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Cutler's Stock Market Blog 2009-2-12 (Thursday Evening Update) STOCK MARKET SAVED BY MIRACULOUS LATE RECOVERY / LEMMINGS / CREDIBILITY SLIP SLIDING AWAY
PREPARING PENMANSHIP POST PARTISAN PUSHBACK PROGRESSED PREDICTABLE PALTRY PASSAGE OF PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY POWERFULLY PRE-PACKED W/ NON-STIMULATING PRETENTIOUSLY PUFFED PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 12 (Thursday) – Pretty wild session on the street today. When the Retail Sales came in better than expected I thought my view that the stock market would battle through and hang on looked promising. Expecting prices to go down at the open, they just kept sliding until they were down more than 200 points in the early going. Then a rapid rally cut the decline to just 40. Later in the day weakness persisted and there were new session lows off 235 points and breaking the 7700 level coming into the final hour. The improvement was coincident was rumor or news that the Obama admin was looking into ways to subsidize the homeowners with drowning mortgages. In a miraculous LAST HOUR comeback, the DOW lost only 6 points, most other averages, and broader indexes made it back to the plus side with NASDAQ gaining 11 points (.73%). An amazing turnaround with the market on the precipice of serious technical violations, the kind which when breached often brings in a cascade of selling. I’ve had a pretty good handle on things lately. At the 8300 area my thought was to get defensive and establish some minor hedge position (using SDS). I would close those out for a profit now. Last week I also iterated expectations that the recent calmer market would give way to more volatility and that there would be further anxious testing of the base area. You saw today’s action. GOLD again pushed higher, $8 today and this market has been providing outstanding returns, the kind one gets in a real Bull market. OIL fell $2 and made a new low below $35. Friday should benefit for today’s turnaround but my sense is that there is still going to be hesitation, even with the non-stimulus plan possibly hitting the President’s desk for signature this weekend. There’s no reason to get into a long analysis here. Bottom line is that it will be impressive if the market can continue the turnaround and regain the 8000 level, but that will only happen if there is a catalyst to trigger aggressive short covering. LEMMINGS A significant quorum of the media (the media-elite-doophusalia) today reported on the House Committee hearings from the viewpoint of informing the public on the persona of the bankers and how they “behaved.” Very important stuff! Obviously this was far more important than pointing out the lack of banking intellect (or any intellect for that matter) by the questioners themselves. Or pointing out what a huge disservice to the American public who really does thirst to know more about the inner workings of the banking industry and how the variables of the financial crisis affect their ability to do business. Honestly, I do not believe this is the intention of mainstream media, but rather, it is a reflection of their limited capabilities. Their motive is to reinforce their own ignorant view that the most important factor from 8 hours in Washington was if the bankers were contrite, apologetic, confrontational, or what-have-you. These media types can’t get a real job as they have no skills. No, the big story yesterday wasn’t the demeanor of the bankers, or anything about them. The big story and the ONLY REAL STORY was how scary it is that we’ve elected so many nare-do-wells to represent us. Did anybody report this? You will seldom get a chance to see so many doophusalia expose themselves in one convenient setting as a Congressional hearing. ADMINISTRATION CREDIBILITY SLIPPING AWAY FAST The credibility of the new administration is disintegrating faster than ivory soap in a pounding rainstorm. Obama’s inexperience is growing more visible every day. We need him to succeed and we want the country to succeed, but he’s going to have to come up the learning curve faster than this. You see, when the public pre-election debate centered on “experience” that was a critically important debate. The reality that Obama never had executive responsibility for anything was the most important topic of all. Running a business, even a small one is tough enough and requires certain disciplines and certain skills. And here we have a guy who went straight from never running anything to running the most complex and largest organization in the world. Running a campaign does not equate to running a business with executive stewardship, it equates to having community organization skills, which we already know Obama is an expert in. Coming out in a wide public forum to inform Americans that the next day his Treasury Secretary would be forthcoming with explicit details set a very high expectation. That expectation was not met…. Not even close. Obama tells the general public that virtually all economists from across the ideological spectrum support his economic approach, yet there is a large contingency of noted economists who absolutely oppose the current plan. The United States spent a decade reforming the welfare system and Obama is bringing it back under the euphemism of “tax cuts for 95% of the people”. Tonight Judd Gregg has removed his name as nominee for Dept of Commerce citing irreconcilable philosophical differences. There’s two types of people out there in our country these days :
1) the kind that love to hear Obama talk and they don’t care what he says, and many don’t even understand what he is saying nor have the ability or will to question any of it, but because it sounds so intelligent, so smooth, without stutter, and with a wry sense of humor they just love to hear him talk and can’t get enough of it;
2) then there are those who hear what he says, listen closely to the words and question the meaning, purpose, and intent of his stated propositions and challenge the ideas and the logic behind them along with the substance of the words.
Which group are you in? We got a long holiday weekend ahead and thank heavens. Don’t know about you but I’ve been exposed to as much doophusalia as one can handle this week…. so I will check back in with comments on Monday night. - gc
2009-2-11 (Wednesday Evening Update) STOCKS BOUNCE AROUND TO CLOSE MILDY HIGHER / WASHINGTON DOOPHUSALIA PUT ON CLOWNY SHOW
PARTISAN PUSHBACK PROGRESSES PREDICTABLE PALTRY PASSAGE OF PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY POWERFULLY PRE-PACKED W/ NON-STIMULATING PRETENTIOUSLY PUFFED PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 11 (Wednesday) – I knew today was gonna be interesting and despite a quietly positive gain of 50 points, there were fascinating developments throughout the session; more on that later! The bias was pleasantly positive with over 1700 gainers versus 1100 losers on the NYSE. Stocks mildly bounced up and down across the neutral line a few times, but all averages closed higher. Stocks seemed to get the final lift needed to keep things positive when the House & Senate agreed on a compromise for the non-stimulus package. Bank stocks were notably strong while energy stocks were the big losers as OIL plunged toward the $35 level. But the star of the day, once again….TA…DA…. GOLD - climbing $24. Unlike the other day, today mining shares surged along with the metal, Goldcorp(GG) up 6+%, Kinross(KGC) up 8+% and our favorite, Gold Fields(GFI) up 12+%. I hope most of you are overweighed in yellow metal as I am and as I’ve stressed many times over. GOLD is in a Bull market, there is virtually no other market I can say that about with confidence. The bounce back wasn’t too strong given yesterday’s horrifying episode, but at least it was up and there’s something to be said for that. It could have been much worse and some thought it would be. Tomorrow is the week’s first real confrontation with new economic data points as Retail Sales, Jobless Claims and Business Inventories are all set to rock the street; the first two, the more important ones, will be out in pre-market. There’s always a cautious atmosphere when we are forced to be reminded about the rate of job loss and the difficulties in the retail sector, the part of the economy that most closely represents how things are really doing on Main Street. Somehow I think the market is going to hold things together here despite more poor news on the economy. Maybe it’s partly relying on the technical positive divergence we discussed yesterday. Maybe it’s the market’s ability to return immediately to internal strength today with all what was going on. SEARCHING FOR LIFE ON MARS (THE INVESTMENT BANKING INDUSTRY SPAWNS A REAL IPO!) As a side note, there was a sign that there is life on Mars. I mean… life in the underwriting biz as the first IPO in 3 months made it public today. Mead Johnson Nutrition(MJN), a spinoff from Bristol-Myers(BMY) who retained 85% ownership, came public at $24 a share. This company is the leading producer of baby formula. Demand for shares was strong enough that the offering was increased by 5 million shares. On a lark I put in for 200 shares and got 100 placed in my account at the IPO price! The stock closed up over 10% to $26.43. Hey folks, you can make money in this market! HOUSE FINANCIAL SERVICES COMMITTEE WASTES HUGE OPPORTUNITY TO EDUCATE THEMSELVES The elite doophusalia were in full regalia today. The House Financial Services Committee blew it. They missed a royal opportunity to gain keen insights about the complex issues and elusive variables confronting the banking industry as they wasted the chance to make good use of 8 hours on the Hill by the 8 Banking CEOs. Hosted by Committee head Barney Frank, defender and promoter of Fannie Mae. In the morning I happened to catch an interview Frank gave to CNBC and to his credit, Joe Kernen topped his questioning by saying (paraphrasing now) – Hey Barney while you’re after answers to questions from the bank execs, there are many who feel you‘ve got things to answer to yourself with your role in creating the housing bubble. Frank, the consummate politician sloughed it off by saying he took over as Chairperson in 2007 and then blamed the other party. Barney seems to think that life begins as committee chair. He seems to think that all of his actions prior to that have no accountability. Well folks, there is a history and here is one snippet from earlier years when he was a high ranking committee member and voraciously defended Fannie and the promotion of housing for everyone. DOOPHUSALIA ON DISPLAY – THE SGT SCHULTZ AWARD GOES TO THE GENT FROM MASSACHUSETTS Oh, back to the main topic….. Yeah, those doophusalia in Washington. Yeah they couldn’t wait to sink their fangs into bank CEOs. How do we elect so many officials with so little grey matter? Three-quarters of them had no interest whatsoever to learn anything about the intricacies of the issues facing the banks in the current crisis. They deprived all of us Americans the chance to actually learn something. Nope, they spent their precious minutes either lambasting, criticizing or polishing up stale Perry Mason routines trying to get to a “yes or no” answer to a question to falsely validate what their pre-conceived beliefs are. What a joke! One guy from Massachusetts, Rep. Capuano, a potential poster-boy for the collective doophusalia, was screaming so loud at the bankers, reprimanding them, imploring them, commanding them to get the g’dam money they were given, out to the public, to make more loans. He screamed that “he was amazed none of them had been prosecuted yet!” How do we end up with so many uneducated representing the masses? Thankfully, the next questioner had the sense to allow the bankers to elaborate on how the money was NOT for the purpose of lending, but was specifically focused for stabilizing the banking system. Yeah, that clown with his political grandstanding wasted his 5 minutes to make a complete fool of himself. Spends all his time on the Hill and doesn’t even know what the purpose of TARP was for! My question is why do all these blind extremists seem to emerge from the same party? The statistical distribution seems to defy odds. For today’s great performance, the SGT SCHULTZ (from Hogan’s Heroes) ‘I KNOW NOTHING AWARD’ goes to Representative Capuano who clearly had no inkling what the TARP was for and who’s rant may keep the blood pressure drug manufacturers in business for at least another year. DOOPHUSALIA ON DISPLAY IN WASHINGTON (AND WE’RE NOT TALKIN’ ABOUT THE BANKERS!) At one point my wife came into my office for her morning backrub. I was pointing out how the doophusalia in Washington were wasting everyone’s time, especially the American public with staged grandstanding and prepped soliloquy from the kings and queens of doophusalia when suddenly one gentleman posed an incredibly insightful sophisticated question. One so articulately stated and probingly structured that I said to my wife “ok here we go, finally a smart question that will elicit some in-depth insights as to how the banking industry is confronted with and dealing with the problematic toxic assets and the issues that come into play.” The question completed, we were glued for the bankers to begin their replies when ole Barney Frank chimed in “your time is up, there will be no answer”. Oh NOOO!!!!!! And then came the best part!!! Maxine Waters starts a rambling which was so discombobulated, even CEO Ken Lewis staring at her in amazed disbelief finally blurted out “I have no idea what you are even talking about.” And the dais of 8 CEOs seemed to look around and agree with the same bewilderment. Even the Committee panel was dumbfounded and the committee chairperson did the smart thing and asked her to stand down. WOW! These are our representatives. We could have learned so much useful information today. But it doesn’t stop there. Later on, FOX had Maxine Waters on with Alexis Glick who seemed to be cheering her on and encouraging her. Why is anyone propping her up? Goes to show that the doophusalia is not limited to Washington…many in the media are also proud members of this exclusive club. This country needs a serious upgrade of its representation starting right with Waters. Half the representatives asked the same question over and over. Most of the rest were there to make a point so they could go back to their constituents to brag about how he/she told off those terrible bankers. About 60% of them didn’t even understand the banking business and a few more didn’t prepare too well. One Representative from Texas asked a question without even knowing that Goldman isn’t even in the consumer lending business, which they had already stated in an earlier answer. SO not only didn’t this guy prepare, he wasn’t even listening. These are the people we elect. IS there any wonder why we are in a mess? WE, as Americans could have learned a lot of useful inside baseball today to help wrap our minds around the process of the financial crisis. Instead we got a sideshow. And many of the media-type doophusalia only will write about whether or not the bankers were “contrite” or “apologized” and that will be the entire message from the public hearings. After all, those who can’t teach, write for the media…. Look at the pathetic state of the New York Times. You think that’s because those people are smart? OR is it because they are full of themselves? So tonight many in Washington are at their cocktail parties patting themselves on the back and reveling in their joy of how they really gave it to those bankers today. What a shame. This was a chance for Americans to learn something. Something useful. We were deprived of a great opportunity. We have to stop sending lawyers and socialists to Washington. As I said, lots going on today….back Wednesday eve. - gc
2009-2-10 (Tuesday Evening Update) INDUSTRIALS DROP NEARLY 5% to 7888 on ALL DAY DOSAGE of BANK REALITY / FRANK & CO DIDN’T FIGHT FOR “WILLIE”
PREDICTABLE PALTRY PASSAGE OF PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY POWERFULLY PRE-PACKED W/ NON-STIMULATING PRETENTIOUSLY PUFFED PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 10 (Tuesday) – Great News! The non-stimulus package was passed by the Senate today. Gee, and the markets fell almost 5%, the worst day in over 2 months. We were looking for increased volatility today and we got it, but we thought possibly first an upside move followed by a downside move. We never saw the upside. The market was under strong pressure all day w/the INDUSTRIALS off 382 points (4.62%). It was one of those across-the board nasty sessions which saw a broad sweep of selling in every sector. Even the mining shares were mostly unable to stay in the black despite the huge $21 rally in GOLD itself. Note that move, again this asset able to resist the kind of broadly based selling that used to prevent any asset from going up. This message is strong for GOLD. Every major stock index was off more than 4% and there were more than 6 stocks lower for each one higher on the NYSE. Stocks didn’t have a chance. There was a tepid pre-market tone which found nothing to grab onto. The sell on the news factor was also waiting patiently to take advantage of recent price gains. Then the big Geithner "Bank Plan" announcement had nothing of substance to grab onto. While markets were grinding lower trying to figure out why the big roll-out was more conceptual and less hard-planned, the Bernanke testimony on Capitol Hill was providing more uncomfortable drone as a backdrop for the market. If that weren’t enough, Geithner then spent the balance of the afternoon answering questions in Congress and that assured that stocks would have no incentive to firm up into the close. Just a gloomy day all around. This close below 7900 is the lowest close for the DOW since the November low, which is the foundation upon which optimistic investors are hoping becomes the major low… the low that marks the end of the down market cycle. MARKET CHARTS SHOWING TECHNICAL POSITIVE DIVERGENCE – IS IT ENOUGH? For what it’s worth, I do see a technical positive divergence here. Note while the DOW drops to its lowest level since the all-important November low, both the NASDAQ (green line) and S&P500 (yellow line) remain above their lows, fairly well above them. This divergence reveals the internal positive bias we’ve been pointing out. What remains to be seen, is if this pattern can hold here for the market to further build upon it. We are once again in a key time frame to test the validity of the baseline that has been in progress. Tomorrow is a critical day for the market to show that it can snap back from this hard blow. A good bottom is made up of many tests. This is the latest. The Bears believe that the market is on the precipice of another wave down to new lows across the board. I think the market is going to build on the positive divergence here. We will see! “WE WERE SUPPOSE TO FIGHT FOR WILLIE” Obama and his administration continue to dupe the public with misleading statements about what caused the financial crisis, repeatedly stating “the policies of the last 8 years failed”. This is just plain wrong. The current financial crisis is not because of tax cuts. It is not because of open trade policies. The public is being told that for one of two reasons…. Either 1) they still haven’t figured out how to connect the dots themselves or 2) they have connected the dots and realize it points back to them. Which do you think it is? Bottom line: Tax cuts do work. Open trade is the right policy, which should be continually expanded. The people in Washington who promoted the quasi-government institutions (Fannie & Freddie) to push banks to make aggressive home loans in the name of broad home ownership for Americans are responsible for the genesis of this crisis. And guess what… some of them are now in more powerful positions than they were before! Some of them are acting out as lawyers grilling people in the House and Senate. They want to get a "yes or no" answer but don't want to understand the logic as to the "why's and what for's" Some of them are behaving as if they had no responsibility and are immune from accountability. Most Americans would love nothing more than if Geithner or Bernanke would say “Ms. Waters, Mr. Frank, Mr. Schumer, if you and your crowd had not enabled, promoted, protected and then defended Fannie Mae from inquiries and scrutiny, we would not be in this mess today. You folks were honored with the privilege of public service to provide oversight and instead you chose to advance your misuse of power and promoted the ill conceived concept of broad home owneship at any price and acted with misrepresentation and a disregard of the public trust. Apparently you did not understand the morale of the story in the movie.... “A Few Good Men.”
Downey (Barney Frank & Maxine Waters, Schumer & Dodd) - What did we do wrong? We did nothing wrong.
Dawson (Obama): - Yeah, we did. We were supposed to fight for the people who couldn't fight for themselves. We were supposed to fight for Willie.
Will the Obama administration ever embrace the truth? Or will they continue to push the big lie (failed policies of the past 8 years), that lie, hoping that enough Americans are willing to be simpletons who will not require our leadership to connect the dots, the way they actually connect, starting with those in Washington who conceptualized broad home ownership and then enabled the entire process to get rolling. Interesting day coming up, catch ya Wednesday nite. - gc
2009-2-9 (Monday Evening Update) MARKET HOLDS ONTO LAST WEEK'S GAINS TAKING WAIT-SEE VIEW ON BANK PLAN / OBAMA & FRANK & AMATEUR BASEBALL
PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY POWERFULLY PRE-PACKED W/ NON-STIMULATING PRETENTIOUSLY PUFFED PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 9 (Monday) – Pretty much as we described, stocks opened Monday cautiously weak and waffled in the negative 30 to 70 zone much of the day awaiting tidbits of news about plans for the big bank plan announcement and progress on the monster non-stimulus package. Given there wasn’t much stimulus to trade on (that’s a pun!) and that the Friday rally was over 200 points strong, for the DOW to lose less than 10 points today was a fine showing. Some of the major indexes closed with slight gains. The NYSE Advance/Decline Ratio was biased 8-7 to the plus. On the one hand there are expectations that Geithner’s statement tomorrow will be enough to provide renewed confidence about the support of the integrity of the banking system to trigger upside in the sector and help the entire stock market. On the other hand, we all know that such highly anticipated events are often greeted by the sell-on-the-news welcoming committee. Perhaps we’ll see both moves, first up, then down. Technology was firm today, especially some of the internet stocks. While the media touts how difficult the stock market is, truth is the market has been pretty decent if one is in the right places. Apple(AAPL) hit its low near $78, today it closed at $102. HealthNet(HNT) had a low of $7.38, today it closed at $17.55, more than double. The low for Schlumberger(SLB) was $36.11, closed to day above $46. KB Home(KBH) touched $6.90 at its low, today it was down half a dollar and closed at $13.50, nearly double from its lows. I could rattle off more but this was a good cross section from different sectors. The point being that amid the negativity and under the cover of a stock market that appears to be stuck in neutral, there has been ample opportunity to generate substantial returns, in some cases 100% gains, which would be more than satisfying to book and spend the rest of the year in cash. Not suggesting we do this, only pointing out that the stock market is performing way better than is being given credit for. Will it last? Who knows? But as I’ve said here for a few months, this is exactly the kind of market a good stock finder can make money in. The other day I pointed out my purchase of a few shares of General Electric(GE) and even though it went down for 2 more days, the 14% jump today now has me up a point. I may not hold it for more than another point, we’ll see. Tomorrow should be an interesting day given all the political winds blowing around the financial issues. Geithner needs at least one blockbuster component of his proposal to spur stocks sharply higher. I believe that is the intention…. whether it can sustain will be the critical factor. Expecting volatility to increase somewhat from recently subdued levels.
