? For me the bigger number in crude is $135 and then $132 -- the ultimate test of near term support.


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By the way, I don't think it was a coincidence that crude oil really began to feel the heat after the president pushed his plan to allow off shore drilling. Those that say it's a gimmick or that it won't provide a short term solution are not only missing the point but are emblematic of the problems the US faces as a nation right now. When did long term thinking become such a bad thing? Just think of the biggest problems facing the nation now and consider if there wasn't always so much pressure to perform right now. How much better off would we be? When the housing boom peaked in 2005, banks decided the party was too much fun so they lowered the bar (as much as I say banks shouldn't be vilified as predators the fact is they were blinded by greed) and stretch music for another year. General Motors (GM) was making too much money on SUVs to even consider their faith if crude oil shifted higher.

Of course, why would oil move higher? It's not like there's a limited supply, right? So much of this thinking can be traced to the incessant need to feel good all the damn time. Americans take it as a constitutional right that they must feel good. Folks, there's a difference to the pursuit of happiness and mandating that everyday is wine and roses. That mentality has really seeped into the stock market where executives at publicly traded companies have shorter term goals than a sixth grader. They must perform every three months, so toss those five year plans out the window, or face cataclysmic destruction of enterprise value even if the miss of the consensus earnings estimate is only by a penny. I simply can't fathom why politicians continue to put the appeasement of their constituents ahead of the common good. Of course wealthy folks can handle $4+ gas but what about those less fortunate?

I really wonder if we're going to squabble our way to bankruptcy with so many assets underfoot. What a shame.

For the Dow the key number is 10,980 -- which I pointed out last week -- and has (remarkably) held on a closing basis since. Okay, so it closed a little below that magic number yesterday but close enough to claim victory if indeed the market makes some kind of stand. Most casual observers and non-technicians may feel badly the Dow could finish above 11,000, especially since it was actually up as much as 60 points with less than an hour to go in the session. By the way, I don't want to look at yesterday's chart of the Dow over the last week but from July 6, 2008 when the uptick rule went into effect. I mention this because yesterday SEC chairman, Christopher Cox, announced his agency would disallow naked shorting in Fannie Mae (FNM) and Freddy Mac (FRE), which means investors that want to short these stocks must borrow the shares first. This new rule will be in effect for the next 30-days.

I think it's a good decision, albeit very late in the game to stem this massive bear raid. The fact of the matter is the stock market has been going down a slippery slope since the SEC changed the so-called uptick rule, which meant stocks didn't need an uptick before they could be shorted. I'm still not sure who thought that was a good move. According to my friend John Tabacco at www.tabaccomedia.com, the SEC thought they would be okay because of a provision, the Location Requirement, which would mean firms would have to have a bona fide route to acquire the shares (know their location). That part of the deal was never enforced and the shorts have been growing and marauding like Huns ever since.

Talk about a loss of faith, is it any wonder that the financial institutions that are supposed to be under the protection of the federal government were the ones hammered the most in yesterday's session? What the heck! No wonder Representative Jim Bunning (R-Tennessee) beat up Hank Paulson like a piñata.


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No positions in stocks mentioned.
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