Can Bank of America Break $14?

I’m still miffed at Fed Chief Ben Bernanke for not speaking
with confidence about the U.S. economy. For a group to succeed, it must have
confidence that it can succeed.

Generals know this. Coaches know this. But for some reason,
Ben Bernanke just can’t bring himself to give the economy a vote of
confidence.

But perhaps he’s competing with the Bank of Japan and
China’s government in the great race to the bottom for currency
valuations.

China pegs its currency primarily to the U.S. dollar, so we
do its dirty work. The BoJ recently started actively intervening on the
currency markets after its repeated threats to do so failed to lower the
yen.

Perhaps Bernanke, after recently re-starting its Treasury
purchases, is simply keeping pace with his cautious tone and promise
(threat?) to “do more” if the U.S. economy weakens.

The more I think about it, the more I think Bernanke’s
uncertainty is a front to keep traders uncertain about the U.S. dollar.
Outright bullishness on the U.S. economy would likely ramp the U.S.
dollar.

Maybe I’m making it
too complicated. As one prominent hedge fund guy, David Tepper, told CNBC
last Friday, if the economy improves, stocks will do well. If the economy
doesn’t improve, the Fed will step in and everything will do
well.

The stock market is certainly sending us a signal. I suspect
we have one of those trading windows where stocks continue to push higher in
a virtually straight line for a few months.

We saw one of these rallies off the Feb 2010 lows to the
April 2010 highs. And we saw one that started in mid-July last summer that
carried into the Fall of 2009.

Both if these rallies were noteworthy in that they didn’t
give investors many dips to buy. One had to quickly act with conviction, or
simply sit on the sidelines.

Since August 31, consecutive down days have happened only
once, and that was last week. The S&P 500 looks like it is on a collision
course with the April highs above 1,200.

This is a heavy
week for economic data. Consumer confidence is out Tuesday, the final 2Q GDP
reading comes on Thursday along with a Chicago area manufacturing survey.
Friday is crazy, with personal income, spending, consumer sentiment and the
ISM Index.

If I had to hazard a guess, I’d say spending and the Chicago
PMI are the ones that have to come in good. And spending is the most
important.

Technology stocks have taken over the rally, wrestling the leadership position away from
energy and financials. But that doesn’t mean the early leaders, especially
financials, have given up the race.

As you know, I recommended Bank of America (NYSE:BAC) on
August 31 as a way to take advantage of an imminent rally. It rallied better
than 10% in a matter of days, easily outpacing the S&P 500.

But BofA hasn’t done much since it ran into resistance at
$14.

The stock added $0.43 on Friday to close at $13.60. The
S&P 500 added 23.84 to close at 1,148. Another move like Friday’s puts
BofA a couple pennies above resistance at $14, and the S&P 500 at
resistance 1,172.

According to Wyatt Investment Research analyst Jason Cimpl,
editor of TradeMaster
Stocks, financials are setup to make a big run higher if the group
can take out near-term resistance. To find out more about his assessment of
financials and his trading service click here.

I said I’d include
some reader mail today. These letters are long, but let’s get started with
Greg N.:

I was a business man once, self employed for just under
20 years. I don’t recall ever waking up, going to work, and asking: What can
my federal government do for me today. It seems to me, our government and
political leaders have been working really hard trying to make the majority
of American people a dependent class of people. They deliberately get in the
way and continuously pass one piece of onerous legislation after another that
makes more and more people dependent on the government. Survey all
businesses, and the overwhelming response to the government would be: Get out
of the way and leave us alone, keep our taxes low, and just quite simply
create an environment in which we can thrive and succeed; we don’t even want
to notice that your there!!!

I love Greg’s reference to JFK’s “ask not what your country
can do for you…” And it’s impossible to ignore the feeling that government
has been fixated on “fixing” things, rather than promoting growth. I also get
the sense that government is getting back to the idea that idea that
promoting growth is the way to go.