FRANK – THE HYPOCRISY OF A CAREER POLITICIAN / OBAMA - NOT LOOKING PRESIDENTIAL Barney Frank has scheduled a Feb. 11 hearing in his committee with the chief executive officers of eight companies, including Citigroup and Bank of America Corp., which got the first $125 billion in TARP funds. He said he plans to focus his questions on their bonuses and other pay incentives, and push them to lend more. It seems this guy who had more to do with aiding and abetting Fannie Mae and preparing the fuel for the housing crisis keeps scrambling to write as much new history for himself as possible to distance himself from his own past and to avoid any accountability for himself. Ironic that he demands accountability from everyone else. So I ask….. Who is gonna hold a Barney Frank accountability hearing? Obama is not behaving like an experienced Chief Executive with his running to Indiana for a public platform to trump up support for creating backing for Pelosi’s Private Plans to Destroy America. The crowd in Elkhart looked bewildered and Obama was struggling to explain the package and how it translates into jobs. I was feeling embarrassed, not only for Obama but for all Americans. Additionally, his call to have citizens drive around the city and report whether or not spending is occurring is amateur baseball. What he ought to do is sit down with Pelosi, get in her face and read her the riot act. Because, as long as Pelosi is running the show, which she is, America, unfortunately, must remain “collectively stupid.” - see ya Tuesday eve. - gc
2009-2-8 (Sunday Evening Update) STOCKS SHAKE OFF BAD ECONOMY, GAIN 217 POINTS ON PROSPECTS FOR HUGE GOV’T ACTION / THAT’S GOLD!
PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY POWERFULLY PRE-PACKED W/ NON-STIMULATING PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 8 (Sunday) – Once the stock market fought off the discouraging 600K decline in the Non-Farm Payroll jobs, it was pretty smooth sailing leading to a 217 point gain to 8280. Prices were lured higher throughout the day in a see-saw ride with snippets of news on progress with Pelosi’s pork-riddled non-stimulus & gratuitous payback plan where the Democrats were working feverishly to bribe the 2 Republican Senators from Maine and a few others. Word that Geithner was preparing an announcement Monday about the new bank package was also causing upward pressure, probably from short-sellers who did not want to maintain short positions over the weekend. The Geithner statement has already been pushed off until at least Tuesday. That could well cause stocks to open lower Monday. We’ll see if markets can carry the rally forward given that delay. With no real economic news Monday (no news is GOOD news), some upward follow through will be tried. The 8375 level was the scene of the most recent upside failure so that level will be watched closely as both a resistance area or upside trigger point. Most of the major earnings reports have been released so that hurdle has been crossed. The stimulus package is slated for a Tuesday vote now that the 2 Maine participants have fallen into line along with Arlen Specter / Pennsylvania. Senator Susan Collins / Maine gave an interview acknowledging her support for the package and it came across to me as quite insecure and she's on the verge of a nervous breakdown. I would be too if I were voting for that monstrosity. The stock market has been able to withstand every slingshot of poor economic data and still hovered around the 8000 axis. Once again I repeat, we are in a long-term consolidation (within a Major Bear Market that recently formed an intermediate bottom in November). The strength from market internals offer stock by stock situations to benefit from sectors which are attracting investor interest based either upon perceptions of safety or belief that valuations have simply gotten too low. GOLD HAS CLEARLY EMERGED AS LEADERSHIP SECTOR On Friday GOLD fell $3 and OIL slipped back underneath the $40 level. I cannot stress enough to keep emphasizing these sectors in your investments, especially the metals. It is interesting to see that shares of individual mining companies are now performing better than the metal itself. You may recall about 5/6 weeks ago I was discussing this phenomena and how the relationship between corporate equity and the relevant commodity markers (when there is one) go through multiple transitions through their long-term cyclical phases. Mining shares had underperformed the metal itself and with the recent over-extended decline in these stocks, it was easy to project that the next wave up (which I believe is JUST getting started) would show a reversal in relative strength. Meaning, that shares would accelerate up quicker than the GOLD price itself. And that is clearly happening. Here is a very insightful interview by Barron’s with Ray Dalio, CIO at Bridgewater Associates this weekend, articulating with a firm grasp the complex nature of financial declines worldwide and the possible paths and time frames we are facing down. Everyone should read it. You may or may not agree, but the perspective is excellent. And he too, likes the GOLD market. While you contemplate - Enjoy this 24 second musical clip of "THAT'S GOLD". Back at ya Monday nite. - gc
2009-2-5 (Thursday Evening Update) IMPRESSIVE TURNAROUND AS DOW REVERSES 100 POINT LOSS INTO 100 POINT GAIN /
STOCK-MASTER G RELEASES BRAND NEW WALL STREET RAP --- UP IN SMOKE!
PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY PRE-PACKED W/ NON-STIMULATING PELOSI PREFERRED PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 5 (Thursday) – Things were looking gloomy this morning as stocks got off on the wrong foot, which is what we expected. The Bank of England lowered interest rates to an all-time low at 1%, though the ECB did not follow suit. Though the downside was not picking up momentum, the 7800 area brought back trepidation that a move down through the November lows could develop soon. It wasn’t clear what would trigger a rally, but it wasn’t long before stock prices started creeping up. It could have been that indications on Retail Chain Store Sales were not as bad as feared, or it may have been the subtle improvement in technology stocks even though Cisco Systems (CSCO) announced a reduced outlook and took the rare step to impart layoffs. Some reports suggested the rally got going on rumors that the ‘mark-to-market’ accounting rules which have hamstrung so many financial companies would be eased. Despite attempts to explain it, stocks put in a much stronger show than I expected and the INDUSTRIALS closed up 101 points to 8063. Breadth was pretty good at 2-to-1 in both markets and major indices rose between 1.5 and 2%, with NASDAQ doing the best. GOLD rose $10 and the US DOLLAR was also higher. It seems after so many years apart, these two markets have suddenly become great friends and allies! It appears the market has once again flirted with and skirted disaster. Actually, that’s not accurate as even with the continued weakness in the most widely followed average, there has been clear evidence of internal strength which included biotechnology, bulk shipping/transport companies, mining stocks and oil and energy. Clearly this is a stock pickers market, the kind we like! Speaking of picking stocks, VISA(V) stayed strong all session and did not come into the buy zone. If it drops below $50 it would be a place to take an initial position with a plan to increase purchases every 5% step down. The two prime factors governing trading Friday will be the early morning release of the Monthly Non-Farm Payroll report, which has a religious following as we continue to watch the tally of the unemployed go up. This could really influence the morning futures trade and set the tone for the entire day. And the there will be the daily grind of news leaking out from the Senate about progress or the lack thereof for a vote on the President’s stimulus package. This too can trigger fits and starts in the market. Investors want something done, but not a rush job that is misguided and misdirected. Obama’s tactic of public strong-arming the process is not a good one and I would think he’d be smarter than that, considering his own party has set him up to look bad in their rush to push out a senseless package. He needs this package to be smart and focused and not full of social handouts because this one bill could define his entire term and he needs it to be successful. Oh, and so do we! The Pelosi/Reid plan, or as I call it,” the plan of the doophusialia” (sounds like a B-rated Horror flick!) is nothing but trouble. Great weekend one and all, see ya Sunday nite. - gc Tonight is the WORLD PREMIER RELEASE OF “UP IN SMOKE!” by Stock–Master G. Hope you enjoy the rhap-sody!
2009-2-4 (Wednesday Evening Update) STOCKS FAIL TO BUILD ON YESTERDAY’S GAINS / ANTI-STIMULUS BILL BATTLE RAGES ON / VISA’s A STAR!
PRESIDENT’S PRESENT PORTLY STIMULUS PACKAGE PURPOSELY PRE-PACKED W/ NON-STIMULATING PELOSI PICKED PROTECTIONIST PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 4 (Wednesday) – I thought stocks would add to yesterday’s gains and for awhile it looked as thought they would. The DOW rallied up 85 points in the morning, slowly gave it back and by midday had crossed into negative territory never again to return to the plus side, losing 121 points. Most of the broader average fell less than a percent. There were some strong groups so if you were in those your portfolio may have actually gained ground. Among the upside leaders were GOLD Mining and Oil Services, 2 areas we have been emphasizing. To see group rotation is an encouraging sign. This has been an element that has been missing in the market for more than a year. To observe this kind of action reinforces the long-term basebuilding case and refutes arguments of another nasty decline dead ahead. That doesn’t mean the market can’t grind lower or even make new lows, it just means that good portfolio strategy is going to have a relative strength whereas there has been no portfolio strategy (other than one that emphasized short selling) that proved defensive in the Bear market (which we are still in). As an example, I see my own stock portfolio is UP 10% for the year while the market as measured by the DOW is down about 10%, this tells me that investment strategy is super critical, and that the market we are in can be played profitably if approached with a solid money management technique. When we look at the groups that were up in a down market, these are exactly the counter-trend sectors that have historically performed well in poor stock market environments. So to see this familiarity is somewhat comforting in that we have historical reference points to lean on. It was also interesting to see GOLD once again up a strong $15 against the backdrop of a firm US DOLLAR. As we’ve been pointing to this eye-popping development lately, the separation of the historical inverse relationship of these two markets, in my mind, frees up the metal to make a mega upside move and I believe this is coming… so stay solid in this group. Tomorrow might be tough for stocks to bounce back. The Cisco Systems(CSCO) earnings release is not bringing any joy. Less help will be the Jobless Claims and Factory Orders slated for release. But we already know those won’t be too shiny. It’s the knock down drag out battle over what is suppose to be a stimulus package but turned into a massive social program. Americans are growing angry that the package is not well targeted at solving and addressing the economic issues that are immediately at hand. The social give outs being slipped in under the guise of stimulus is generating animosity and angst. This is what is holding the market back right now. Barney Frank announced he’s gonna hold a TARP accountability hearing…. But Americans wants to know, who is gonna hold a Barney Frank accountability hearing? VISA (V) – Yesterday I mentioned this stock might be a good opportunity if the shares sold off on the earnings release. Guess what? Figures that the only stock in the world that goes UP in the after market is the one we’re looking at. The VISA earnings report was strong, though they did say they are tempering their outlook. Profits jumped 35% and payment transactions rose 12%. I was hoping the stock would decline on these earnings to create a buy point. Shares jumped 4 points in after hours trading to $52.72 after closing at $49.13. Fear not, tomorrow is another day and shares could easily be trading lower in the morning and I’d be inclined to suggest the $48 area as a good buy point. VISA is the world’s largest electronic payment network. Their business model is excellent. They are not exposed to the risks of retail buyers. In an economic environment that is hurting every sector and literally killing some, to see this stellar performance in the face of all this tells you what a rock solid situation it is. If we ever get into a sustained Bull Market, I’d bet this stock be one of the leaders which would easily work up into the triple digits. But ahhhh, for only a Bull market again. We can still dream can’t we? - Sweet dreams, see ya Thursday. - gcTomorrow is WORLD PREMIER Release of UP IN SMOKE! by Stock-Master G
2009-2-3 (Tuesday Evening Update!)
STOCKS OVERCOME NEGATIVE FORCES TO GAIN NEARLY 2% / THE TRUTH OF WHAT WALL STREET DOES AND DOESN’T DO / THE ANTI-ECONOMIC STIMULUS PACKAGE – “THE AUDACITY OF DOPES”
PRESIDENT’S PORTLY STIMULUS PACKAGE PURPOSELY PRE-PACKED W/ NON-STIMULATING PELOSI PORK PATE’ PRODUCTS (say this 5 times fast!)
Feb 3 (Tuesday) – The market did put in the legit upside try we looked for today and ended on a firm note with most averages gaining just shy of 2%. The DOW INDUSTRIALS gained 142 points and closed back above the 8000 level and breadth was favorable by about 3-to-2. It looks to me like the market is going to work higher, try to regain that 8300 level where the last rally fizzled out. Tomorrow there will be some tricky economic data to dance around, but my belief is that those Challenger and ADP Employment reports are very suspect in their usefulness and the ISM Non-Mfg Index isn’t usually a market shaker, so the green light should be on for a rally continuation. Without a whole lot of extra discussion and evaluation I say that the market remains selectively tradable. I actually bought some shares of General Electric(GE), we’ll see how that works out. I continue to maintain overweighting in Gold Mining shares. I like Visa (V) and with earnings out tomorrow after the close I’m thinking if there’s a big “sell on the news mentality” that will open a good entry point either in the after hours session or on Thursday morning.
WALL STREET – THE MYTHS DEBUNKED – WALL STREET CREATES ENTIRE INDUSTRIES, NEVER ONCE CREATED A MORTGAGE
Wall Street does not create mortgages. Wall Street creates INDUSTRIES. You have never sat at your kitchen table to sign papers with anyone from an investment bank, brokerage firm or venture capital firm. Nobody from Goldman Sachs, Morgan Stanley, Merrill Lynch, Smith Barney, A.G Edwards, Paine Weber, DLJ, Kidder Peabody or EF Hutton has ever been there when you signed your loan documents. Wall Street creates. Wall Street created the Biotech Industry. Biotechnology has grown into a huge part of the nations’ economy. It employs a lot of people. It provides research and development. It discovers new medicines, new drug-delivery technologies. Wall Street funded hundreds and thousands of these companies with tens of billions of dollars at risk going back to the 1980’s. Wall Street took them public. Wall Street gave them ongoing backing, support and access to the financial markets even when most of them were bleeding at a serious cash burn rate. Today the wonders of new breakthroughs for cancer and other life threatening and crippling diseases are the END RESULT of everything Wall Street did. And all that Wall Street did was TAKE RISK. They took enormous risks and allowed investors to take the same risks to share in the benefit in the growth of the industry. Biotech and Life Sciences and all of its offshoots and outgrowths employ millions in this country and around the world. This is what Wall Street and capitalism is and has always been about. Through all the up and down cycles, Wall Street has been at the forefront of emerging industries, whether it be modes of transportation, rail, autos, air travel or the progression of various technology’s like microwave, fiber, telecommunications, networks, Wall Street has been the main force, the main cog. Wall Street backs innovation. Wall Street looks for ways to create value based on multiples of growth. That is the engine that has driven the country. That is the engine that must still be at the forefront. To those who Keep talking down Wall Street, keep it up and see if you can create economic growth. That’s my message to the broad spectrum of “doophusalia” in Washington and the “doophusalia” lurking in various sectors of the media. If anyone wants to know why the mortgage market and housing prices spiraled out of control and went haywire, you won’t find the answer on Wall Street. Go ask Maxine Waters. Go ask Chuck Schumer. Go ask Henry Waxman. Go ask Barney Frank. Go ask any member of the “doophusalia” in Washington who enabled Fannie Mae to take risky paper off local and regional bank books, and who promoted Fannie Mae to take that paper and encouraged the process, and all the years while the housing house of cards grew, the “doophusalia” enjoyed the votes of support in their very districts who were beneficiaries of many of those ill-conceived loans. Anyone blaming Wall Street for all this is not accepting responsibility. Anyone blaming Wall Street is not getting to the core of the crisis. Anyone blaming Wall Street does not want to get to the core of understanding the genesis of the crisis. Anyone citing a payout bonus, no matter how egregious it may have been, is using that as a way to distract and misdirect the media away from focusing on the “doophusalia” who not only are at the source of the financial misery, but are now operating with even more power in Washington and have the audacity to act like they have a clue about fixing the problem. Clearly, the anti-economic stimulus package shows they don’t have any clues, and according to Nancy Pelosi we know that it contained all the Democratic pet projects that have absolutely nothing to do with helping the economy and much of it is actually subversive to economic recovery. What audacity! Clearly, “The Audacity of Dopes”! Anyone think this title has the makings of a bestseller? Back on Wednesday - gc
2009-2-2 (Monday Evening Update!)
MIXED MARKET DESPITE INDUSTRIALS CLOSING BELOW 8000 / IQ TEST SHOULD BE REQUIRED TO ENTER CONGRESS
PRESIDENT’S STIMULUS PACKAGE PURPOSELY PACKED W/ NON-STIMULATING PELOSI PORK PATE’ PRODUCTS (say this 5 times fast!) Feb 2 (Monday) – Monday trading was much like expectations we described on the weekend…. a cautious opening, defensive action all day as prices drifted down and a midday rally attempt. The closing results were clearly mixed. That is an outcome we don’t see too much anymore in the purist sense of the word. Closing data reveals DOW off 64 points (.80%), NASDAQ up 18 points (1.22%) and S&P 500 virtually unchanged and NYSE Composite off about .50%. Can’t get any more mixed than that. I view the behavior as constructive. Having finally closed back below the 8000 level, there was a firm internal tone with the Adv/Dec Line slightly negative on the NYSE and moderately positive on NASDAQ. The S&P is showing good relative strength. Daily New Lows not expanding at any alarming rate. This is truly behavior of basebuilding. I don’t want to say “bottoming” as that implies some near expectation of a bottom from which a sustainable uptrend can emerge. Rather, we are basebuilding. It could take months, could take a few years. GOLD fell $20 but even with that decline recent gains allow it to absorb this kind of session and still be at $905. OIL was off $1.35. Gotta believe tomorrow will be a legit try to move higher. The key test will be if any early rally can withstand the distressed numbers likely to come out on Chain Store Sales. Later the Pending Home Sales Index comes out but isn’t likely to have much of an impact on the market. The bulk of the important earnings reports are out, though focus on ones like Cisco Systems(CSCO) on Wednesday will help shape market psychology in the technology sector, which had a somewhat surprisingly strong performance in today’s down market. THE LUNACY OF A BRAINLESS CONGRESS -- BUY AMERICAN I propose new legislation that requires any citizen who runs for Congress to take a required IQ test and receive a score of 120 or higher. Some lame soul who wrote the stimulus package (Pelosi perhaps???) included a “Buy American” clause. This is the perfect example of mindless populism at work. Buy American is not helpful. Protectionism is not a useful policy, nor should it be acceptable to ANY American. Buy American is a great slogan, but it exposes that somebody has not thought through the critical / unfavorable consequences and implications from such a policy. Not only is the policy regressive and subversive and contrary to what a real economic stimulus plan should accomplish, but it undermines the very fabric of our own economy. Example 1: Many products include inexpensive components manufactures overseas and imported because the final goods are more affordable. If the product must contain only American components it will be too expensive and consumers will not buy it. What good does that do? Example 2: one of many international examples, Canada, exports 60% of their steel to the United States. Do we want to disrupt commerce relations with Canada? Do we want to invoke commerce retaliation and end up with their steel going into cheaper products to be imported? Example 3: What about the huge export economy that provides employment to so many Americans? Do we just put them on the unemployment lines as their business disintegrates? Anyone writing the stimulus package consider any of these things? I know I can’t blame republicans as Pelosi herself stated that they had no ideas the Democrats liked enough to include in the package. At least that helps us isolate exactly who are the "doopushalia" (see definition in Cutler Dictionary up top) in Washington! Are any of the consequences of “Buy American” really helpful to our economy? This “Buy American” reveals two important things to us about the architect of the stimulus package – 1) the architect of this package does not have the brainpower to know the difference between what will help the economy and what will hurt it and 2) whoever wrote the package will pass by no cheap attempt to earn populist support through misguided policy under the cover of a popular slogan. We’re learning soooo much more about certain people in Washington under this new administration! See you all on Tuesday nite - gc
2009-1-30 (Saturday Evening Update!)
