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Austerity and Buy Signals

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Austerity American-style; is it too early to change the course? Obama wants to ditch sequestration, and he will use the typical talking points. On the White House website, sequestration is being blamed for cuts in after-school programs that will affect 1.2 million kids, along with the elimination of 30,000 teaching jobs, meals for more than four million homebound seniors, and less funding for first responders in local communities.


Of course, the administration does not like to talk about any cuts to spending – spending that includes attempts to make emergency unemployment insurance a permanent fixture. The left-leaning Economic Policy Institute correlated the expiration of such long-term benefits with a drop in fewer people who were lifted out of poverty.

Yet… we learned this week that of the three million jobs created last year, 1.8 million of those jobs were directly linked to people getting back into the job market and pounding the bricks after exhausting unemployment benefits.




Jobs Created from Expired Unemployment Benefits


In addition, President Obama has taken a lot of victory laps about the deficit being cut in half. Obviously, it is back to where it had been when he had first taken office; down from the trillion dollar levels that have hit it four years in a row.

ObamaDeficit Balloon Amount%GDP
2009$1.4 trillion9.8%
2010$1.3 trillion8.8%
2011$1.3 trillion8.4%
2012$1.1 trillion6.8%
2013$679 billion4.1%
2014$486 billion2.8%

President Obama calls his economic policies that limit the amount the rich can earn, “middle-class economics”, but do people in the middle-class want there to be limits on how much they can earn – wouldn’t that be the destruction of the American Dream? I believe if they lower taxes, then that could spark a real economic revival far greater than cheap gas, because the actual paycheck would be larger. The truth is that our austerity program should be even more robust. This is a start, so let’s not blink.


Technical Victory

However, the way it happened is what’s really impressive – an intra-day reversal from what could have been a disaster. That’s the first part of what constitutes one of my favorite buy signals – especially for a trade. You can see the index is still in short-term down trade, so we need to clear that and take out yesterday’s high.

Over the last couple of weeks, lots of investors have been burned selling stocks on earnings. In many cases, the earnings were good-beating on top and bottom. That was the case with CARBO Ceramics (CRR), which posted earnings that beat the Street convincingly, and yet the stock was hammered with another dip in oil.

It’s clear to me that there was panic selling, mostly among individual investors who were exhausted, while smart investors stepped in.


Sometimes noise is louder than facts and stocks react to that. As an investor, you must be zeroed in on the latter – also known as fundamentals. I love when ideas I recommended stage remarkable rebounds like Harman International Industries (HAR) yesterday, and The Boeing Company (BA), the day before. However, I get very depressed, because some subscribers always sell, even as I plead for them to hold.


The oldest axiom is to buy low, sell high, and look for reverses to be a guide.

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