Capitalogix Commentary for the Week of 04/12/10

The Dow Jones Industrial Average traded above 11,000 for the first time since 2008. The real question is whether that is a sign of continued strength or that the rally has climbed too far, too fast?

Smart Money – Dumb
Money Confidence Index

The chart, below, compares the bets made by small traders (a.k.a. the "Dumb
Money"), to those of large commercial hedgers (a.k.a. the "Smart

In practice, Confidence Index readings rarely get below
30% or above 70% (they usually stay between 40% and 60%). When they
move outside of those bands, it's time to pay attention.

more noteworthy is when there is a wide confidence spread with bullish bets by the Dumb Money and bearish bets by the Smart Money. This type of
spread only happens a few times a year. We
often get substantial bullish reversals when that happens.

100411 Smart Money Dumb Money Confidence Index

Conventional trading wisdom says that Crowds are
usually wrong at turning-points.  That doesn't mean they are wrong all
the time (yet I take special notice when the Smart Money clearly disagrees).

Consumer Credit Woes Adding Fuel to the Doubt Fires.

Here is a chart from BusinessInsider showing the Fed's latest consumer credit reading. After starting to recover, total outstanding consumer credit had a massive month-over-month decline.

100411 Monthly Change in Consumer Credit Outstanding

It is tough to stage a lasting recovery without consumers. 

So Where Is the Money Coming From?

U.S. Federal debt has increased rapidly.

100411 Federal Debt Estimate

In a related chart, Doug Short created an
inflation-adjusted view of the debt and an overlay of the tax brackets.  With the 2001 and 2003 tax cuts expiring this year, the question is whether the gross
federal debt will be a factor in determining the direction of future tax
rates? Perhaps, like a young household with good jobs buying a home, the
US can afford the rising level of debt?  What do you think?

Speaking of Debt-Laden Countries.

European governments on Sunday offered debt-laden Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end Greece's fiscal crisis and restore confidence in the euro.

100411 Greece Gets Loan

Business Posts Moving the
that I Found Interesting This Week

Lighter Ideas and
Fun Links

that I Found Interesting This Week

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