MARKET FALLS BACK TO 8000 AGAIN DESPITE HOPEFUL GDP / THE SCARIEST PERSON IN AMERICA
PRESIDENT’S STIMULUS PACKAGE PACKED W/NON-STIMULATING PELOSI PORK PATE’ Jan 30 (Saturday) – This updated has been posted on Saturday because this Sunday has been reserved for  . So the deal on Friday was pretty sad given that GDP was not as bad as expected. Stocks rallied a little from the opening but could not hold ground, with most averages closing the day down approx. 2%. Lots of political backwash particularly about the stimulus package (more on that below) and word that the GoodBank/BadBank concept was running into problems kept pressure on equities. Now the DOW is right smack back to 8000… exactly. Stocks cannot gain any upward traction and mid-week we thought the rally had become vulnerable, this time falling short of 8400 on the upside, a lower high than the prior move. Once again the market is drawn back to the axis where it has been struggling to build a base. And that’s what happens during this phase of a market, any market. Notice how rallies can’t muster steam and averages repeatedly draw back to their support areas like a magnetic force. The fear greeting each subsequent return to the axis is that the support level will fail and of course lead a retest of the November low, and that could well happen if the street can’t find confidence. The January Barometer came in as a big loser with the month being off 9%, the most ever in history, but if you want to look at the bright side this Barron’s article details the statistical anomalies which suggest there’s a 50/50 predictive outcome when January is down…. but it’s never been down this much either. And with Obama bashing Wall Street, which is a misdirection play to keep attention away from the real culprits, the ones in Washington, the pressure to put out a credible plan is growing. Meanwhile investors are finding a Whole Lotta Love (click for super rock vid) in GOLD again. The metal shot up another $19 dollars to $927 an ounce. This rise again coincident with a gain in the US DOLLAR, strengthening our view that the long-standing inverse relation between those two markets has made a meaningful break recently, yes, the long love affair of GOLD coincident with a falling greenback is over. Stay with your metal holdings, we think there is much more of a joy ride ahead, $1,000 cannot be far off. Come Monday the market’s attention will be squarely on the ramblings and grumblings in Washington, especially since there is no new useful economic data until Tuesday when we’ll see the Consumer Confidence Index, the monthly Case-Shiller Home Price Index & the much dreaded Chain Store Sales figures. I’m thinking a cautious opening and maybe a rally try midday to test the waters, unless there’s a real breakdown in talks with either the stimulus plan or the schemes to separate the bad bank assets. This bogus stimulus package is very disturbing. It requires a lengthy discussion which follows….
ignoranCE or intellectual dishonestY? “A nation cannot prosper when it favors only the prosperous" - B. Obama
This is a pretty sad statement coming from one who is suppose to be a pretty smart guy. And this may be part and parcel to electing an academic who caters to the extreme left. Wall Street has created prosperity in America. Wall Street has financed every major innovation and kept the United States at the forefront of technology and progress for 200 years. Wall Street has provided the backing which has led to all major developments and conveniences and the mircales of medical science which most Americans enjoy today, yes, even this “middle-class” group Obama/Biden are now crusading for. Obama bashes Wall Street mainly as a cover-up for Congress and the doophusalia in Washington who allowed the housing market to run wild. The high profile bash of Wall Street is to keep attention away from the real culprits like Barney Frank, Maxine Waters, Chris Dodd and a whole cast of characters who enabled and promoted the concept of home ownership at any price, eliminated Glass-Stegall, created Sarbanes-Oxley and gave Fannie-Mae the OK to take risky loans off local bank balance sheets so they can make those loans with a clear conscience (to collect the fees without exposing their stockholders to the risks) Oh-so-little did they know how it would boomerang back to them! Obama runs around acting like Wall Street was the source of the problems when all Wall Street did is what it always does, survey the investment scene and use creativity to try to create value and wealth (from pre-existing assets, like the mega-tranche of new ones Congress promoted Fannie Mae to create in the housing market). You see, when people run business successfully, when they are productive, when they are innovative, when business grows, more people are employed. When more people are employed, more people move up the wealth ladder. The number of people reaching a million in net worth in this country grew to over 3%, the number of people who went from middle class to upper middle also grew, as did the number of people who went from barely getting by, to being in a more sustainable financial position. Obama’s theme song, “A nation cannot prosper when it favors only the prosperous” is total hogwash. What? Is he badly informed about the real inner workings of capital economics?.... are his advisors ignorant?.... or are we witnessing an expertise in community organization being put into play at the presidential level for the express purpose of providing a shield to keep the focus off Congress? If Obama wants to STAND UP to his campaign promises about “new accountability in Washington”, then it’s time we saw some. The problem isn’t Wall Street, the problem is these same jokers who facilitated the housing crisis are still in Washington, have more power than ever, and act with total immunity. Now they all make like they’re busy solving the very problems they fostered but have no hard-focused plan or even a sensible approach, to address the core variables. Obama’s bold public statement that his stimulus package will be 100% driven to create jobs and would not contain any pork is exactly what followers wanted to hear. In fact, that is ALL they heard. Even critics and political opposition was happy to learn of the presidents interest in a highly targeted plan with pinpoint focus. The fact is Nancy Pelosi, the most dangerous person in America, has written this bill filled with pork, favors, paybacks, and outreach and fails to address the actual problems it is suppose to be specifically designed for. This is the intellect that got us into trouble. Hey, somebody get that damn pen out of that monster’s hands. Unfortunately, the only thing the stimulus plan stimulates is - the affection of those who are already political constituents. Sadly, these are the very folks who either don’t have a clue about why they are supporting a plan that does not even remotely address the problem, nor the gumption to challenge the plan openly themselves. The Pelosi Plan is Packed Perfectly with Plates of Pork Pate. Here is a statement from the highly intellectual Speaker herself…. * Pelosi - “The Republicans were welcome to participate in the writing of the stimulus package, they just never came up with any ideas that Congress liked.” What a joke. Now, this most dangerous person in America, is running the country. People may point to the populist appeal of talking-up surreal bonuses Wall Street execs took, clearly a poor judgment, but the statements and behavior of Pelosi display a lack of sensibilities, so bizarre, they defy any kind of entitlement surrealism one can imagine. Back on Monday nite – gc
2009-1-29 (Thursday Evening Update)
STOCKS LOSE TODAY’S TUG-OF-WAR / PRESIDENT’S STIMULUS PACKAGE PACKED W/NON-STIMULATING PELOSI PORK PATE’
(try saying that one five times fast!)
Jan 29 (Thursday) – Today was the exact mirror reverse of yesterday. The 226 point loss places the DOW INDUSTRIALS at 8149. The NYSE Adv/Dec Line was opposite of yesterday to a “T” with stocks 8 down for every 1 up. The economic news continues poor with Jobless Claims and Durable Goods both coming in weak as expected; only today stocks were not in a position to overcome those data points. Conversely, GOLD rocketed another $20 bucks closing more than $8 dollars above the $900 level, and notably the US DOLLAR was strong today (recall our technical discussion a few days ago when we pointed out the emerging importance of how these 2 markets are no longer moving within their historical inverse relationship). Sometimes on days like this when the precious metal is strong and the stock market is weak, the mining shares have trouble showing gains…. Not today, as most were up between 2 and 6% and one of my favorites (in my Top 12 Stocks for 2009 Report), GoldFields(GFI) rose nearly 10% even on a day when they announced headline earnings for the quarter with updated data on production activities and stocks often sell down on those news releases. After the close Amazon(AMZN) shares jumped on a profit beat and strong outlook. This may help the market regain a foothold to try to finish out the week on a positive note. However, the chances for an “UP” January are essentially gone and this may portend poorly for the year as a whole, but let’s give tomorrow a chance to perform as it’s the final trading day of the month and puffing up prices to close the month strong is often the name of the game. The GDP is the hold-your-breath number that will likely dictate Friday’s trend. Expectations are already pretty poor, around minus 5%, so to better that by even a hair could trigger a rally to regain most or all of these 200 points. These 200 points are the TUG-OF-WAR – on Wednesday the Bulls won, Thursday the Bears won. Kinda like a tennis match with the fans in the stands heads turning from left to right and back again with each volley. STIMULUS PACKAGE IS PELOSI’S PLAYGROUND If the stock market was hoping for one of those late hour recoveries that chance was dashed when Obama came out to publicly behead the investment bankers for taking massive billions in bonuses during a year when most of their firms were self-destructing. Clearly this was poor judgment on their parts and spotlights how sensibility gets lost in an environment where the surreal lifestyle of megabucks becomes the norm in certain circles. But if you think that is bad wait until you get a load of the components of the $825 Billion stimulus package. This is basically the ultimate cover-up for every pet program every Democrat has either openly or secretly wanted to slip through. You’d be amazed at what comes under the cover of “-stimulus”, “- job creation” and “-infrastructure projects.” Pelosi is wallowing in the joy of power. This cannot be good for America. When you have Maxine Waters publicly defending some of her own pet projects, you know there’s pork in the barrel. Waters was one of the staunchest promoters and defenders of Fannie Mae. If you wonder why the GOP is choking at the prospect of passing the current rescue plan you may look no further than something labeled “Neighborhood Stabilization Programs”. This is money being favored toward the likes of Acorn, the same group who almost got a fat gift in TARP-I until the GOP stood up to eliminate that kind of garbage from the bill. While the American populous voted the Pelosi crowd back into even greater power (the lowest rated Congress in history, rated even lower than Bush), it is the GOP who must stand up to save the bacon for these same Americans who know not what they have done. We as a country need to smarten up. Even though stocks may not like the idea of a battle over the stimulus plan, it is imperative that a lot of these private non-stimulus projects be removed from the plan before it passes. Pumping tons of money into gratuitous organizations might be a great way for elected officials to provide political payback and to curry more favor… it’s even a great way to build a stronger backlog of votes for the NEXT election, but that money isn’t gonna stimulate anything except line the pockets of a few promoters. Have a Great Weekend ev’body… back Sunday nite - gc
2009-1-28 (Wednesday Evening Update) DOW POWERS UP 200 POINTS PRIOR TO VOTE ON STIMULUS / FALLACY OF WEALTH DISTRIBUTION ECONOMY
Jan 28 (Wednesday) – Stocks put on a nice show today. The Fed FOMC statement was a long-winded non-event. The rally had a few moments of indigestion but buyers and short-coverers came in for the last 30 minutes to shore things back up closer to the highs of the day. The 200 point gain was a nice 2.46% move, but the breadth was excellent and the S&P 500, NYSE Comp and NASDAQ were all up roughly 3.5%. There was an 8-to-1 upside ratio on the NYSE Adv/Dec Line with over 2,500 stocks gaining ground. We couldn’t find a day with internals like this for months last year. Now, we are seeing breadth expansion return when it looked for awhile that the failure at 9000 on the INDUSTRIALS would possibly lead to another route. I didn’t think so, but many did, and a few days ago it sure felt like it might happen. Now we have the market reaching overbought again and it is still 600 points below the upper trading range boundary. If we see any continuation of today’s action, my advice would be to trim back positions a little or put on some hedge type of strategies. About 6 months ago I switched my portfolio hedging technique and began Selling Puts “out of the money” on the Ultra Short S&P 500 Pro Shares (SDS) – If you don’t know how to do it, or don’t understand it, DON’T DO IT. This is the double leverage short exchange traded fund on the S&P 500. You can simply hedge your position by purchasing a few shares of it. My strategy is more complex and is a technique I use to increase income flow from the portfolio (lord knows you can’t trust dividends anymore!). One day I will explain the strategy, but not today. I’m not saying the market looks tremendously vulnerable here… it doesn’t. I still believe that the market can again approach the overhead level near 9000. However, technically, the market is still in a sideways consolidation and therefore trading swings inside the band of movement is where the opportunity to add/trim holdings to manage risk and increase total portfolio return. Meanwhile GOLD gave back $11 today. It appears the precious metal is in a very high level consolidation, which to me suggests the next move up through $900 an ounce will start an advance that once again tackles the $1000 number. Investors should remain at least 15% weighted in this sector and if you are not, then use weakness days like today to gradually increase your holdings. This 2-year chart of the GLD(right click) shows the long advance from 63 to 99 last March. This market has been in a long 11 month correction which saw the price support above 70 in the 4th quarter. I believe time is running out on this correction. Something is happening out there. The forces are gathering inertia. The price of GOLD is one tripwire away from a renewed Bull market advance, a sustainable one. Will it start next week? Next Month? Six months? Who can say, but I believe it is sooner rather than alter. By the way…Obama Stimulus package just passed Congress without 1 Republican vote, maybe that is one of the catalytic forces looming in the background. THE LURE OF A FAILED ECONOMIC METHODOLOGY The late Dr. Adrian Rogers said this – “You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the end of any nation. You cannot multiply wealth by dividing it.” You cannot multiply wealth by dividing it. There is no clearer way to express this undeniable truth of economic principles . The Communist Manifesto (1848) is the basic handbook for socialism and wealth distribution management, a system which has never succeeded in the human existence. Nor will it. It defies all basic principals of human behavior. What we must understand is that the entire nation was recently swept over by the very ignorant doctrine of wealth redistribution. The only reason the new administration is not able to implement that stated program is because of the very distressed financial environment created under capitalism itself. This may be the biggest irony of all! The irony that one of the largest economic dislocations we’ve had to experience in our lifetimes may actually end up saving the country from a quick shift inspired by a liberal agenda toward a fatally flawed economic system that 100% violates the cogent and sophisticated statement made by Dr. Rogers. There so much irony in the world if we just look for it. Back on Thursday - gc
2009-1-27 (Tuesday Evening Update) STOCKS TOUGH OUT ANOTHER GAIN IN FACE OF NEGATIVE OUTLOOK / TARP, CUMMINGS, AIG, REALITY
Jan 27 (Tuesday) – The market is shaping up this week. The prevailing psychology is being influenced by the fact the market is handling all that is being throw at it, this is a good sign. The DOW tacked on 58 points, small but back-to-back up sessions is a real step forward. The slow progress is exemplary of the grind that is required to work through a basing pattern. Yet we find once again the breadth was better than the main market index. The 1.35% rise in the NYSE Comp was nearly twice that of the DOW. The NYSE Adv/Dec Line even improved upon yesterday’s encouraging session. After the close, futures weakened when Moody’s said it may cut GE’s rating. A few minutes later futures rebounded sharply, along with big name bank stocks on news that the government is seriously considering the Good_Bank/Bad_Bank approach, similar to the RTC (Resolution Trust Company) during the S&L Crisis in the ‘80’s. It takes a while but sooner or later the powers that be eventually come around to an efficient approach to a problem. On Wednesday the key data points are the FOMC decision on interest rates and since they can’t do anything, the usual pre-announcement tremors and trepidations will not fill the air, and you know, that’s a good thing. We’ll also get the report on Mortgage Applications which is worth watching since anything that could signal a potential stabilization on the housing market can only be viewed favorable by stocks. I almost hate to say this but the odds are fairly high for a third up session. Of course I started the week looking for an up move so this is just a confirmation of the market psychology shift we’ve been describing the past week or two. I don’t want to jinx things by getting into too much of a discussion. We’ll leave the technical chart discussion for another day. TARP TARP THAT’S THE PLAN, IF IT CANT DO IT CONGRESS CAN! / CONGRESS NOT SMARTLY REPRESENTING YOUR INTEREST I know many of you watch the various financial shows as I do. You gotta filter most that stuff they talk about as idle chatter. Remember, they are trying to fill time. They are trying to be analysts when they are merely reporters. Everything is sensationalized. The stuff about Citigroup purchasing a private jet is way overblown. OK maybe not the best timing but the order was put in over 2 years ago and there is a multi-million penalty for canceling the order. It is intellectually insulting to see the media and certain pundits and Washingtonians use populist outrage to press the emotional hot buttons to build support. Usually support for something that makes no sense. Let’s look at a real recent example of such grandstanding which appears to be drawn largely on a foundation of ignorance. Before we go there, I don’t want to be misinterpreted…. I am a fan of TARP. I am a fan of taking extreme measures to pile up the sandbags to attempt to break the economic tidal wave. Under normal circumstances I would not support TARP. Normal circumstances are what occur between generational crises of a lifetime. OK, now to the story. CUMMINGS and the AIG SAGA – JUST ONE CURRENT EXAMPLE OF BACKWARDS POPULIST THINKING You may be familiar with Elijah E Cummings, representing the 7th Congressional District in Maryland. After the multi-billion rescue of AIG there was a lot of bad PR for the company, mostly regarding planned marketing / sales events. This guy Cummings became so incensed he took on a personal mission to get on the television to berate and bedamn AIG for these activities. There is so much wrong with his posturing, yet it was such an easy sell to an angry populous. Folks, here’s a reality that is so simple, so trivial, it spotlights just how senseless and directionless and most importantly, misguided, so many of these drill-down conversations are in the media. Here’s the big news:
FIRST: If we’re gonna give a company $85 billion (which we did) and become ownership partners with a serious vested interest in that company’s success, we don’t start smacking them down at every opportunity because it is such a juicy target of passion. We do everything in our power to foster success. The fact is, if we don’t let AIG do marketing and sales and have meetings with potential business partners and make presentations, then we as owners are shooting ourselves in the foot. Maybe Mr. Cummings can benefit politically from the high-profile lambasting sham he put forth, but we as American stockholders in AIG need them to conduct business aggressively, especially in this most difficult economy. The insurance and annuity business is very dependent upon sales and marketing and the key assets are its people and their ability to understand product and make the sale. If you don’t pay them well, they go somewhere else. If you treat them poorly or take away their opportunity to succeed they go somewhere else. If they don’t have appropriate incentives in place, they go somewhere else. It is critically important that AIG conduct seminars and invite their marketing partners to gatherings at central locations. That’s how that business functions. Mr. Cummings, from what I can see, is a professional politician, a political science major and a law school graduate. I’m not sure how much he understands of the inner workings of the insurance business. I’m certain he is an extraordinarily bright individual, much smarter than myself, but I don’t want him talking down the ability of our company, my company, America’s company from being productive and succeeding like we want them to…. Need them to.
SECOND: When AIG spends money the economy benefits. If they cancel that big event at the hotel that may be the last straw for that hotel and it could be sayonara to that business and their employees. When the insurance companies spend at a marketing event, food service companies benefit, local retailers’ benefit, individuals who provide personal care services benefit, car rental companies’ benefit, airlines benefit. When someone like Cummings embarrasses AIG into canceling the event, he is contributing to the lack of spending in the economy and the general freeze up. Economy needs capital to flow freely to prosper. The flow of capital through the economy is like the flow of blood through your veins and arteries. So you see, on the one hand, people are COMPLAINING that banks aren’t lending the money given to them to stabilize their balance sheet, and on the other hand, congress, the media, and mental midget pundits are yelling at companies about their marketing junkets and airplane purchases, which is EXACTLY the kind of spending the economy needs to keep people employed, create savings and to rebuild confidence for consumer spending. But look who’s running the country…. people who can’t figure these things out for themselves. And we just voted Pelosi and her crew back with even MORE power! What a country!!!!
