Sep 15, 2008 - Issue #128

Moral Hazard Meltdown?

Moral hazard meltdown? Not according to our Dow component score card. Not yet, anyway.

CNBC's Kudlow & Company commentators, guest speakers, and various analysts have expressed concern that America is moving toward socialism by privatising profits but socializing losses. Could be.

Too big to fail!, Taxpayer bailouts!, Rewarding poor management! In an election year, are you kidding me? That would be strange behavior, indeed, for politicians running for high public office. Even if politicians secretly favor such (which they probably do) would they dare? Would our economic system survive?

On the other hand, at the risk of showing my age (I'm such a dinosaur!), I remember the advice of Liz Taylor's late husband, Mike Todd, who made and lost fortunes before his untimely death (1958) in a private plane crash, saying, "Always borrow huge amounts of capital. That way, if things don't go well, the bankers will be forced to keep you in business for fear that, if you go out of business, you'll take them with you."

Isn't that what's behind all the rescue efforts we're currently witnessing?

Admittedly, I don't currently see anything techniquely attractive on either the buy or sell side in this market. Isn't this exactly the type of market environment favored by the 'iron condor' option spread traders?

Heads Up:

During the next two weeks, the following Dow components will report earnings. Keep a sharp eye for 'surprises'. You might be able to catch a nice swing in the week or two leading up to 'Earnings Day':

9/18 FDX (Dow Transportations).

Dow score card for the week ending 9/12/08.

DJ-30: 11421.99 +201.03 +1.79%. The Real World (arithmetical) DJ-30: 46.76 +0.82 +1.79%.

UP: 22, Down: 8.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 7 (+5) 23%:

+*BAC, +*GM, HD, +*JPM, +*MCD, +*PG, WMT.

Consolidating (Generally Lower Highs/Higher Lows) 18 (+6) 60%:

+*AA, AXP, +*BA, C, +*CAT, +*CVX, DD, +*DIS, HPQ, +*IBM, JNJ, +*KO, +*MMM, +*MSFT, T, UTX, +*VZ, +*XOM.

Declining (Generally Lower Highs/Lower Lows) 5 (-11) 17%:


+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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