Gary S. wrote: I have been in construction all of my
life. I am 66 years old, and just retired. I didn’t retire because I wanted
too. I retired because of the current economy.

The first time I was on a construction project was when
I was 7 years old. It was on a Synogogue in Hollywood, Calif. My dad had me
sticking slab dowels in a wall that they were pouring concrete in. Needless
to say that in this day and time you would receive a hefty fine if you let a
7 year old do such a thing. But, I was hooked for life. Over the next few
years I went to work with my dad on many construction projects when I wasn’t
in school. At the age of 12 I started working on a chicken ranch after school
and on the weekends. I did that all the way through High School. At the age
of 17, between my sophomore and junior year in high school, I got a permit as
an ironworker. For the next year I worked on permit every break in the school
year. In August of 1962 I joined the union as a Journeyman Ironworker. That
was just before my Senior year. After High School I worked in the field for
over 15 years. In 1972 I got my Contractors License for Reinforcing Steel
C-50. At the time I was the Superintendent for a small rebar company in
Southern Calif.. Five years later, during the Carter Administration, I
started my own placing company. For 2 years business was good, and I was
building a good reputation. Then in 1979 things started to change. The
interest rates were going through the roof, and the construction industry as
usual took the 1st hit. Construction loans were very hard to get, so my
business started on a 3 year spiral in the wrong direction. In 1982 I had to
close down, even though I could see that the new policies of the Reagan
administration would eventually bring interest rates back down. In May of
1983 I took an overseas job in Sri Lanka. In August of that year my daughter
was killed in Sri Lanka by a snake bite. We came back to the US and I took a
job detailing and estimating for the company that I had been Superintendent
for in the early 70’s. To make a long story short, the next 20 years we were
quite busy, except for 1993 & 1994. In 2004 I moved to Idaho and started
an outside detailing and estimating service. For 5 years I was extremely
busy. Then 2008 happened. You know the rest.

You ask what could government do? I’ll tell you my
thought. Government should freeze or reduce government hiring of beaurocrats.
If we are going to spend tax money on anything it should be fixing and/or
updating our aging infrastructure. That would put Contractors and
construction workers back to work. Beaurocrats push paper. Construction
workers actually build a product. Then government should cut the red-tape,
and let private enerprise do what they do best. This country is the most
over-regulated country in the world. As an example: go back to my beginnings
in construction, and my work on a ranch. They say that Americans will not
take certain jobs. I wonder why. Is it because we have restricted our
children from working through the age limitations we place on them for
certain jobs? When I got my first paying job (my dad never paid me when I
went to work with him) on the chicken ranch I already knew what hard work was
all about. Kids today are told that they cannot work certain jobs (unless it
is a family business) until they are a certain age. Don’t get me wrong. I
think children should be well supervised if they are in any job, but they
need to learn work ethic. I’m not saying we should go back to the 1800’s, but
we need to be more realistic. Other countries train their children at an
earlier age to be self reliant. As those countries become more efficient, and
educated they will have the advantage of adults who have a better work ethic.
We have spoiled our children. As a union member all of my adult life I have
tried to warn the leadership of our union that they were making a big mistake
by asking for too many benefits and pay increases. We have made our companies
non-competitive in the process. Well, I could go on and on. Sometimes I think
I could write a book, but no one would listen to and old ironworker
anyway.

My condolences for your family’s loss. That is
heartbreaking.

Now, I think, in the wake of the financial crisis, we
Americans have taken a hard look at ourselves. And the basic conclusion is
that we’ve forgotten some fundamental American ideals. We’ve squandered
wealth, we’ve spent too much, we bought homes we couldn’t afford and we
trusted Wall Street too much.

It’s high time we re-value a hard day’s work. And I’d like
to read that book.