You all may not agree with this. But you ought well spend some more time thinking through the concepts. It goes right to the core of the economic problems. Making an example out of one situation or another doesn’t do that. If we want to make an example out of something, let’s find those people on Capital Hill who promoted the concept of home ownership at any cost and allowed banks the comfort of making risky loans which would be conveniently sold away from their books. – See ya Wednesday. - gc
2009-1-26 (Monday Evening Update)
THE BATTLE OF THE BOTTOM RAGES ON / THE CAVUTO-WELCH DEBATES
Jan 26 (Monday) – One thing people sometimes have difficulty grasping is that when markets are trying to build a base or form a bottom, stocks spend a great deal of time not going up. Even when it feels like a rally gets going, it deflates to the point where upward momentum dissipates quickly, even on days, as today when the averages close higher. It’s a long tough battle. It’s a battle against a backdrop of negatives; Negative sentiment toward the market, negative news about the economy and disappointments in earnings and sometimes the unpleasant reminder that things can get worse before they get better. It’s a long hard battle to fight through a growing list of willing sellers. Today was a perfect example. The market fought hard through some corporate forecasts that were full of gloom and chatter about how belt tightening was the precautionary measure. And another spate of layoffs, Texas Instruments, Home Depot, Sprint Nextel and others announced thousands of new layoffs today. Pfizer also said 20,000 people would be let go as a result of their acquisition of Wyeth today, the largest pharmaceutical deal in a decade. After lifting by 130+ points the DOW INDUSTRIALS withered and sellers forced the market into the red zone, but the Bulls counterpunched all session long and regained a good portion of earlier progress. The closing gain of 38 points equated to ½ a percent. All other broadly based averages were up a bit stronger and both NYSE & NASDAQ Adv/Dec Ratios were nicely positive at not quite 2-to-1. Economic releases were actually helpful as both the Leading Indicators and the Existing Home Sales were better than expected. Even the gloom&doomers have a bad day sometimes! The market has shaken off enough blowgun poison darts to set the stage for a cautious rally. The next big hurdle is the 4th Quarter GDP but that’s not ‘til Friday. Oh, and of course the dreaded weekly Jobless Claims on Thursday. The Wednesday FOMC Fed announcement used to be a very critical factor, but with interest rate targets set from zero to 25 basis points and the economy clearly going in the wrong direction, there can’t be any surprises so I no longer emphasize this event. With the Senate confirmation of Tim Geithner, the market has a green light to try to extend gains tomorrow. Have you noticed Obama’s man simply “forgot to pay his taxes”. Had this been a Bush appointee the trauma and drama and lashing would even cause pain for a castrated gnu! CAVUTO-WELCH DEBATES REVISITED Yesterday I started to tackle this topic. For those who don’t know, Jack Welch, former GE chief has appeared on Neil Cavuto’s business program many times through the years. With the onset of the fire breathing financial dragon they have engaged in a number of healthy debates. Welch says that it was critical for government to apply capital and other emergency measures when the integrity of the financial system was coming apart at the seams. Cavuto took the position that those actions violated capitalism and that basically the chips should be allowed to fall where they may. As I said last night, I am 100% with Mr. Welch on this one. – Had we done nothing and sunk rapidly into depression with DOW at 2000 - the VERY same people now yelling that efforts to support system is a violation of "free market capitalism" would at that time be yelling FIVE times louder why nothing was done if we went down that road - since we won't & can’t know the counterfactual, those arguing against what has been done have an illusive protection on their argument in that WE DON'T GET TO SEE THE OTHER OUTCOME - which I assure one and all would be far worse than what we are currently and will be going to go through – Monetary perspective: it took $4 trillion to get out of the Depression, and the money only came into play as the war effort (that’s WWII folks) finally required it. Adding $1 trillion here and now is only 1/4 of that number - depression is an unacceptable outcome and must be fought at every battleground – the likes of Ron Paul and those of his views would be giving speeches about free markets with 15 million unemployed standing around him, angry, hungry, ....the purity of the ideologue just isn't worth the outcome. I am and have been a proponent of free markets my entire professional life which has been as an investment analyst, money manager and equity strategist, and my market philosophy has not changed at all…. I have a link to This Op/Ed I wrote last year that addresses this very subject. When Bush said that he’s a free market guy, but when the entire economic system is on the verge of collapse, even he knows that action must be taken that falls outside the standard operating mode of the capitalist system. The reason there are college courses in statistics is because the bell curve has some useful applications. And when the main event falls at the furthest extreme of the curve, it requires unusual and extraordinary action. Fortunately, those events only occur once in a lifetime or twice. But to not recognize when that rare event is upon us to fail to take action would be a gross error in human judgment. No matter how it seems today, it could have been a lot worse, doing nothing to avert the tidal wave. – see ya Tuesday - gc
2009-1-25 (Sunday Evening Update) STOCKS COMING OFF LOSING WEEK FACE JANUARY BAROMETER / CAN YOU SAY GOOOOOLLLDDD! / MYTH #1 PERPETRATED BY BUSINESS REPORTERS / WELCH vs CAVUTO
Jan 25 (Sunday) – Even with the DOW down ½ a percent on Friday the stock market weathered the onslaught of corporate disappointment rather well. Most broader indexes actually registered gains with NASDAQ leading the way up .81%. The NYSE Comp Adv/Dec Wine tilted positive by a 4-to-3 margin while the NASDAQ line was ever so slightly negative. As I said last we met, the market would do well to just keep it together and it certainly did that. Even more impressive is that it is doing it while prices of some of what was thought to be the most conservative stables names in the country have collapsed to prices that would seem unthinkable just a year ago. GE below $12? BankAmerica $5, the list is endless. The market has now slipped well off the rally high leading many to believe another down move is unfolding. This week has a lot of psychological importance as it is the final week of trading in January and the first month of the year often sets the tone for the entire year. That’s not just an old wives tale, statistics do bear that out. And while it would be a grand effort to pull out a gain for the month, the psychology of the market would benefit from having a decent week to get to some level of just marginal change even if it be on the downside. With more earnings reports to come (note the addition to the upper section of the main TWF-Stock Market page, right hand column) and the big GDP report (right click to see consensus here) anticipated on Friday, gathering upside steam is a tall order, especially with so many other key economic data points flowing out this week. IF stocks can gather their footing Monday it would suggest resilience and numbness to bad news, the kind of mentality which sometimes leads to an upward surprise. Otherwise we will see more of this listless drift sideways to down, which isn’t so bad since a growing number of stocks are actually holding well and some even starting to trend higher. Meanwhile, it is quite irritating to hear so many unthinking financial media types putting out so much misinformation and steering the public with wrong data. More on this below.... GOLDMEMBER SAYS – “I LOOOVVEEEE GOOOOOLLLDDD” (right click here to see silly/amusing Austin Powers clip) Anybody who’s been reading this thing I write knows I have been strongly emphasizing GOLD and the metals/mining stocks. So just go into the blog archive and do a find/search for GOLD if you want to catch up. The yellow metal jumped $42 on Friday. 42 Dollars. Huge move, closing right smack against the $900 an ounce level. There's something very interesting happening here. Lemme tell ya what’s so interesting…. I want you to right click to open this chart to look at while we chat. I plotted the GLD (blue line) which is a proxy for the price of GOLD against the FXE (red line) which is a proxy for the Euro versus the Dollar. You all know that there has been a close link between the US Dollar and GOLD. When the US currency rises the metal falls and vice versa, this has been going on for years. The relationship has held such a high correlation it’s like it has been tethered with an ultra short rope. Notice the FXE paralleled the GLD pretty close, that is, until last week when there was a very sharp divergence. These are the kinds of things that show up out of the blue and often send a message that something is changing. The message here may be that this longstanding relationship is delinking. IF that be the case that is very good for the future of GOLD prices. This new psychology would “free” the metal from the currency association. OR maybe a different angle, would “free” it from all currency associations. The world may be growing more confidence in precious metal as a long term store of value. This actually makes sense with every major world economy launching massive stimulus programs to fight against economic downturns, the idea that currency itself is being devalued and that the aura on seeds of future inflation are being planted… anyhow you see where I’m going with this? I would continue to encourage high weightings of this sector in portfolios, at least 15%. BUSINESS REPORTERS CITING INFORMATION THAT IS ABOLUTLE MYTHOLOGY I heard a woman ”financial/business reporter” either on Fox or CNBC (can’t recall now and it doesn’t matter WHO it was) claiming that “the banks were given the MONEY to LEND to people like you and me…”. Wrong! It is an absolute MYTH that the money that was given to the banks through TARP was for the purpose of lending it out. The purpose of the money was to STABILIZE the financial system as best as possible. Lending it out aggressively in a risky economy would only serve to deplete those assets quickly and do more harm than good. What we have is a case of very confused anchors and reporters who are trying to address the concept of economic stimulus and liquefying the credit markets with the monies that were allocated for systemic stabilization. The more they put out this bad information, the more that has to be done to debrief the public to get to a fuller understand that these are two separate and distinct problems and we don’t undo a step we took toward finding a solution to the main problem (systemic banking issues) to haphazardly try to address another important, but different problem (downward economic activity). People are listening to this stuff. And I know, it’s not just reporters making these ill thought out comments. NEIL CAVUTO versus JACK WELCH I was going to elaborate upon the longstanding public debate between Neil Cavuto and Jack Welch regarding their differing views on whether or not government needed to take emergency steps with public money to avert an even wider financial crisis from when The Financial Hydra first reared its big ugly heads in 2007. But this is getting long-winded today, so I’ll pick this topic up later in the week. Suffice it to say, I 100% agree with Jack Welch. It’s not even a debate. Be back Tuesday. - gc
2009-1-22 (Thursday Evening Update)
STOCKS FIGHT BACK FROM MICROSOFT SETBACK, BUT STILL CLOSE BROADLY LOWER / MACD, YOU & ME
Jan 22 (Thursday) – Things looked set up to build on yesterday’s rally today and even before the market opened things appeared as though investors could shake off yet another very high Unemployment Claims report (we now post this report in our News & Data section). But then came the crusher, Microsoft(MSFT) announced earlier than expect very disappointing numbers along with a gloomy forecast and 5,000 layoffs. That was one straw too many and the camels’ back was broken. So again selling prevailed. Market psychology, however, seems still resilient as once again there was no imminent collapse and prices actually rallied midday to get back near even. The improvement did not last long and the DOW ended lower by 105, though well off the days lows to close at 8122. Losers beat winners by more than 4-to-1 on the NYSE Composite, 3-to-1 on NASDAQ. GOLD gained $2 and OIL fell .50+ a barrel. There’s no big economic news out tomorrow, though several key companies are out with quarterly statements including General Electric(GE) and Schlumberger(SLB) and there’s always interest in the Harley-Davidson(HOG) report which investors were nervous about as those shares fell over 8% today. Without another overnight banking fiasco in overseas markets, I think the stock market will keep it together on the week ending session, and keeping it together is a decent day these days.
QUICK TECHNICAL ASSESMENT OF THE MARKET USING 1-YEAR CHART OF DIAMONDS (a proxy for the DOW)
So with the stock market hugging and hovering around the 8000 axis, and still entrenched in the base-building zone of 8000-8200, let’s take a look at a 1-Year Chart of the Diamond Trust Series (DIA) (right click to open in a separate window). Beneath the chart is a MACD indicator (explained here). OK we’re not go do a boring 23 paragraph thing, just 2 or 3 critical observations. First, we look at the candlestick chart of the DIA in conjunction with the green “divergence” bars and we see one key factor right away – downside divergence increased through the early October panic low, yet price held right at that 80 line. When the downward spike to 75 happened around Nov 21st, the divergence was no longer increasing; therefore the maximum panic had already been absorbed. This was no casual panic either (did I create an oxymoron?) as the pent up selling emotion from a market that had been cratering in a stair step fashion since October 2007 continued to build and weigh on the ability of investors to withstand unthinkable losses in their net worth. So, when we look at the action in this chart we are seeing a real graphic presentation of human emotion and human behavior. Next we see that in December, the divergence turned positive (red line crossing over the black line causing the green bars to flip positive. That was coincident with the rally to 90 (9000 in the DOW). Now, look quickly at this 6-month chart. It gives us a closer viewer to see clearly how downside momentum peaked in early October, yet when price peaked more than a month later, the green bars are significantly less extreme. That is positive divergence. See how 2-weeks ago, The MACD broke into the plus side for the first time in more than 6 months. This shows just how much effort it has taken to break the downward slide and start to put in a base. That, my friends, is where I think we are in the big picture. Those who are holding out for some kind of huge Obama honeymoon rally shouldn’t hold their breath. I think the market will be doing well just to make another trip back to the 9000 area, which would be a nice move of almost 1000 points from here. We have to be thankful for the trading range and that technical indicators like these imply that we aren’t likely to drop back into another downward spiral. Certainly every day there has been enough bad news to generate one, yet the market, though shaky, seems to withstand and endure.
THE DOUBLE STANDARD MAGNIFIED / LENO’s PERSPECTIVE
I can’t end without pointing out the glaring double-standard being exhibited in Washington today. Can you imagine if Bush had put up Geithner with the failures in his personal tax accounting? Bush would be crucified and mercilessly raked over coals and grilled to a crisp daily by the almost bankrupt NY Times. Meanwhile, Barney Frank and company, enablers of the housing crisis which led to the financial meltdown, have more power than ever before and will not be scrutinized or held accountable for anything. Only in America! Jay Leno had it right when he pointed out that after Geithner got a free pass with a mere apology for not properly paying his taxes, Wesley Snipes said “why didn’t I think of that?” I think the honeymoon is going to be short! Have a great weekend, see ya Sunday nite! - gc
2009-1-21 (Wednesday Evening Update) THE JOY OF AMERICA RETURNS / BANK STOCKS SURGE Jan 21 (Wednesday) – Today’s rally was more than just a good day for stocks, it was the 2nd time already this year that stocks did exactly what they needed to do to avoid a severe technical breakdown and threaten the current base-building process. Yesterday I said – “The only way of escaping this prospect is if there is a very strong recovery tomorrow to make today look like a spike which serves to additionally reinforce the current base area with another panic-like stake in the ground.” Clearly that happened. The 279 jump in the DOW (3.5%) was paralleled by more than 4% gains in the NYSE Composite, S&P 500 and NASDAQ. The takeaway from this is very constructive because when a market is vulnerable to cascading into another leg down (which this one has been) and manages to “save itself” a series of times, it is a sign of confirmation that the base-building is still in tact. When one steps back to view the market in a large context of time, there is no other analysis but to acknowledge it has been in a severe crash mode, one of the worst in history. Historical patterns after severe declines reflect the natural behavior of humans. My dad was fond of telling me that “time is a great healer” when things were not going right for me. This is a truism of the human existence. Thus, the best we can hope for is that the market use time to repair itself to setup a base from which a new Bull market can once again emerge. This is a long, tedious process. During this process markets tend to hover closer to the low points for lengthier stretches and rallies pull away from resistance points quickly. This is the mode we are in now and it is the best we can hope for. Every now and then a short-term condition evolves that sets up a point from whence one of those rallies can be launched. This appears to be one of those times... Given the heroic outcome of today’s testy market, which was in doubt for several hours, especially when the morning rally of +135 points petered out completely. Assurances by those in Washington quizzing Geithner that his confirmation as Treasury Secretary would sail though, while they grilled him on his egregious income tax snafu helped calm markets down. Then a report that CEO Lewis of BankAmerica(BAC) bought over $1 million in stock in open market purchases this week brought joy to the Financial sector (this was the sector my instinct said was a good play but was too risky to be aggressive on). Even later on there was a report than CEO Dimon of JP MorganChase(JPM) bought over $11 million in stock, well there was a mad dash to scoop up Bank stocks, even Citigroup(C) was up a whopping 31%. I guess I am just too conservative! My original weekend outlook was that stocks were poised to move higher, even though we expected weakness Tuesday morning. No reason to change that view now that a serious technical hurdle has been overcome. And good news from APPLE(APPL) after hours soytently can't hoit either! LEND TO WHO? The number of pundits crying that the capital which went into banks to stabilize the system hasn’t been loaned out, aren’t making any sense whatsoever. The capital was put there for one purpose, and a good one… to stabilize the system. What good would it do to loan that money out now? That will potentially undo the benefit and destabilize the system. And lend to whom? The economy is lousy. Demand for capital is down. Business risk is high. Those assets were not allocated as an ‘economic stimulus’ program. I know what happens. Congressional people get flooded with calls from an angry, often ignorant public, demanding to know this, that and the other thing. Then the equally ignorant in Congress compound the problem by chasing after that ghost and making senseless demands based on bad, unworthy, or perhaps no analysis. Hey, let’s push banks to make risky loans… sounds like a prescription for disaster. We already had the S&L crisis of the ‘80’s and Paul Volker knows all about the history of that one! And we have the current financial crisis. Why would encouraging banks to make bad loans be a sensible answer? This is the panic of Washingtonians who don’t know what to say or do or which way to turn. And sadly, I’ve heard the same chatter from money management professionals who should know better. Some people say that banks should disclose every detail about their capital. I say this is a terrible idea. We will soon have every individual in the country thinking they are a professional auditor. This cannot be good. All we need is the top management of the banking industry dedicating a mass amount of resources to satisfy every inquiry by the media. Remember, the media doesn’t generally know how to operate anything. They know how to write, and express opinions, often poorly thought out ones. Boy, would they love to be writing about where every operational and investment dollar went from every bank. That’ll keep the media talking for a long time, but will it really do the country and financial markets any good? I doubt it. See ya Thursday nite - gc
THE JOY OF AMERICA GREETED WITH TUMULT ON WALL STREET / STOCKS BREAK TECHNICAL SUPPORT Jan 20 (Tuesday) – If optimism was the word of the day, it was contained well inside the confines of Washington DC because the day on Wall Street was dismal. No secret that prices opened weak, but if traders had loaded up on shares thinking the glee in America would translate into an immediate rally, they were grossly mistaken. When short-term trades don’t work out, it leads to quick selling of positions. But today’s 4% loss in the DOW INDUSTRIALS was influenced by more than just traders unwinding. There was the ongoing worldwide fear of more recapitalization in the banking system. And when technical levels broke in the S&P at 815 and the DOW below 8000, the selling increased and in fact, broader averages finished the day down worse. NASDAQ was down 5.78% and the NYSE Comp lower by more than 6% with 13 stocks lower for each one higher. One. Not a good day. Wait… GOLD was up $14 and OIL up over $2, commodities attracted capital amid the carnage. Take note of that divergence, it may be the key to 2009 investing. So what was the deal? Did everyone really think some magic would happen because the new president was sworn in? Too silly. It’s still about the economy stupid (quote from a former president).
The Obama speech was good. Not spectacular. Problem is, he expresses some ideas, which are very popular today, but are fundamentally flawed. You see, in a prospering free-market economy, it is important that prosperity has leadership, and that means that those who succeed with ideas and business should benefit with disproportionate net wealth increases compared to the general population. When the wealthiest are increasing in value, so is the rest of the country. Today’s ideologues have it backwards. When wealth contracts too much from the upper margin, there is a broad conversion toward economic mediocrity. Right now, Americans (a majority) are on a bandwagon targeting the wealthy. Of course, the upper 2% has already seen their wealth collapse and the campaign promise of tightening the gap between the economic classes has been accomplished all too well already…. by the magic of financial markets. It is going to take years for the general public to realize that it is actually a good thing for wealth to increase at the upper end of the population. The only way to reverse this prevailing attitude is if Obama suddenly grasps this concept and starts explaining it to the populous so they can understand it and buy into it. Don’t count on that happening. Simply put, Americans, all of them, rather than resent those that have more wealth, should be rooting for the upper class to do well, when they do well, everyone does better. Those that didn’t believe it before will believe it eventually.… just depends how much they need to see before they comprehend it, and more importantly, accept it. I’ll delve deeper into this as time marches on. There is plenty of time to drill down on this one. Let me state succinctly, one sentence….. There is no such thing as a growth producing trickle up economy.
Now we see technical breakdowns in the stock market that reinforce the trading range view, but opens up the likely prospect that lows from Oct/Nov/Dec are now in play as the bottom range area (roughly 7500). The only way of escaping this prospect is if there is a very strong recovery tomorrow to make today look like a spike which serves to additionally reinforce the current base area with another panic-like stake in the ground. IBM reported better than expected earnings after the close which isn’t a whole lot to grab onto but it could set the stage for a better tomorrow (not a direct quote from Gone With The Wind). If Geitner is confirmed tomorrow, and all signs suggest he will be, that may also inspire a better mood in the market. My overview has not changed, stocks are mired in a long tedious base building pattern which produces occasional flurries toward the upper end, but tends to grind more near the lower end, and that lower area was pressed again today. Tomorrow will be a testy session. Be Back on Wednesday. - gc
2009-1-19 (Monday Evening Update) STOCKS POISED TO CONTINUE OVERSOLD RALLY / THE MIRACLES of 2009 CONTINUE / ARIZONA CARDINALS ! Jan 19 (Monday) – Stocks behaved well Friday, and broader indexes were even a little stronger. The NYSE Adv/Dec Line was positive by a solid 2-to-1. This was a constructive session for short-term technical considerations. Given the dominant story of BankofAmerica(BAC) requiring more federal backing and a continuing stream of new layoff announcements, the market tone was not bad. Perhaps the feel-good story of Sully and the Miracle on the Hudson overcame investors. GOLD jumped big by near $25. I had expected market to start this week on positive footing without a shocker, but then overseas markets were weak with the off day in the US, largely due to news that UK government may have to take full control of Royal Bank of Scotland. I don’t know if there’s really any “Obama rally” upcoming or if it’s just the coincidence of a market that exhausted itself with 7 consecutive selling dates and so it is now ready for a rebound. The financial stocks made new lows again so as a contrarian play, that may be the group to try to play a trading move…. but which one’s? One can go with the stronger ones like Wells Fargo(WFC) or the secondary names like New York Bancorp(NYB), or go for the ones getting the big government backing like BAC. This approach is what my natural trading instinct suggests, though my own rule of protecting for the downside before taking action for the upside won’t allow me to make a strong recommendation to buy into this still risky group. I’m still leaning toward strong balance sheet companies, precious metals, high yielders, the really beaten down energy and oil service stocks and special situations on a case by case basis. There is a sentiment that has emerged that the market will be kind for the first 100 days as a honeymoon period for President Obama. That is a widespread “feeling” that is tough to support with the current technical condition and recent market action. I do see a possibility of a near-term trip back up toward the trading range top near 9000, but not much more without a real catalyst, or evidence the economy is stabilizing. There are too many things in play that can prevent upside acceleration, and the most glaring one is the growing debate about the government stimulus program. The longer that drags out the more difficult it will be and any rally will be labored unless clarity emerges. Rumors about Chrysler getting a 35% stake from Fiat are floating around and anything that helps dilute the risk of the auto industry will be viewed positively. I don’t have a real strong feeling right here, but in looking at the charts and gauging current market sentiment I’m thinking the bias for the week is higher even if it starts out lower. And it does appear a shaky opening is in the cards. THE MIRACLES OF 2009 CONTINUE With the Inauguration of Obama, particularly fitting the day after MLK holiday, the social statement made by our country is a great one. And while the political ideology of trying to please all people universally may not satisfy the views of what is realistic for everyone, the United States once again demonstrated its never-ending progress as a nation with the election of a black head of state. Whether you voted for Obama or not, Tuesday represents greatness in America and we wish him well. This is truly a miracle when one considers the entire history of our country. More Americans sacrificed their lives in the fight for Freedom and Emancipation during the Civil War than in any other conflict in US history. That is significant. Most people don’t think about that fact or realize its long-term implications. I’m sure the perma-anti-war factions in the US don’t grasp the import of that history and why that war was necessary. Who knows where we would be today without it. The anti-war crowd would have kept this country in slavery, professing that a peaceful solution could have been worked out! (an exercise in self-delusion!) When the fathers of fathers of fathers and sons, in particular the fathers of fathers of fathers and sons of today’s black American community, ask themselves if all that human loss was worth the outcome, today, given the events of this very day, the answer must be yes. The Civil War lasted from 1861-1865. Some five score (100 years) later came the Civil Rights movement and another 20 years later the MLK Day holiday was first recognized. Now 22 years after that, we have elected the first black into high office. History is a process. Anything is possible in America. And we would be remiss if we didn’t mention the 3rd miracle in this young 2009. Even though the Miracle in the Hudson was truly amazing, as is the Obama presidency, perhaps the biggest miracle of the three is the long-awaited arrival of the football ARIZONA CARDINALS into the SuperBowl for the first time ever! Some 60 years ago they were NFL football champs known as the Chicago Cardinals. They moved to St. Louis in 1960 and to Phoenix in 1988. Their history of origination goes all the way back to their founding in 1898! In professional sports there are certain teams that are the perennial dogs, never having a winning season. The Cardinals were one of those teams, barely making .500 most seasons. Even in this Cinderella year, they were only 9 and 7, but by historical standards, that was as good as going undefeated. Truly one of the great underdog stories in modern sports history. This achievement makes them the sympathy choice against the Pittsburgh Steelers, a franchise with a proud history. If we are in a new era of miracles, next year place some money down on the Detroit Lions. On second thought, don’t… that’s just not even possible…. – See Ya Tuesday nite - gc
2009-1-15 (Thursday Evening Update)
A TALE OF 2 MIRACLES / “Prepare For Impact” MIRACLE ON THE HUDSON / OH & A MIRACLE IN STOCKS TOO!
Jan 15 (thursday) – Today was a miracle. It was the worst of times, it was the best of times (loose literary license taken!). Though quite applicable, I’m not talkin about the 200 point recovery in the DOW. I’m talking about the incredibly positive outcome for US Airways Flight 1549 which ditch-landed in the Hudson River. I was listening to the radio and heard the interview with a passenger named Alberto shortly after the rescue. I’m still so chocked up I can hardly write. The pilot finessed a power-off glide into the Hudson River where ferries and watercraft of all kinds were quickly on the scene aiding passengers off the floating and sinking plane. Everyone survived and mostly unhurt. As a native New Yorker transplanted to the West Coast, I know there is no greater rescue response anywhere in the world. An incredible outcome from what could have been tragic, thanks mostly to the quick-thinking and courageous pilot. Had there been even one boat floating in that flight path, destruction would have resulted. Alberto said only 3 words came over the speaker, the pilot said “prepare for impact.” That is a moment in time some will never forget. God Bless them all.
The other miracle today was the positive close in stocks. 12 points may not be much of an uptick, but it is when the market was down 200 points mid-session and momentarily flirted with a break of the 8000 level. What could have been the 7th straight market decline turned around and not only were the averages mildly positive, but the Adv/Dec Lines were decent, 16-to-13 on the NYSE and 16-to-11 on NASDAQ. What’s even crazier is that the stock market behaved exactly to the prescription I described yesterday when I illustrated what scenario would set up the best outcome for a potential rally to develop. Don’t believe me, it’s written in yesterday’s blog. Crazy how the DOW went right to the bottom of the support range, ticked briefly below it and then gradually improved until a full session recovery was in progress. The S&P also got with a few trades of the 815 support area. This is good action and now flips the next few days with a positive outlook. In fact the trading results were even better than we were looking for, impressed with that action. It tells us something key in that, in the face of a potential immediate technical breakdown, buyers were ready to step in at support and this reaffirms the base that is being built. Many out there are still expecting another nasty capitulation phase to test or take out the November lows, but without further evidence in sentiment and momentum indicators (which I monitor daily); I’m sticking with the trading range outlook for the time being. Option expiration is tomorrow and the late gyrations today were clearly tied to that. Industrial Production and the Michigan Sentiment Survey probably won’t be pretty but they probably won’t be bad enough to offset today’s reversal. There’s also this outlier of market psychology that some kind of Obama rally is in the cards for inauguration. I don’t think there will be rapid trip back up to 9000, but I do see a few decent days here. After all, the $100 million spent on the party in DC, that’s money going into the economy one way or another! I think the market will be decent on Friday; positively biased. Yes, I know OIL cratered to a new 5-year low and GOLD recovered $6 but as for today, I think I’m done here. See you all Sunday nite and remember, what we saw today on the Hudson is a lucid reminder why we must live every day as if it is our last, treat everyone the way we want to be treated and always tell the people close in your life how much you love them. Stock-Master G is working on a new rap and it’s gonna be a monster…. - gc
2009-1-14 (Wednesday Evening Update) MARKET PSYCHOLGY WAS VULNERABLE TO UNPLEASANT NEWS AND STOCKS DELCINED SHARPLY / BANK SECTOR STRUGGLES CONTINUE / THE ALL MADOFF NETWORK (TAMN)
Jan 14 (wednesday) – Stocks took a bath today. The 248 point loss in the DOW was mild compared to the NYSE closing lower by 3.79%. Breadth was horrible with 10 stocks down for each one rising. A gruesome reminder of those horrible days from last fall. Over the weekend we were looking to today’s Retail Sales figures and Beige Book as keys to influence market psychology. No good news on either front and before the opening bell stocks were heading lower on those dismal retail numbers. Psychology was already vulnerable. We could see the transition of the internals from the rally late in 2008 into the first couple days of 2009 gradually deteriorate. Today there was a complete reversion to the kind of broad based selling that too clearly resembled the ugly market phase we went through last year. Negativity continued throughout the day as banking news wasn’t any better. Citigroup continues to have problems and HBSC described capital issues they are dealing with. No relief after the close either as BankofAmerica(BAC) needs more funding to shore up their recent purchase of Merrill. And just to make sure there can be no hope for tomorrow, Steve Jobs announced he is taking medical leave from APPLE(APPL) confiding that his health situation is more complicated than he had realized (and we wish this great American entrepreneur only the very best!). Technically speaking, all chance of setting up a higher base above 8300 was lost today. This will prolong the base-building process. The Volatility Index(VIX) jumped up today, a sign that fear is creeping back into the market again. GOLD fell $10 and is flirting again with the $800 area. The precious metals market is in a lengthy corrective process which has been rebuilding a long-term support area in the $750 to $850 range and that process remains in tact, even though there have been wild flurries in both directions.
The DOW INDUSTRIALS down 6 straight days, now sits squarely at 8200 and on the upper platform of the trading range support zone. Stocks had actually been dealing with a long string of negative news and data fairly well until this week, but the psyche is still too fragile to handle an input overload. We can be sure the stock market will work lower in Thursday morning hours toward that 8000 level. Then it will be critical to see if buyers step in to mark a testing zone. About the best thing at that point is the oversold condition is becoming the most stressed since the early December lows. The S&P 500 had a double test low near 815 in December and well above the November low at 740. The 815 level will be watched closely by traders and if breached, could trip an accelerated sell-off. My take has been that the market is stuck within a 1000 point trading range and that it recently banged the upside a couple times until the rally failed. Similarly, I expect the decline to run out of gas within 5-7% of current levels. That doesn’t mean a quick return rally to the upper part of the range, but rather another period of lackluster trading where prices once again trend sideways. Jobless Claims numbers aren’t going to help in the morning, but maybe investors will find some reason to buy into weakness on the Producer Prices which should be very tame. The atmosphere and the prevailing news will make it difficult for stocks to have a great session. It would be technically useful if stocks went down near the lower area of the support band, then rallied back into the range and drifted sideways, while producing a hint of internal improvement, which shouldn’t be too tall an order given the numbers today. Sometimes when it appears there is no way in the world for stocks to have a good day, strange things happen. It only takes one piece of news to give confidence seekers something to grab hold of. But I’m not counting on it today. See ya Thursday nite. - gc
ALL MADOFF, ALL THE TIME
We interrupt this stock market blog to bring you B-R-E-A-K-I-N-G----NEWS! – I’m staked outside the Madoff residence and can now report that just 3 minutes ago it appears as though the bathroom light went on. I don’t know if it was Bernie to brush his teeth or Mrs. Madoff to use the latrine. I’ve got my soundman placing his microphone sensor up against the building to try to detect the actual water stream….wait, he’s telling me it’s a trickling sound, like a tinkle…..this could be what we’ve waited all night for….. what was that, a toilet flush? Yes, this is big news….the light just went off. There you have it folks, someone in the Madoff apartment just went to the bathroom. Now back to the studio….
2009-1-13 (Tuesday Evening Update)
MARKET TRIES A LATE TWO_STEP TO REGAIN COMPOSURE / NEW OP/ED – THANKS, MR. PAULSON
Jan 13 (tuesday) – Today’s stock market had a better tone to it. Despite the 25 point loss in the DOW INDUSTRIALS there were moments after it slid down 100 when it looked like a rapid decline into the 8000-8200 primary support zone was not out of the question. But it did manage to regroup twice intraday, first with 90 minutes left in trading it started an advance making it all the way back to the plus side, then like a yo-yo right back down near session lows and creating look of pending failure, and then again up to keep losses minor. The late recovery was encouraged by the fact that with market averages lower internal data was showing good relative strength, about even-steven on the Adv/Dec Lines on both NYSE and NASDAQ, both of which ended with positive bias of roughly 5-to-4. GOLD halted that ferocious decline and was little changed though Mining shares showed excellent relative strength with many up around 3% and Barrick Gold(ABX) up over 5%. One of the background themes that have been gradually improving is the Bond market, particularly the Munis which have begun to see their yields decline again. The high level of fear across debt instruments has been a big part of the breakdown in market psychology in recent months. If confidence continues to grow in this sector and then broadens out into the corporate market, liquidity will improve and the credit freeze-up will be a giant step in the rear view window. If we start to see some decent corporate debt deals roll out of the investment banks (I mean bank holding companies), this could be one catalyst to trigger greater interest in stocks. Meanwhile, tomorrow will be an interesting session in that the stock market would benefit by reinforcing a new base in the 8350-8550 range (6 month chart). Gonna keep it short and sweet here. Take a look at my brand new Op/Ed – An Open Letter To Henry Paulson. Agree or not with actions taken, it’s high time all these self-appointed pundits took a step back and acknowledged that it’s those who have stepped up in the middle of the firefight who represent the kind of leadership that has made America the great place it is. Too many out there complain and talk about shortcomings of America. There is no question this is the greatest country on earth and we as a people are lucky to be here and we must stop taking our lifestyles or luxuries and most important of all, our freedoms for granted. Too often real leadership gets overlooked. As one good friend is fond of saying “no good dead goes unpunished.” - gc
2009-1-12 (Monday Evening Update) STOCKS STRUGGLE 2ND DAY RUNNING AS EARNINGS SEASON GETS UNDERWAY / JANUARY EFFECT ENDING Jan 12 (monday) – Stock prices opened modestly on the downward bias but never gained upward traction. The drift down was moderate but it masked a decisively weak underpinning. For 2 days now there has been a clear breaking down of the internal strength that was evident during the rally period over the past 6 weeks. The 1.4% drop in the DOW INDUSTRIALS (125 points) was moderate compared to all the broader indexes which fell by more than 2%. OIL was smashed more than $3 a barrel and GOLD was trashed down $34 an ounce. The stock market has now clearly failed at 9000 and the market psychology for traders has been to take profit at the first sign of weakness. Not that there is any mass rush out the doors, but there is hesitancy for new large buying. Another factor is that there’s just a lack of 2 critical ingredients that have evaporated in recent months namely: the disappearing act of what used to be an abundance of capital earmarked for equities, and the number of total players in the financial markets who have dwindled by attrition. It’s like going from 2 deck poker to single deck…. The game is the same but with fewer cards to play. Let’s maintain perspective here, the market rallied close to 25% off the bottom to the recent peak from an extraordinarily oversold condition. That has played itself out and this next phase is the tedium of the sideways base build from which there are occasional spurts and a return to the downward drift.
The worldwide slowdown keeps the economic contraction in motion and consumer confidence weak. This is a huge reason why there is no great stock rally. The good news is stocks are still well above the 4th quarter lows and a long base building in the general trading range is a constructive process. The key word is “process”. Within this process there are periodic trading opportunities. Now that stocks are no longer overbought, it will be interesting to see if a rally can form tomorrow. There were a few small buyout deals today, kind of a mini-merger-Monday. I believe we will see more of those as large companies use depressed valuations in companies to acquire technology, growth through market share, or diversification. Technically, the indexes have fallen below key moving averages and so the overhead resistance will remain a challenge without something to inspire a broad advance either through hardcore buying or short-covering. The Morgan Stanley(MS)/Citigroup(C) deal to merge their investment brokers is a clear sign that Citi is not through with its financial problems. Without any overnight bombshells, I think stocks will handle the first earnings reports in stride and trade sideways to higher tomorrow. The January Effect appears to have run its course and anyone still holding stocks purchased in December for this seasonal trade has given back a large slice of gains in just 2 days. This may be the key for the recent extensive weakness recorded in the internals indicators. For those implementing that January play, there is still a good probability to see some upward movement over the next 3 days, however, that strength should be used to sell. By Friday the January Effect is declared officially over, although as far as the easy gains go, it may be over already! See you Tuesday. - gc
2009-1-11 (Sunday Evening Update)
MARKET REMAINS IN TRADING RANGE AS RALLY FACES CHALLENGES / OHHH-NOOOO G-MEN GO DOWN!
Jan 11 (sunday) – Market action on Friday was somewhat disappointing. When the employment data came out more favorable than expected, we thought stocks would regain a footing. Instead, in a continuation of light volume trading, prices weakened into the close. It wasn’t so much that the DOW lost 143 points, but that the broader averages were weaker, most losing more than 2% and the NASDAQ losing nearly 3%. The internals were weak. The potentially Bullish “fulcrum” technical pattern has not yet produced a meaningful launch and the pattern is dragging out too much as the rally has succumbed to the 9000 area. It’s not doom and gloom, but rather just further confirmation that stocks are still in a base building situation banded on the low side by the 8000-8200 range. Despite these observations there is a seasonal tendency to rally in the January week of options expirations and so another try at 9000 is very likely. What we don’t have is a catalyst to punch through convincingly, with volume. One thing that will not help is the growing bickering on Capitol Hill about the size and scope of the proposed Obama relief package. The debate over this will only cause consternation, especially for the infrastructure stocks, which have already caught a nice wind specifically on the prospect of economic stimulus funding. You know once Pelosi gets in the mix only trouble can emerge.
There are several economic reports scheduled this week which will be pivotal for evolving market psychology including December Retail Sales and the Fed Beige Book (both on wed) and Industrial Production and U of Mich Consumer Sentiment (both fri). The first big earnings reports are on Monday starting with Alcoa(AA) and we already know their deal isn’t so great, but keep in mind, directly ahead lay a minefield of reports in the coming weeks. I would suspect if stocks open moderately weak on Monday. then in the afternoon or on Tuesday they’ll be trying one more time to push higher. The GOLD market has once again become the counter play to the DOLLAR and with the Europeans finally catching up in the race to zero percent interest rates (which we already won), the US Currency receives temporary spurts of support and THAT has been holding back the precious metal from charging higher, though we believe it is preparing to do just that and we continue to emphasize this sector for investment portfolios. One good thing about the lower rates is with mortgage rates finally cracking under 5% and the new programs announced through partnerships of banks and the government to help those facing foreclosure, the “pressure” from the weak housing market is gradually diminishing. Those of you who purchased my Top 12 Stocks Report for 2009 (Thank You! – and hey it’s not too late to buy it) know we made Home Depot(HD) our #1 pick and they are one of the early beneficiaries of an improving housing situation and an improving economy in general. As a side note, I’ve seen where the concept of “swapping homes” has become a very viable concept and a number of web sites are set up to facilitate those deals. In situations where the homeowner takes a job in another geographic location but can’t sell their house, they can swap ownership with another who needs to move to that region for whatever reason. These types of creative solutions emerge out of difficult situations and help to diffuse the amount of pressure in a particular market, in this case, housing. This is an additional reason why it may be safe to believe that the dire forecasts may be too gloomy as they do not account for the resolutions taking place using outlier methods. Be back Monday nite. - gc
G-MEN GO DOWN IN FLAMES – THE GLORY IS OVER!
Maybe more disappointing than the stock market on Friday (for me, if not for you) was the demise of The New York Football Giants. What a disaster. If one stat stands out more than anything it’s the 42 sacks they had in 14 league games and zero sacks the 3 times they faced the Eagles. I was a young NYG fan back in the days when they were so bad for so long someone took a small plane and flew a banner over Giants Stadium which read::::======= 23 Years of Lousy Football – We’ve Had Enough! =======:::: And then along came Bill Parcells! Enough about my sports sorrows… I’ve been getting real positive feedback about Street Cred - Glad you like it... Thanks!
2009-1-8 (Thursday Evening Update)
STOCK MARKET COUNTER-PUNCHES, DOW FIGHTS BACK TO LOSE ONLY 27
Jan 8 (thursday) – The stock market behaved like…..well, it was like we had the benefit of today’s paper yesterday. The morning was set up for a downward follow through from yesterday. The Weekly Jobs number actually came in better than excepted, but the reason that didn’t improve the mood was cuz an hour earlier Wal-Mart(WMT) reported their same store sales and lowered guidance and the futures took a hit alongside WMT's weak pre-opening quote. Nothing was going to help the market from that point other than a few hours of trading to change the tone. Just as we suggested, stocks were able to shrug all the bad karma away and finished just 27 points below the prior close and the January 5-Day Indicator squeaked out a positive bias, hooray! Closing near the best levels of the session, the market is now psychologically prepared to deal with the Unemployment number Friday unless it is shockingly horrendous. The tone today kept improving.... as the hours went by more stocks were showing gains until by the end the NYSE Adv/Dec Line was positive by a 19/11 ratio. Most of the broad averages closed in plus territory and the NASDAQ actually rose more than a full percent. GOLD recovered $15 and OIL was down about .25 cents. When you watch the markets as I do, day in day out, month in month out, year in year in, every so often you hit a groove where you are in total synch with the action and that’s what it feels like right now. That means the accuracy can only worsen from here! But I was quite impressed today with the action and the close. Even with WMT losing 8% of the session the market internals were robust. So unless there is a real problem out of left field with the economic data tomorrow morning… or some news bombshell… the DOW is most likely going to try another shot at 9000, if not Friday, then next week. Rather than continue on here as if I can add much more by dissecting some economic trend, or highlighting a technical indicator, or worse still, getting into some long-winded commentary about Ponzi scams or politics on Capitol Hill, we’ll keep it real short this afternoon and just let it go and let’s see how stocks perform tomorrow. I think they’ll do OK. The big picture is that the market has rallied 20+% off what appeared to be an excellent high-panic intermediate low. There isn’t the same easy money to be made from here as from back then, but it doesn’t look like an imminent failure to retest Oct/Nov lows… if there were, today would have been a painful continuation of yesterday’s action, and it wasn’t.
Hey tomorrow is FRIDAY! And Friday Nite is the WorldWide Release of STOCK-MASTER G’s new rap –--- STREET CRED.