Robert B. wrote:
I see your point about restoring US jobs. One thing we can do is make the
cost of industrial energy in the USA as inexpensive as possible by creating
domestic supply or at least North American supply. What is the real cost of
Middle Eastern oil when you add the cost of the Military to protect it? If we
are protecting it for the Europeans, Japan, China, etc. let them pay that
cost. However, that doesn’t mean cheap gas for civilian cars or cheap energy
for homes. Energy costs there should be based on a globally realistic price.
It’s ridiculous that Venezuela keeps its gasoline price at about .10 cents a
gallon. We are probably helping indirectly with that subsidy.

Another thing we can do is keep our newest and best
technology at home. My brother works for a company that makes a high tech
product. They’ve shipped the low tech. part of the production to China and
then sell the product in Asia. The Chinese are trying every way they know to
beg, borrow or steal the piece they need to make it all. If they get it our
Co. is in trouble. This is true with many other industries.

If we give the Chinese, Indians, etc. our best
technology, science, etc. and finance their factories, etc. we just can’t
compete on labor, environment, health, safety,etc. My brother’s previous Co.
did that and they are extinct like the Dodo! Globalism has a dark side. We
can’t use our capital and tax dollars to develop proprietary systems,
science, technology, materials here and immediately take them to a third
world country for a few extra dollars profit. I’d tax the life blood out of
companies that did that.

Why?

Because their executives and owners have told me
personally that they are in it for the short term because everybody else is
doing it, etc.. They admit that their factory, industry, product will go
overseas and they’ll eventually be out of business. I realize that it’s not
easy to tax overseas profits. The company can keep its profits overseas. In
fact the Chinese won’t allow my brother’s company to take currency out of the
country. But the USA will have to do something soon or we’ll finally realize
we are bankrupt and the borrowed money is gone or worthless. History has
recorded times like this in the past where rabid, starving wolves, hungry
wild dogs and crazed mobs ruled the countryside. It’s not a pretty
picture!

This letter highlights the point that America is the primary
source for the technological innovation the world thrives on. That’s an edge
that must be maintained.

Tom N. wrote: I
read with interest your comments regarding job creation and you questioning
if the government should be involved. I question the government involvement
but certainly the stimulus package bill of goods did promote job creation as
a fundamental reason for bill acceptance/approval. Much of the money has been
spent to support the infrastructure, fed.,state and local government.

Unfortunately if you peel back the onion I am sure
considerable amount of money has been wasted or just disappeared, more pork
belly.

Job creation, for moving rocks from one pile to the
other, or roads going nowhere is certainly not the answer. We know that as
much as 2/3 of spending is consumer spending and the sector that stimulates
the economy. We not only need the consumer to part with their money but to
purchase products that are produced in the good old USA. I am not talking
about government protectionism. People need to take this action on their own.
I have certainly traveled to places such as Korea, Japan, Taiwan where people
buy their home products. While only from observation, but I would guess, by a
large margin, you will find Korean branded cars traveling the Korean street.
And Korea certainly is heavily engaged in encouraging foreign brands to build
local plants for domestic sells.

Many here may thing they are doing their part by buying
domestic household names such as P&G, but many of these companies are now
creating their products offshore. Yes it is stated it is in the name of
better pricing but one must wonder if the better pricing reaches the consumer
or greater profit for the company. In a recent article, I read from a
conscientious buyer that they read the label on where product was actually
produced. In many instances the unfamiliar brand made in the USA, matched the
quality and offered a cheaper price than are familiar brand.

I read with interest how GM is building a new police car
for the USA market, it naturally will be targeting the municipalities. The
car is actually be assembled in Australia. The USA bails out the company and
they in turn have the product assembled in Australia and want the tax base in
the USA to pay for these, what is now a foreign car. Many people are very
sensitive on buying American but it is time to not look at the brand but the
label to see where it is actually created or built. We now have foreign
companies building plants in the USA, I am in favor of supporting these
products rather than the historical, once was, USA branded that now go off
shore.

Certainly I may be all wet. But it is my simple thought
that such action would encourage more domestic production, more jobs, more
consumer spending, the upward spiral.

Buy American: that’s a great message.

Of course, I’d like to hear your thoughts here: [email protected]