Be sure to come by and kick off your weekend entertainment with Wall Street’s #1 Rapper!!!! – gc (aka STOCK-MASTER G)
2009-1-7 (Wednesday Evening Update) STOCKS SWOON, COMPANIES REPORT GLOOM, OIL KABOOMED! / SNEAK PEAK of "STREET CRED"
Jan 7 (wednesday) – None of you were surprised that the market struggled today. Though internally strong, the DOW had been stalling in the 9000 area, Alcoa(AA) hit the tape with gloomy talk last night, then before the open the newly redesigned ADP Report on labor stat projections by Challenger Gray & Christmas said 693,000 jobs were lost last month. Of course, their formula is newly revised because this outplacement firm that has successfully marketed itself as being able to interpret employment trends from their own business activity, has lost credibility with this monthly tool which has been so far off the mark the actual correlation to real economic data may be in the low single digits. The 693,000 figure, a monster number, assures they won’t undersell what the real numbers show later this week (Weekly Jobless Claims are Thursday, while the Monthly Unemployment data is on Friday). This larger than life figure unsettled a market that was ready to absorb selling on the open. As the day progressed Intel (INTC) lowered their outlook a second time. Even the upbeat results and view from Monsanto (MON) could not change the atmosphere. Today was the day everyone was holding their breath about… selling was the most broadly based in a month and losers swamped gainers 5/1 on the NYSE and 3/1 in NASDAQ. The INDUSTRIALS fell 245 points to 8769. The standout among all the carnage was OIL, down a whopping $5.95 (12%) tied to the unexpectedly sharp rise in crude inventory results. Despite the Russian/Ukraine pipeline shutdown affecting European deliveries, OPEC actually working together to cut production and a recent turn upward in the energy price action, this inventory report was enough to knock the stuffing out of OIL futures today on fear that further economic weakness will hurt demand. GOLD was hammered $21+ as well. It was an across the board asset sell-off, the likes of which we haven’t seen for more than a month now, but perhaps well overdue.
BRACING FOR THE TWO-PUNCH ONSLAUGHT OF UNEMPLOYMENT DATA!
One minor factor was encouraging; the LAST HOUR did not collapse as it had when the stock market was in crisis mode. If the market can shake tomorrow’s job data then it should hold steady hoping it can also dance through Friday’s dreaded Unemployment release. But to see the market rebound strongly at this moment would take an unlikely force of unexpected positive news. Traders do have one very strong technical motivation to push prices up on Thursday – the January 5-Day Indicator. The first 5 trading days of the year have had an uncanny high predictive value for the year ahead. As of now, the market is slightly up, but that could be easily erased if today’s selling continues. To get the market to behave with a closing marker of anything from close to unchanged to moderately higher would have a very helpful psychological impact as the month progresses. If there is nothing driving stocks down hard in the first 2 hours, I suspect traders will make that concerted effort to stimulate buyers. This might be a tall order because anymore negative views put out by bellwether companies will not be met well. If stocks hold well through the first 2 to 3 hours, then stocks will regain their footing and we will get some buying late in the session. If they don’t handle the morning economic data reports well, another 200 down is in the cards. I’m thinking we can see the sunshine by the end of the day. If the market does manage to get through the balance of this week, then next week the big look ahead is to Retail Sales. I’m gonna cut it off here before I find 16 more ways to hedge my opinion! – I’ll be back Thursday evening… but before I go, here’s a little sump’in-sump’in to check out…. - gc
“Sneak Peak” of STOCK-MASTER G’s Brand New Rap – STREET CRED, set for full Worldwide Release on Friday Night!
Street Cred by STOCK-MASTER G
(sneak peak of the opening verse….)
World Premier Release Date >>> January 9, 2009
Cee-Dee-O, Cee-eM-O, Credit default Swap,
They ain’t no investments thay’s my bro’s on the block
Cee-eL-O, Ay-Bee-eS, thay’s out chillin' in the hood,
Collateralizing what SIV’s they got, while the gettin was good.
Lehman, Bear, Merrill thay’s pretty much dead,
Dey lost what my homeboyz stiiii-ll gots…….
A little (pause) street cred.
2009-1-6 (Tuesday Evening Update) INTERNAL STRENGTH PUNCTUATES STOCK MARKET VIRILITY / NBA PLAY-BY-PLAY MAN PROVIDES ANSWER! Jan 6 (tuesday) – In some ways today mirrored yesterday except the popular averages were in the black all session. And while the market bounced up and down before the DOW closed 62 points higher, at about ½ its best levels of the day, the internals remained strong all session and seemed to improve with each rally effort as the day moved onward. The recent pattern of internal strength was validated once again with nearly 4/1 ratio of gainers versus losers on the NYSE and nearly 3/1 on the NASDAQ. The Energy group has been rebounding strongly and some of those Oil Service stocks I talked about a few weeks ago were up more than 2.5% just today. The excellent breath and depth of this entire rally starting late December has produced a good year’s worth of gains (at least in years when the market isn’t crashing!). Tomorrow is going to be another very interesting test. The DOW keeps pounding, or more accurately we should say “bumping” against the 9000 resistance but not enough inertia yet to break through. After the close DOW component Alcoa (AA) announced that previous cost-cutting measures have been insufficient and announced deeper work force cuts, plant closings, a 50% reduction in capital expenditures and widespread salary and hiring freezes. That’s quite a bit of negative economic information there for the market to digest overnight. And given the still overbought technical situation, and the growing optimism for equities, we must remain vigilant and guarded. A brief market setback here would not be a bad thing. In fact, it may provide a top-and-rebuild point to prepare a better attack at overhead resistance. A continuation through to the upside would be fun and exciting and inspire some aggressive short-covering for a week or two, but it would also diminish the life of this intermediate-term rally.
IS THE JANUARY EFFECT WORKING THIS YEAR? - LET”S ASK MARV ALBERT --- Marv says….. “YESSSSSSS”
YESSSSSS!!!!!..... AND IT COUNTS! One thing that is very clear, the January Effect is indeed playing itself out. The performance of low-priced stocks has been outstanding. The list of stocks I put out here on Dec 23 (see colorful reprint below) has provided huge returns, even the stock I decided to remove from the list for precautionary reasons because of the accounting investigation shot up nicely, over 14% just today! You can see there is a broad appetite for the very depressed equities this year. Keep this one thing front and center, the January Effect play ends a week from Friday… this means anyone who bought stock to take advantage of this seasonal period of strength must be disciplined to sell sometime between tomorrow and a week from Friday. The absolute worst thing you can do is overstay your gains and then get mad at yourself for riding shares back down. That’s s double psychological negative 1) from turning a winner into a loser and 2) from not following your original plan. If you don’t follow your plan, the culprit usually has something to do with greed. It’s confounding how rising stock prices make one feel they can keep making more simply by hanging on longer.
(list from dec 23rd) - So here is a short list, but believe me, you can come up with your own if you invest a little time. There are hundreds of valid candidates this year. -- Boyd Gaming (BYD), Motorola (MOT), Hertz Global (HTZ), A K Steel (AKS), Felcor Holdings (FCH), Taiwan Semiconductor (TSM), Time-Warner (TWX), El Paso Corp (EP), Whole Foods Market (WFMI), Health Net (HNT), Iamgold Corp (IAG), Weatherford Intl (WFT), Allied Capital (ALD), HRPT Properties (HRP). * readers pls note: upon further review, we removed ARTC from low-priced list due to current investigation into their historical revenues, this is not a suitable purchase candidate under that cloud.
For the benefit of those who do not know of my reference to “Marvelous Marv Albert” -- Born Marvin Aufrichtig, Albert attended Syracuse University's highly-regarded broadcasting school. He mentored under legendary New York City sports announcer Marty Glickman and made his initial splash as a radio play-by-play man for the New York Knicks. A generation of New York basketball fans fondly recalls Albert's call of Game Seven of the 1970 NBA (National Basketball Association) Finals, in which an ailing Knick captain Willis Reed valiantly limped onto the court to lead his team to the championship. "Yesssss!" Albert would bellow whenever a Knicks player sunk an important shot. "And it counts!" he would tack on when a made shot was accompanied by a defensive foul. These calls eventually became his trademarks, prompting a host of copycat signatures from the basketball voices who came after him.
THE REST OF THE STORY
There’s a lot of stuff to talk about here. 30-Year Fixed-Rate Mortgages crack below 5%. The DOLLARs recent rise came to an end today and funny thing, simultaneously the additional $12 drop in GOLD reversed and the metal recouped that and then gained about $6 to stem 3 days of decline. The commodity plays seem to be re-gathering their footing and we would emphasize those in a portfolio reorganization. It now appears that comedic writer Al Franken has the leg up to take the Senate seat in Minnesota. At least at that point the Senate Hearings can legitimately be called a comedy show…. heck, they may even provide some real humor! That’s enough for today, back on Wednesday evening. – gc
2009-1-5 (Monday Evening Update) INTERNAL STRENGTH PUNCTUATES STOCK MARKET VIRILITY/ NBA PLAY-BY-PLAY MAN GIVES US ANSWER Jan 6 (tuesday) – In some ways today mirrored yesterday except the popular averages were in the black all session. And while the market bounced up and down before the DOW closed 62 points higher, at about ½ its best levels of the day, the internals remained strong all session and seemed to improve with each rally effort as the day moved onward. The recent pattern of internal strength was validated once again with nearly 4/1 ration of gainers versus losers on the NYSE and nearly 3/1 on the NASDAQ. The Energy group has been rebounding strongly and some of those Oil Service stocks I talked about a few weeks ago were up more than 2.5% just today. The excellent breath and depth of this entire rally starting late December has produced a good year’s worth of gains (at least in years when the market isn’t crashing!). Tomorrow is going to be another very interesting test. The DOW keeps pounding, or more accurately we should say “bumping” against the 9000 resistance but not enough inertia yet to break through. After the close DOW component Alcoa (AA) announced that previous cost-cutting measures have been insufficient and announced deeper work force cuts, plant closings, a 50% reduction in capital expenditures and widespread salary and hiring freezes. That’s quite a bit of negative economic information there for the market to digest overnight. And given the still overbought technical situation, and the growing optimism for equities, we must remain vigilant and guarded. A brief market setback here would not be a bad thing. In fact, it may provide a top-and-rebuild point to prepare a better attack at overhead resistance. A continuation through to the upside would be fun and exciting and inspire some aggressive short-covering for a week or two, but it would also diminish the life of this intermediate-term rally.
IS THE JANUARY EFFECT WORKING THIS YEAR? - LET”S ASK MARV ALBERT --- Marv says….. “YESSSSSSS”
YESSSSSS!!!!!..... AND IT COUNTS! One thing that is very clear, the January Effect is indeed playing itself out. The performance of low-priced stocks has been outstanding. The list of stocks I put out here on Dec 23 (see colorful reprint below) has provided huge returns, even the stock I decided to remove from the list for precautionary reasons because of the accounting investigation shot up nicely, over 14% just today! You can see there is a broad appetite for the very depressed equities this year. Keep this one thing front and center, the January Effect play ends a week from Friday…this means anyone who bought stock to take advantage of this seasonal period of strength must be disciplined to sell sometime between tomorrow and a week from Friday. The absolute worst thing you can do is overstay your gains and then get mad at yourself for riding shares back down. That’s s double psychological negative 1) from turning a winner into a loser and 2) from not following your original plan. If you don’t follow your plan, the culprit usually has something to do with greed. It’s confounding how rising stock prices make one feel they can keep making more simply by hanging on longer.
So here is a short list, but believe me, you can come up with your own if you invest a little time. There are hundreds of valid candidates this year. -- Boyd Gaming (BYD), Motorola (MOT), Hertz Global (HTZ), A K Steel (AKS), Felcor Holdings (FCH), Taiwan Semiconductor (TSM), Time-Warner (TWX), El Paso Corp (EP), Whole Foods Market (WFMI), Health Net (HNT), Iamgold Corp (IAG), Weatherford Intl (WFT), Allied Capital (ALD), HRPT Properties (HRP). * readers pls note: upon further review, we removed ARTC from low-priced list due to current investigation into their historical revenues, this is not a suitable purchase candidate under that cloud.
For the benefit of those who do not know of my reference to “Marvelous Marv Albert” -- Born Marvin Aufrichtig, Albert attended Syracuse University's highly-regarded broadcasting school. He mentored under legendary New York City sports announcer Marty Glickman and made his initial splash as a radio play-by-play man for the New York Knicks. A generation of New York basketball fans fondly recalls Albert's call of Game Seven of the 1970 NBA (National Basketball Association) Finals, in which an ailing Knick captain Willis Reed valiantly limped onto the court to lead his team to the championship. "Yesssss!" Albert would bellow whenever a Knicks player sunk an important shot. "And it counts!" he would tack on when a made shot was accompanied by a defensive foul. These calls eventually became his trademarks, prompting a host of copycat signatures from the basketball voices who came after him.
THE REST OF THE STORY
There’s a lot of stuff to talk about here. The DOLLARs recent rise came to an end today and funny thing, simultaneously the additional $12 drop in GOLD reversed and the metal gained about $6 to stem 3 days of decline. The commodity plays seem to be re-gathering their footing and we would emphasize those in a portfolio reorganization. It now appears that comedic writer Al Franken has the leg up to take the Senate seat in Minnesota. At least at that point the Senate Hearings can legitimately be called a comedy show…. heck, they may even provide some real humor! That’s enough for today, be back Wednesday evening. - gc
(Blog posted earlier today due to dental obligations!) 2009-1-5 (Monday Evening Update) MARKET INTERNALS REMAIN FIRM DESPITE AVERAGES CLOSING LOWER / DOOMED TO REPEAT HISTORY? Jan 5 (monday) – Stock prices opened mildly on the soft side. We were expecting this but even more interested in how internals would behave to evaluate the possibility of a continued advance this month. The internals were good. While the popular average bobbled mostly in the red, there were several attempts to rally positive. Too much negative economic data limited the upside, although Construction Spending was not as dire as expected. The Obama comments reinforced worries about just how bad things may be deteriorating out there. As the day wore on, The DOW gradually deteriorated but one could easily discern that internals remained firm. This is a prime factor which has given us confidence that stock prices are in a firming trend even if the popular averages are more in a sideways trading range. The tape had a positive feel to it and sure enough the NSYE Adv/Dec Line ended positive today by a solid 2/1 ratio. That was a good result, underneath a market which declined 81 points (0.91%). Most of the broader averages reaffirmed this internal strength as most were down less than half-a-percent. OIL surged more than $2 today, while conversely GOLD sank about $17. Tuesday will give market players a chance to prove their will by sending prices back up, though it would not be surprising to see another day with sloppy price movement given the still overbought technical condition of the market. There’s also growing concern about the time it will take for the new administration to push through a stimulus package which is now being talked about at the trillion level! I’m not sure there’s a catalyst for a major upside continuation, but I do believe we’re in a market where volatility has decreased to more calming levels which sets up the prospect of a mix of stocks going up and down in a market that goes nowhere fast, as far as the averages are concerned. As I said recently, a pure stock-pickers market…the kind where calculated risk and good risk management can produce respectable overall total returns. CONGRESSIONAL GRANDSTANDING – THEY IGNORED HISTORY…. AND TAKE NO RESPONSIBILITY How did Bernie Madoff go undetected for so long? How come the SEC wasn’t on top of this scam years ago? Why didn’t any of the big time players question findings in their due diligence? Who knows if any real answers will rise to the surface. These are the questions everyone is asking. Now the House Finance Committee on Financial Services proclaims major changes must be made to create new regulations. We’ve listened to so many Congressional and Senate hearings since the financial crisis came unglued. They grilled the Fed, the Treasury Secretary, the bankers, the investment bankers, the hedge funds, the auto execs… what a great job they’ve done, what a show they’ve put on. You saw people like Waxman, Schumer, Frank, the list goes on and on. They all talk like they’re going to save the day now. What? Who repealed Glass-Steagall? Who created Sarbanes-Oxley? Who is evaluating the impacts of those decisions? Congress can’t even regulate things after they put regulations in place. What’s the point of it all? All these are supposedly smart people. Their answer to Enron was Sarbanes-Oxley. Why was the uptick rule eliminated last year? After the Crash of ’29 actions were taken to attempt to prevent another financial tragedy of that magnitude. The Glass-Steagall Act, regulating banks, was implemented in 1933. In 1999 in was repealed. In 1938 the Uptick Rule was enacted when it was determined that certain short-selling tactics played a significant role in that market crash. Last year the SEC removed that rule. Sarbanes-Oxley was enacted in 2002 as the answer to the accounting scandal evidenced by Enron. Turns out Sarbanes-Oxley does more harm than good and doesn’t tackle its original intention. Now Congress wants to enact new legislation based on Madoff? The Senate is gonna solve the problem with new regulations? These are the same people that abandoned the old regulations that worked for 70 years and the same people that couldn’t find an intelligent response to Enron. They’re the same people that created new legislation that didn’t make any sense. And they are again the same people who promoted the concept of “broad home ownership at any price” and then lowered the barriers so that banks could be enticed into making aggressive loans with the comfort that Fannie Mae would take the paper and absolve them of all risk. And then these same folks defended those actions and protected that deal and shielded it from any inquiry or meritorious evaluation. Now these same people who have been forced to come kicking and screaming to the rescue of the financial system with serious capital, are complaining that the banks aren’t rushing into making more risky loans in a difficult economy. What??? Yet these guys sit up on that dais with their piercing questions and biting comments and gratuitous grandstanding for their constituents as if they had nothing to do with any of it! Amazing! Where have these guys been the last 15-20 years. In a daydream? Now they gonna start a campaign with a dialogue for more regulations when they checked back on the good ones we already had, and then failed miserably to oversee the things they’re suppose to. What the heck they doing in Washington anyhow? Not that my rant means much, but I’m suggesting by this that market psychology which has improved lately could dampen as these political footballs become more of a daily conversation in the near future. This is a growing vulnerability. -- I gotta have a crown put in from a root canal so I’ll leave it here so I can get the blog up early today and be back Tuesday evening. - gc
2009-1-4 (Sunday Evening Update) WELCOME 2009 - GETTING THE PARTY STARTED / JANUARY: THE CRUCIAL MONTH FOR STOCKS Jan 4 (sunday) – As the stock market opened for the new year there was cautious optimism and a moderate uptick in prices to build on the year end strength. After some hesitation, no sellers arrived and a slow steady climb started. Even though volume was fairly dismal, the rally gathered steam, probably helped out by short term traders who were short and looking for a quick setback to start things off and found themselves covering their position for fear of an upside runaway market. By session end the DOW was up a stellar 258 points and there were sweeping gains across most popular averages topping 3%. Maybe we should close out the brand new year after one day and that would be a real winner after 2008. Many key indexes have crossed important moving averages, creating technical plusses which often attract buy-side traders. All the things we’ve been pointing out recently, the strengthening internals (NYSE Adv/Dec Line was positive by a powerful 5-to1 again Friday), the continual strength of LAST HOUR action, the view by investment pros ranging from skeptical to downright negative and giving the recent market improvement “no respect” (The Dangerfield market) are now being recognized by the general street crowd. The excellent breath lately is a sign that the January Effect is in play, and this could continue for a few weeks as the traditional seasonal cutoff point is mid-month, perhaps around the 16th of this year. In other words, if you purchased some stocks near their lows in within the past month looking for a January play, you should be prepared to pull the sell trigger sometime between now and two weeks from now. Buying is easy. Most people have difficulty with the sell. You buy to sell. That’s how you make money in stocks. JANUARY – THE MOST CRITICAL MONTH The week ahead is going to be very important. Most everyone knows that the first 5 days of January have an historically high correlation of predicting a market tone for the coming year, it is well document in The Stock Traders Almanac by Yale & Jeffery Hirsch. The full month of January is even more predictive and investors will be closely watching market action this month to help determine their own risk allocations and strategies. The year is off to a great 1-day start but stocks are now quite overextended short-term and the 9000 level is a real test for the DOW. This internal indicator (right click) from investmenttools.com combining volume and breath is bucking right up to its “neckline” providing one more indication of a near-term “test” for the market. There’s also Middle East hostility with Israel taking ground action into Gaza. It is unfortunate that the ideology of Hamas (and their financial backers) is spoiling the opportunity for the Palestinian people to settle into productive lives in their own region under a spirit of peaceful coexistence. This military action could cause some changes in the investment world. Notably, OIL may begin turning higher in earnest. Remember we were talking a few weeks ago that while OIL was still in freefall, the pattern suggested that some inflection point would arrive which would turn that commodity sharply higher on a dime. Perhaps this is in progress? $50 is not that far away. And GOLD, which has been the strongest of all investment types, could also wheel sharply upward if the conflict is perceived to continue for an extended time frame. My friend Thom Calandra quoted me in his blog ThomWatch regarding how to play GOLD and while I indicated to him I remain quite positive on the long-term outlook, I was leery of utilizing the new ETF stock, UGL since it was leveraged 2x to the metal. Clearly one can get some whiz-bang performance from the leverage, but as an old veteran of the investment wars I’m not too keen on promoting the use of leverage.So here we are fully expecting some sell orders to hit the stock market soon. Not that it be our desire but merely that it be an eventuality and we want to see how market psychology deals with the first setback in 2009. Next Update: Tuesday Evening. - gc
2008-12-31 (Wednesday Evening Update – New Years Eve!) 2008 - AN INVESTMENT ODYSSEY / OPEN THE POD BAY DOORS HAL Dec 31 (wednesday) – Pretty ironic, I mean the market finishing off the year with 2 strong sessions. Felt so good one might almost be willing to believe 2008 was a great year for stocks. Not! But you know, it was a good year for the DOW INDUSTRIALS, which lost roughly 33% for the year. You think it wasn’t a good year? The key average in SINGAPORE fell 49% this year. INDIA down over 50%, PAKISTAN down 57%, CHINA down over 60% and VIETNAM down 66%... that’s 2/3rds of its value, gone. In other words, as bad as things felt here in the US, in Vietnam things were TWICE as bad. Don’t even want to imagine that. Even OIL fell 54% this year. I’ll bet everyone is feelin better already. There is no point in doing a major year-end recap. The year sucked (that’s now considered a PC acceptable business term). Nearly every key economic indicator either set new all-time record lows or reached levels not seen since the 1974 low or all the way back to the depression years of the 1930’s. Remember, as bad as things may seem, there’s somebody out there in much worse shape. Look at those numbers, The US did have a great year after all! Everything is relative…. Einstein made that point definitively so no need to revisit. After all, you could be in outer space stuck in a capsule with no way home and a computer named HAL that wants to take over your ship and eliminate you. See how that relativity thing works? No question about it, 2008 will go down in history books as THE CRASH of 2008 - The Year the Investment Bankers disappeared from earth. Maybe HAL got them.... MARKET PSYCHOLOGY -- WHERE DO WE GO FROM HERE? How ‘bout that GOLD! up $8 bucks today and up nearly 5% for the year. The investment Star. The DOW gained 108 to close out the dismal investment year at 8776.39. The NYSE Advance/Decline was rock-solid net positive by nearly 6-to-1 today, as investors scooped up their favorite undervalued situations feeling selling pressure for year-end reasons were all but done. Oh, but did someone mention that 2009 starts on Friday? Friday starts the New Year and let’s face it, stocks are now short-term overbought and the DOW is approaching the 9000 resistance (although the S&P 500 did cross its 50-day moving average, an encouraging technical development). Take those factors, then toss in the prevailing twitchiness of market psychology and it would not be surprising if profit-takers step into the fold come Friday. It will again be interesting to see how the market handles selling, which has been absent for 2 days. The tendency of investors will be to lock in profits quicker this year, given the experience of losing them all last year. Now that some investors actually have decent profits off the Oct/Nov lows, sellers will be much quicker to pull the trigger until such time as they see a more durable sustaining advance in some of their holdings. This mentality won’t necessarily prevent an uptrend, but it will certainly mute one. Hence, without a key catalyst the market is still in a trading range, albeit with firming internals, and that is called a stockpickers’ market. And that, may be a good thing as time is needed to build a valuation base as the economy works through its malaise. About the only bad thing on Friday was watching the stock selections in my TOP 12 STOCKS FOR 2009 REPORT drift higher for 2 days as I was putting the final touches into the document. Fear Not! I’m still releasing this excellent report this week and I want to thank those of you who decided to purchase it. There’s still time to part with your $9.99 and I’d love to donate $1 of it to the Elizabeth Glaser Pediatric AIDS Foundation, a very worthy cause, helping children who have contracted such a terrible disease through no fault of their own. THE BEST LIFE HAS TO OFFER Thanks for visiting my blog and tell your friends about it. Oh and prepare yourself for the MEGA WORLD WIDE RELEASE of the NEW WALL STREET RAP by STOCK-MASTER G called --- STREET CRED. I want to wish everyone a great and safe New Years eve. There are many things to discuss next year about upcoming influences on investor psychology: The Obama administration, the worldwide stimulus programs, changes in the credit and mortgage markets and lots of surprises! But remember one thing. Net worth goes up and net worth goes down but as I said to my wife last night “honey, the year is coming to an end, in some ways it was great, in others it was rough but the best thing of all is that I got to spend it with you.” And that, my friends is what really matters most. Best to all and I’ll be blogging it up again on Sunday evening. - gc
2008-12-30 (Tuesday Evening Update) THE DANGERFIELD MARKET, IT GETS NO RESPECT / VILLAGE PEOPLE RECRUIT BANKER & CAR SALESMAN Dec 30 (tuesday) – I tell ya this market it don’t get no respect. It’s the Dangerfield(right click this) market. I know a thing or two about not getting respect…. The other day I took my wife to a drive-in movie… and spent the whole night tryin to find out what car she was in. Yeah it’s rough I tell ya, so rough that when I was a kid I got kidnapped and the kidnappers sent my parents a note that said, "We want five thousand dollars or you'll see your kid again”. I tell ya, it didn’t stop there, one day I asked my old man if I could go ice skating on the lake, he said, yeah but wait til it gets a little warmer. Hey, I know I’m pretty dumb but I tell ya it ain’t my fault, it runs in the family…during the Civil War my Great Uncle fought for the west. But you know its really bad when one day I actually got to meet the Surgeon General, and he offered me a cigarette. Later that day my tie caught fire and some guy tried to put it out with an ax. I tell ya this market don’t get no respect. Sure volume was light but the advance of 184 points (2.17%) was bettered by all the broader averages, particularly NASDAQ which gained 2.67% even though it is down 42% for the year and on its way to is worst ever year in history. I tell ya 2008 ain’t gonna get no respect. Sure volume was light today but hey, the NYSE Advance/Decline Line was up by a powerful 5-to1 ratio and that LAST HOUR INDICATOR drew off by 110 points (in the final 45 minutes). It’s no good though, I tell ya, everybody’s talkin depression, soup lines, unemployment. These people though, they got no idea what bad is, I tell ya what bad is, this morning when I put my underwear on, I could hear those Fruit of the Loom guys laughin at me. But that wasn’t the worst of it… I get a call from my Uncle to come see him right away, he wasn’t doin too well ya know, and his dyin wish was to have me sitting on his lap. He was in the electric chair. I tell ya, this market it gets no respect. IT’S FUN TO BANK AT THE G-M-A-C If The Village People(right click for pic) are getting ready for a reunion tour they may want to add a banker and car salesman to dance between the biker and the Indian chief. Maybe ditch that construction worker guy since he can’t find a job anyways. If it wasn’t clear before it is after today. People kept thinking the auto rescue package should be enough to lift spirits on The Street, but the mood never improved even though stocks were holding their own lately. One cannot imagine the negative pall being cast over the thousands of Bond Funds around the world holding GMAC paper. When one of the largest issuers has every denomination of paper trading at bankruptcy levels, the fear permeates across entire markets and this was one key component of the gloominess in credit markets. With GMAC officially becoming a bank holding company and qualifying for TARP money, some relief came to the scene and prospects of generating new car loans also cheered investors up. Of course another key factor in the credit markets has been the zero interest rates on short term gov’t paper. But there’s a bright side to that -- what doesn’t become investment capital allows the gov’t to fund all of its activities on the cheap. And with the endless heavy borrowing on tap these days Uncle Sam should grab all it can while the getting’s good cuz the gettin’ won’t always be this good. If capital markets start to improve, willingness to take risk will increase and suddenly zero percent for thirty day paper becomes a lagging performer if stocks can go up 20% in 6 weeks, which they have already. But hey, the GMAC cloud is moving off to the horizon… at least for now. Apparently, this was much more of an overhang than say, LIBOR, and some of the other things people were pointing to as the culprits holding back markets. One more trading day left in 2008. I’d expect a decent session with many of the most depressed stocks lifting up again as they were prone to today. BLOG SCHEDULE I’ll do an end-of year blog on Wednesday night. Then no further updates until Sunday. Stock-Master G has his juices flowing and is close to producing another huge Wall Street Rap and we gotta let that creativity come to the surface. - gc
2008-12-29 (Monday Evening Update) MANY REASONS TO GO DOWN -- MARKET AGAIN SAVED BY LAST HOUR ACTION Dec 29 (monday) – Monday was an interesting day to observe market behavior. There was plenty of incentive for sellers in the morning, the firmer prices from the 2-day rally invited traders to take profits, the weekend uptick in hostilities with Pakistan/India and Israel/Hamas, news that Kuwait scrapped a $17 billion join venture with Dow Chemical which could undermine the pending Dow acquisition of Rohm & Haas, at a time when Wall Street needs to see a mega deal get done to rebuild confidence and start unclogging the Merger & Acquisition arteries. Adding to the morning pressure was weakness across the board in REITs on the announcement that New York City REIT S L Green Realty Corp was slashing their dividend to conserve cash and to give them flexibility to purchase assets as prices fall to more attractive levels. With volume light and new reasons to sell, the DJIA drifted lower and finally slipped to down about 150 points. The lackluster trading failed to catch momentum and prices slowly improved as the day drew to a close. The loss was cut to 31 points, though NASDAQ was particularly weak losing 23 points or 1.3%. Again, the internals were negative but only by a 3/2 ratio on the NYSE. This market wants to go up but it can’t find the catalyst. Volatility has been moderating and when’s the last time the most widely watched market average produced less than 100 point change 6 days in a row or 9 out of 11? I would guess it could be years, but I’m not gonna research that factoid this afternoon. The current chart formation is a clear base building consolidation and there could be a Head-and-Shoulders pattern developing, but to me, it has the prospect of what I call a Fulcrum-and-Lever, which I won’t explain, but if you sat your little boy on one end of a see-saw and you jumped from a rooftop on the other end, that would send your boy flying. What we don’t know is if there is a heavy weight on the roof now ready to unload on the see-saw…. the fulcrum and lever is in place right click to see chart here courtesy of bigcharts.com. You all know we’ve paid close attention to the LAST HOUR INDICATOR and once again stock prices levitated into the close when it seemed like a nasty day could unfold an hour or two earlier. With not much economic data due out tomorrow and the Consumer Confidence number can hardly get any worse, chances are we return to the mild upward drift. REITs - LOOKING DANGER SQUARELY IN THE EYE - A TROIKA Speaking of REITs, while fear is high this is probably a great time to upgrade income using this sector. The problem is, how do we know which ones are vulnerable to dividend cuts and worse still, debt refinance issues. Well, some of that can be accomplished by research. Some of the fear has already been discounted in the stocks.... so if a stock is yielding 30% you figure the dividend might get cut, but the shares may actually improve and the yield will still be good. With the cautionary “Buyer Beware” – here’s 3 REIT stocks (ticker symbol, div yield) that have nice yields that appear to be in stronger positions than most in terms of their scheduled debt maturities, their balance sheet strength, their ability to finance, the strength of their occupancy rates and the experience of their management teams – Pennsyvania Real Estate Investment Trust (PEI, 28%), Mission West Properties (MWS, 11%) and HRPT Properties Trust (HRP, 27%). GOLD and DEFLATION vs INFLATION Guess what…stock market down… GOLD up another $12. The GOLD Index (XAU) up 3%. Most GOLD stocks up between 4 and 7%. The great debate is whether metal prices rise in a deflationary environment. I got something that may be news from some people. The dirty little secret is that GOLD, as an investment is not really that great in an “inflationary” environment. Of course, that is subject to ones definition of inflation. During the '70’s when GOLD did increase dramatically it wasn’t just inflation, it was hyper-inflation. Prices of goods were rising, OIL was surging and interest rates rose to exorbitant levels. But during basic periods of moderate inflation GOLD has been a lackluster performer, even losing value. What history also shows is that GOLD has been a very good performer against deflationary measures. Now, I’m not going to write a 50 page dissertation here on this most complex concept. But I will make this suggestion – GOLD may have the very unique property of a “bar-bell” like investment. In other words, its performance grid rises sharply at both ends, the extreme areas of the inflation/deflation scale but sags in the middle. It may well be that because of currency relationships and relative value that the metal provides asset protection when prices of most assets are falling and provides the same protection during extreme hyper-inflation. There are many psychological aspects to this and the in-depth profiles to explain them requires more time and energy than we’re doing here and now. Suffice to say, now that the margin call pressure to sell every asset ever created has past, we’ve seen GOLD start moving up nearly every day. - gc
2008-12-28 (Sunday Evening Update) 2008 – THE YEAR OF OUR DISCONTENT / GOLD BACK ON THE STAIRWAY TO HEAVEN Dec 28 (sunday) – Rough year for stocks. Rough year for assets. Is the recent improvement in the markets opening the way for further gains? Two upwardly drifting light volume sessions sandwiched the holiday almost precisely as we described. Most averages rose about half a percent though the broadly based NYSE Composite gained nearly a full 1%. Internals were solid with the NYSE Advance/Decline Line positive by a 3/1 ratio. This is an important week for stocks. There is historic precedence that the last week before along with the first week of a New Year sets the tone and are strongly indicative of how the year ahead might turn out. We’ve emphasized a few emerging themes recently, the internal strengthening of the stock market and the subtle leadership forming in the GOLD market. This internal strength can be more clearly viewed in this interesting chart (New York Stock Exchange "Volume" Advance Decline Line (Cumulative Daily Volume Breadth) found at investmenttools.com. (right click to open in a new tab or window). The pattern of volume has formed a potential Head & Shoulders Bottom, a Bullish pattern. If the volume going into advancing stocks on a daily basis continues to exceed volume going into the declining stocks, this indicator will breakout to the upside and will point to a better stock market ahead so we’ll keep a close watch on it. Volume should remain light this week and without a strongly negative news catalyst to upset things, the quiet drift up with internal strength should continue. Often weak stocks stay weak right until the last trading day of the year due to tax-loss selling strategies. A silly question but….Does anyone really have profits they need to offset with losses this year? I kinda doubt it, therefore the recent internal strength is a sign that there will likely be a January Effect this year and it has already gotten a head start. GOLD SNEAKS UP $22 IN QUIET HOLIDAY MARKET / THE LED ZEPPELIN EFFECT Anybody reading the Cutler Blog knows we’ve been consistently pointing to GOLD as an emerging leadership group and have continued to encourage everyone to make precious metals an overweight part of your investment portfolios. There were 2 very significant positive factors from this market sector on Friday. First, that it rose $22 for a 2.5% jump in what was otherwise a quiet and listless trading session for the financial markets is a true sign of the accumulation going on in this group. Whether it be for fundamental reasons on the belief that worldwide economic stimulus programs will lead to inflation or whether it be the belief that GOLD is the ultimate denominator for valuing currency, or whether it be technical, Friday’s gain is more meaningful than most other days. Second is that the Friday move pushed the price up through the overhead downtrend line which has been in place since the price topped out around $1,030 an ounce back in March. I would take this to mean that the time correction process is now over. Remember, capital always chases the rising asset and lord knows investors are looking for a rising asset these days. Therefore, and this is important, once momentum traders confirm their own belief that GOLD is now in an undeniable uptrend, they will begin to take more risk with positions in this sector. And momentum always begets more momentum. That can never be denied as it is a basic instinct of human nature. Interesting things are often signaled in the dullest of market action and this is a development to take note of in our view. Led Zep may have said it best – There’s a lady who’s sure all that glitters is GOLD ….. and she’s buying the stairway to heaven. – gc
2008-12-23 (Tuesday Evening Update) TIZ THE SEASON FOR LOW PRICED STOCKS (January Effect) / THE MONTHLY REDEMPTION SCARE Dec 23 (tuesday) – Stocks produced a near replay of Monday’s market only the downward drift was not saved before the bell and the DJIA lost exactly 100 points, it’s 5th straight losing session. The broader averages fared mildly better with the S&P 500, NASDAQ and NYSE Composite all down less than 1%. Internals weren’t horrible with roughly 2 stocks up for every 3 down. Of note, Mining shares rose more than 2% despite the $8 decline in GOLD. With the market averages closing in on near-term support in the 8000-8200 range block, and the propensity for the ½ day session prior to Xmas to rally, odds are high for a positive day, though action will be thin. Sometimes a nice move develops in these thinly traded short sessions. But that can be the case either up or down. We'll call it up in the spirit of the season! THE NEW MEDIA SCARE TACTIC The latest craze is for the media to warn of impending deadlines for hedge fund redemptions. Markets have a way of training people and nobody is more trainable than the media. Once they catch onto something, which is usually long after the fact, they have a tendency to hang onto it, embrace it, like a child embraces a new puppy for Christmas. The new fad is to wave the warning flag when the calendar dates for hedge fund redemptions approaches. The idea being they’re letting us all know we can avoid some selling in the market if we wait until the redemption period passes. After a few periods of this, when there is no hard evidence that the market suffered extreme selling as a direct result of massive hedge fund redemptions, this too will fade away. My ears are already discounting these warnings as not meaningful, non-events. Will there be hedge fund selling in the future? Of course there will. Will it be as severe as already experienced… not likely, not without the kind of margin-call catalyst required to force everyone out of the pool at the same time. Once the alarm bells went off and the fires were ablaze, every asset manager went into a mode to take action to prevent being vulnerable to another cataclysmic event. Without another worldwide panic such selling will be a bit smoother, less noticed and who knows, maybe those that want to get some liquidity already did and others may be ADDING funds for investment because they see value and an opportunity to make money from a strategy called buying low & selling high. It’s a great concept. Somebody once wrote a book about that. I AIN’T NO SLIM SHADY BUT….. WILL THE REAL JANUARY EFFECT PLEASE STAND UP – PLEASE STAND UP I don’t know why, maybe it’s because the traditional January Effect has not proved a rewarding strategy the past few years, but for some reason the definition of this seasonal trend has somehow changed. I see these investment types come on the air and talk about playing ‘The January Effect’ and then name some of the most well know large cap stocks as their way to take advantage of the theme. This is completely wrong!…. Historically this pattern is specifically geared toward small cap and low priced stocks, trading near their lows. The idea is that those stocks under the most year-end selling pressure, those that have lost significant value, are often poised for a nice snapback. Thus, the way to play this effect was always to accumulate these depressed low-priced stocks in December with a plan to sell them into strength in mid-January. I remember about 10 years ago, in a year when there was a very powerful January Effect, I had already owned 7000 shares of a non-descript stock that was waffling about the $1 a share area and this obscure name got swept up in the wave of buying which pushed low-priced stocks up strongly and I was able to sell them near $7. Not bad. We can all use a couple of those each year and we can really use some THIS year! I don’t know if the real January Effect will come into play this year (please stand up – please stand up), though I get this sense (my sense does not qualify as either a fundamental or technical reason) that it will happen this time. And there are so many beaten down names that are viable candidates to choose from. Many that were once large cap stocks and are now mid-cap or even small-cap, or maybe there’s a new group having dropped 70, 80 even 90% this year, that can be classified as mad-cap! The sectors which have been hit the hardest offer the most opportunity for this seasonal trading concept. Any consumer discretionary group has lots of candidates, Gaming, Leisure, Hotels, Car Rentals, REIT’s, many Retailers, Oil Services, Media, Heavy Industry Cyclicals, some Technology, they’re everywhere…. And I’m not even looking at most Financials for this play though many would qualify. So in the interest of providing a few names I prepared this list below as a way to play the January Effect. Some of these stocks are not exactly smaller cap names but they are all overly depressed issues. The idea would be to buy a basket of them to make sure you capture some that are true beneficiaries of the play, and then, in the middle of January, you sell the basket and see what the harvest was. Of course, the play may not work, in which case, you still may own some very undervalued stocks which could benefit from any market strength. So here is a short list, but believe me, you can come up with your own if you invest a little time. There are hundreds of valid candidates this year. -- Boyd Gaming (BYD), Motorola (MOT), Hertz Global (HTZ), A K Steel (AKS), Felcor Holdings (FCH), Taiwan Semiconductor (TSM), Time-Warner (TWX), El Paso Corp (EP), Whole Foods Market (WFMI), Health Net (HNT), Iamgold Corp (IAG), Weatherford Intl (WFT), Allied Capital (ALD), HRPT Properties (HRP). * readers pls note: upon further review, we removed ARTC from low-priced list due to current investigation into their historical revenues, this is not a suitable purchase candidate under that cloud. The next Blog update will be Sunday evening. I wish one and all a joyous and safe holiday. - gc
2008-12-22 (Monday Evening Update) INVESTORS LULLED TO SLEEP IN DRIFTING MARKET - WAKE UP IN TIME TO CUT LOSSES / TECHNICAL VIEW Dec 22 (monday) – With much hyped anticipation of a Santa Claus rally this week, it appeared more as if the market had already enjoyed a nice move and sure enough stocks drifted aimlessly in the morning then began a slow drift downward the balance of the day. The light volume sell-off reached a 200 point loss in the DOW. Buyers appeared in the final 30 minutes and propped stocks back up cutting the loss to 59 points. Notably, the broader averages like NASDAQ and S&P 500 recorded higher percentage losses and the Advance/Decline Lines on both the NYSE and NASDAQ were both negative by 2-to-1 or slightly worse. The fact that the market rallied in the LAST HOUR is still a good indication buyers are assembled though there’s no urgency to buy. Tomorrow should be a similar day, but might actually work positive in anticipation of a rally on Wednesday, the half-day pre-holiday session which has a high probability of stocks going up. The highlight of the day once again was GOLD which jumped $10 and we continue to believe this sector offers potential upward leadership. OIL was unable to reverse the disparity of prices off its expiration and slipped another couple bucks. Many compare the failing American car companies to the foreign competitors in terms of cost structure, quality and market positioning. But when even TOYOTA has to downgrade its outlook and announce it expects its first ever operating loss in its 71 year history, for FY2009 ending March, this frames the conversation about the auto industry in a larger and more useful context. TECHNICALS DOW 9000 has pitched itself as the key near-term overhead resistance. The continual slew of negative economic reports, corporate outlook downgrades and earning reductions by investment analysts make it hard for stocks to get a running head start. Several internal indicators are still positive and pointing to another run at overhead resistance, which may well be in play sandwiching the Christmas holiday. Looking at the larger picture, the market has the look of selling exhaustion which maxed out during the Sep/Oct cascade and was reinforced at the Nov 21st low. Without a major catalyst, it is unlikely stocks will begin careening back to those lows. Given the tumultuous series of events ranging from Bear Stearns to AIG to Lehman to Merril, to WaMu to Wachovia to Citigroup to the overseas failures including Fortis and the entire country of Iceland, and let’s not forget all that massive hedge fund liquidation, it would take quite a new major catastrophe to revisit that low. Markets are so numb from dealing with ultimate calamity that even the Bernie Madoff Ponzi scheme, which in more normal times would have been enough to shake up the market, was merely shaken off like a fly on an elephant. No, the only thing missing is a catalyst to take stocks higher, and maybe the catalyst is that there is nothing evident to take them lower. - gc
2008-12-21 (Sunday Evening Update) OPTIONS EXPIRATION LEAVES MARKET LITTLE CHANGED / AUTOMAKERS GET RELIEF / IS SANTA COMING? TIME FOR CORPORATE AMERICA TO STEP UP AND SHOW LEADERSHIP / SEE MY AUTO-ASSIST PLAN BELOW Dec 21 (sunday) – We thought options expiration could result in a little changed session from start to finish Friday and it did just that. The carmakers got their loans which sparked a sharp rally, but pressures from unwinding of positions led to late selling resulting in a fractional loss in the DOW. Fractional gains in some indexes once again revealed an underlying internal improvement. The Adv/Dec Line was up close to 2-to-1 on the NYSE but was marginally negative in NASDAQ even though that index rose 11 points. GOLD hit a 2nd day of setback losing $15. OIL also slid, though the wide disparity in the near-term versus outward contracts indicates some expiration related activity which may actually sort itself out Monday with gains, we will see. Some of you may have seen I was quoted in the current Business Week talking about the upside potential for HALIBURTON (HAL) a top-tier oil services company. For the stock market this week - Unless there a news event that kicks the markets’ emotions one way or the other, trading should be light and without conviction. The Santa rally people talk about has some looking for gains this week but the market is entrenched in a trading range while background psychology is mildly favorable. Stocks have had a nice move off the November lows already and market internals have held well on the recent down days so Santa is already here even if the next 2 days are not exciting. Obama now says he’ll create 3 million jobs instead of 2.5 million. Why not just create 10 million, get that unemployment rate close to zero….like interest rates. AUTOMAKERS GET THEIR BRIDGE TO SOMEWHERE The long awaited news came out Friday with GM and CHRYSLER pulling down enough government loans to carry them a few months and into the Obama administration where a friendlier opportunity is anticipated. The UAW clearly did not like the strings attached to the bridge and are going to press their luck to hold their ground. Never underestimate union thinking. Recall when the Airlines had so much trouble and the pilots, stewardesses and mechanics all held fast to their claims, believing one group was getting the upper hand over the others. At the end of the day, greed got to all of them and in their collective infinite wisdom they decided no pie was better than sharing a smaller one and UAL went into bankruptcy and others followed suit. To be fair, the economic slide around the world is hurting the auto industry more than some others. Consumers are cutting back on big ticket items and those who are willing to purchase are facing a tight credit market which seems to be decreasing the availability of auto loans. I HAVE A PLAN.... Cutler To The Rescue! On the one hand we have a faltering economy. On the other hand we have pent up anger over highly paid executives, not just in the car companies but the issue of executive compensation has come under the spotlight given the TARP and AIG. These are the things on people’s minds these days. Here’s the plan: Every single executive in this county who receives a salary of $500,000 or more should commit to purchasing a new American made car over the next 90 days. If they don’t need the car they can donate it to charity or they can find a relative who is in a time of need and give it to them. Plus, all companies which have a net after-tax profit of $1 million or more should purchase a company car from a local dealership in American made cars. Companies which have a net of higher than $10 million should budget for purchasing 3 brand new cars for the company. This can be considered a one-time stimulus package from the private sector to aid the auto firms through a difficult period. This would also be a united front for top executives to step up and set an example for the country at a time when our great nation needs to see leadership from the corporate sector more than ever. I am not a proponent of any government directed forced “wealth redistribution” (to use a recently spotlighted political ideology), however, a token voluntary wealth redistribution initiated by the private sector to help the greater good is both honorable and worthy of broad respect. - gc
2008-12-18 (Thursday Evening Update) DOW FALLS 219 POINTS - GE DIDN’T BRING GOOD THINGS TO STOCKS / NEXT REFI BOOM ABOUT TO BEGIN Dec 18 (thursday) – The market was in a no-win situation today. Even though the unemployment numbers were lower than the prior week, they were still high and a stark reminder that economic conditions are still on the slide. The Philly Fed figure (bad alliteration?) was also poor though improved from last month. Buyer fatigue led to selling and once again the market steadily regrouped to work a mid-day up move. Several other downward pressures arrived including the one that triggered a selling wave, as S&P downgraded the outlook for GE suggesting they could lose their AAA rating in the next 24 months. As the day dragged on with no word on the automakers one could feel tension building on an already susceptible tape. Other less obvious factors were also in play including option expiration related rollovers and repositioning. Plus, the rally was a little overbought anyhow. There are 2 factors we’ve been watching that are actually encouraging. Internals continue a subtle strengthening…yesterday the Adv/Dec Line was positive in a down market, and today the A/D Line was negative by a 40/60 ratio, not bad for a 2.5% point market drop. The other hopeful factor is that the volatility index (VIX) weakened further…. this is especially good on a sell-down day, showing that there is not the same urgency, the same market wide liquidation, the same mass moving hedge fund run for the exits we were getting use to when the market was holding court to its freefall sessions from September on. OIL took a beating today closing in the $36 range and those Oil Service stocks were smashed to levels that look very attractive from my standpoint. Even GOLD could not keep its streak alive and slipped $14. It is folly to predict the market’s behavior on expiration day (or any other day for that matter). There may be swings up and down and could just as easily end the day not far from where it began. The real key will be to see how internals hold if the action starts out with selling…. which is not a prediction. REFI MADNESS – WE'VE SEEN THIS MOVIE BEFORE! It took a long time but there’s finally been a break in mortgage rates which had held tight in the 5.25 to 6.75 range for several years, even as general interest rates declined. Indications are that 30-year fixed rate mortgages can be had beneath 5% and some say they will drop closer to a flat 4% level. This is a real plus for first-time buyers who not only get a buyer’s market for pricing, but have the privilege of buying during the lowest interest rate environment in generations. Oh, to be young again. This is also going to help some folks maintain their homes with refi’s especially if appraisals are waived for special cases, which is being bandied about in various power circles. Not to mention every other homeowner with a mortgage will be jumping all over the chance to refinance. In other words, we may be on the verge of the next wave of refi’s and this will provide economic stimulation in a sector that is totally clamped down. Have a great weekend! - gc
2008-12-17 (Wednesday Evening Update) STOCKS RESILIENT DESPITE 99 POINT FALL / GOLD CLIMBS STAIRWAY TO HEAVEN / OIL MYTHS DEBUNKED Dec 17 (wednesday) – No surprise stocks opened weak, but after spending several hours in the red they surprisingly regrouped for a bold rally effort to the plus side intra-day, only to lose all footing in the final 15 minutes for a 99 point loss. A pretty stout performance given yesterday’s marvelous run. Thursday morning will reveal Leading Economic Indicators and the dreaded Jobless Claims, a number that remains a troubling key weekly focal point these days. With options expiration winding down into Friday and the overhead resistance levels at 9000 flexing its technical muscle, it’s going to take a catalyst to propel an extended advance. Odds favor a pullback on Thursday, though reaction to the morning economic data will set the tone. Even still, a higher opening is not likely to gather momentum. Has anyone noticed GOLD has been going up every single day lately? It added another $25 up to $868. You know it would only take one more surge to put the yellow metal back above the $900 mark and that will surely open some eyes. I continue to believe this is a new leadership group in the market. And as we wind on down the road. Our shadows taller than our soul. There walks a lady we all know. Who shines white light and wants to show. How everything still turns to gold. GOLD is cli-im-ing a sta-air-way to heaven. By the way, does anyone know where I can get no return on my money? I hear the government is offering products assuring safety and we only have to pay a fraction of a percent for that benefit. Sure Americans need to save more and cut down on their leverage, but how we suppose to get motivated to save when we can’t earn anything on our savings? Somebody in Washington working on this??? UP FROM THE GROUND CAME A BUBBLING CRUDE, OIL THAT IS, BLACK GOLD, TEXAS TEA There are many broad misconceptions in the world that somehow maintain a life all their own. Myths. Let’s diffuse a few of them here and now. Two of the biggest fallacies are first, that OIL prices are controlled by Opec, and second, that prices are controlled by Energy companies. These are absurd notions that are often promulgated by some in the investment community (those who still remain!) and by many in the general public. People love to talk about how these entities manipulate prices. These are insane beliefs. Oil companies barely control 7% of the world’s proven reserves. Opec, which produces about 40% of the daily output hasn’t been able to meaningfully influence prices in decades. If producing nations had the ability to control pricing, they would fix the price in a zone where the elasticity of supply and demand allows for maximum profitability without demand destruction. In plain English, they would not have allowed prices to fall to $10 a barrel in 1998 nor would they have permitted the recent run up near $150. Neither is economically sensible, and Oil Ministers do have a firm grasp of economics. Today Opec announced their most drastic production cut in history. Prices were under pressure because of data from the weekly EIA report, but the Opec announcement caused a quick and sharp reversal to the upside. It must have been a momentary lapse of reason by traders because prices lost all the gains and closed the day sharply lower and are now verging on breaking below the $40 mark. As I indicated this week, the chart pattern is creating a very steep ‘falling wedge’, which historically is a sharply falling price behavior that often resolves itself in a fast reversal to the upside. If the pattern fails, then any projection for a meaningful upswing will not pan out. The thing about this pattern is that even if it does pan out, the inflection point can be hard to pinpoint and the price can remain very weak, endlessly weak, until the absolute moment the reversal kicks in. I believe many energy stocks, particularly the Oil Service companies are already showing healthy basing tendencies. Keep an eye on RIG, SLB, BHI, HAL and NBR as plays in this arena. - gc
2008-12-16 (Tuesday Evening Update) TUESDAY HEADLINE: STOCKS – YEEEHAAAA!!! MONEY FOR NOTHIN’, STOCKS FOR FREE / GOLD SURGES $20 ON RATE CUT Dec 16 (tuesday) – Stocks opened with a cautiously firm tone after digesting the morning earnings releases from BEST BUY and GOLDMAN SACHS, which reported its first loss since going public, an amazing ($4.97)/share. The street was braced for worse and bids arrived. Attention turned to the Fed announcement on interest rates and it was a whopper and Fed Funds and Discount Rates were each slashed by 75 basis points. Rates are now marginally above zero. More important was the longish statement, which to paraphrase, indicated the Fed intends to do everything its power to mitigate expected economic weakness and liquefy the system with particular emphasis on loosening credit markets and working out mortgage problems. As soon as the wordy statement was digested, a firm stock market shot even higher, the DOLLAR sank quickly against the Euro and GOLD surged tacking on yet another $20. Inflation has been tame and the Fed expects it to remain so, but the throw-everything-at the-economy policy prompts traders to buy the inflation plays. I agree. After experiencing the misery of deflation lately, we welcome the opportunity to return to a nice inflation based undercurrent… bring it on. Money is now free. Money for nothing and stocks for free, now that ain’t working that’s the way you do it…I want my MTV – How’s your Dire Straits knowledge? The DJIA surged 359 points bringing the market to 8885 in a very broad based advance. The 9000 level still holds as short-term overhead resistance and until the market can break through that area, the trading range is still in effect. Good news is that technical patterns are taking a more Bullish shape and one more trigger could actually push the market into a more sustainable advance to keep the rally going. The consolidation has been pretty solid with internals showing much better relative strength over the past 2 weeks. Still, despite the new enthusiasm, tomorrow will face a test as traders trim holdings into current strength up near the overhead supply zone. Opec meeting will try to tighten supplies to support prices. The OIL chart looks incredibly positive to me and could experience a very sharp rally back to the $60-70 range. There remains much skepticism that stocks can sustain a meaningful advance with the widespread prognostications that economic data will continue to deteriorate. That skepticism may be a good thing. There have been record Bearish readings recently by investment advisors in the 2 main surveys of those things, the numbers equating to levels last seen at major market lows, like 1982. STOCK PORTFOLIO: Here’s how I would currently position an equities portfolio: 20% Cash Reserves, 15% Gold Mining, 15% Oil & Energy Services, 15% Pharmaceuticals & Healthcare Services, 10% Technology, 10% Consumer Discretionary (the most beaten down high quality names), 10% Special Situations (your favorite pet picks) and 5% Financials (credit card companies preferred over banks or insurers). - gc
2008-12-15 (Monday Evening Update) STOCKS – SOME CONSTRUCTIVE BEHAVIOR WHILE MARKING TIME / GOLD LEADS WAY AGAIN Dec 15 (monday) – Much of what we’ve been talking about this past week is playing itself out. The trading range hit resistance at DOW 9000, yet the subsequent retracement has been mild and accompanied by a decrease in volatility, a development we'd like to see continue. Even with today’s midday weakness when it appeared a 200+ loss could easily unfold, the LAST HOUR again showed strength and the days decline was cut by more than half. Pretty good since markets did not receive news on a resolution for the auto makers but were hit with another sad economic report in Manufacturing. Tomorrow is the big day for the FOMC meeting and the announcement on interest rates and it is widely expected rates will be cut by another half a percent. It probably doesn’t matter, since lowering rates to zero won’t actually change economic conditions, and in some ways these excessively low rates are problematic. Baring some devastating news from an earnings report from one of the key financial companies or a revelation worse than the Madoff $50 billion Ponzi scandal which has not impacted stocks as much as some had first anticipated, I’d expect stocks to meander until the Fed announcement on interest rates and even try a rally attempt if nothing destabilizing has occurred. GOLD jumped another $15 and is clearly emerging as a leadership sector, which is the sector we’ve emphasized. We’ve recently published research on the precious metal market and a specific stock, IAMGOLD (IAG). From a market psychology standpoint, investors are in a slow process of trying to regain confidence, while fully aware than the economic backdrop is not friendly. Throughout history there have been some spectacular Bear market rallies. If the current trading range can be consolidated enough to prepare a move upward to break through some key near-term technical levels, we could be in the early phase of one of those advances. But to be that optimistic here would be premature. The best strategy for equities would be to stick with Mining stocks, look at the Energy stocks and Oil Service Companies, and to accumulate shares of quality names that are so washed out then they are likely to resist any further market declines, while they could produce above average gains in a sideways or upwardly moving market. - gc
2008-12-14 (Sunday Evening Update) JEKYLL & HYDE EQUITIES SEND CLEAR MESSAGE – The Week Ahead Dec 14 (sunday) – If there’s been any doubt as to what worldwide financial markets want to see as far as the US auto industry is concerned, the message could not be any clearer. When the Senate failed to act upon a rescue bill, Asian markets hit the skids, some losing 6%. Europe’s markets fell about 3 or 4% as word circulated that the Bush administration might step up to find interim assistance. The US market opened sharply lower, but statements from the White House and the Treasury emphasizing they would not let the auto industry fail provided comfort and stocks not only stabilized but managed to close the day in plus territory and close out a decent week, a week where many bullets were dodged. Do not misunderstand the market’s message. That Jekyll & Hyde performance was based on a psychology that is in no way endorsing the business model of the auto companies. Nor is it endorsing the managements. Nor is it endorsing the UAW and the burdens these companies carry with legacy agreements to guarantee pension benefits and all sorts of expensive things. The market is saying one simple thing – right now, the economy is fragile, confidence is low and it is in the best interests of everyone for the nation not to endure another major economic blow at this very moment. It is that simple, anything else read into this by pundits, media reporters or politicians can be chalked up to ignorance, sensationalism or politicizing. STOCKS – THE WEEK AHEAD The S&P 500 is now 16% up from its low. Anticipation will be high Monday morning as markets await a White House statement with regard to a support package for the Detroit three. There’s also an eye out for GMAC’s sweetened offer to bondholders to help them qualify as a bank holding company. Several very key earnings reports will hit the wires including the anxiously awaited reports from GOLDMAN SACHS and BEST BUY. There’s an FOMC meeting and an OPEC meeting and at week’s end its options expirations. The chart in OIL is forming a Bullish 'falling wedge' pattern suggesting a good buy point is approaching for that sector. Assuming the street is greeted by friendly news for the auto companies, the recent rally in stocks can continue, though a choppy movement is more likely given the tendency for traders to sell around the FOMC meeting and the likelihood of more indications from corporate America about the weakness in the economy citing layoffs, or reduced outlooks. Nevertheless, market psychology is slowly improving and the ability of stocks to rally or hold firm on negative news the past 14 days fosters encouragement for new risk-taking. A further lessening of the volatility index would also be positive, though volatility will be tested with the aforementioned events. If no deal emerges for the car companies, all bets are off and stocks will be weak, though odds favor a deal of some sort. January effect is an historic seasonal tendency in the stock market for low priced stocks to outperform the bigger companies through the December/January period. It has been a reliable pattern and one which offers opportunity to enhance performance for those who use it as a strategy. In recent years the pattern has not held true to form. We note that the recent rally has seen a positive performance divergence by some of the broader indexes. Last week the Russell 2000 gained 8.33% and the S&P MidCap 400 rose 9.41%, significantly stronger than the S&P 500 which gained 3.67% and the DJIA which fell for the week. The implication of this may be that smaller cap stocks are revving up for a return to the old style January effect. And with so many higher quality names now qualifying as low-priced stocks, the notion that these stocks could be in for a decent January spurt makes reasonable sense. Internal strengthening with an improving advance/decline trend supports a case for some improvement in the less visible market sectors.
2008-12-11 (Thursday Evening Update) STOCK MARKET HITS BRICK WALL – Short-Term Challenges Increasing Dec 11 (thursday) – The stock market hit a short-term wall today. The 9000 area has proved tough to conquer and the pending nervousness over a prolonged senate debate concerning the financial aid for the auto companies brought sellers in late. All major indexes were off with NASDAQ weakest down 3.68% (57 points). Even MINING stocks had trouble holding onto strong early gains despite GOLD advancing another $10. OIL was strong all session as Opec tried talking it up calling for more extreme production cuts. Of course, it’s a fallacy to believe that Opec controls prices, they haven’t been able to for a long time. The DOLLAR was weak reversing recent strength. Short-term fatigue over came stocks and a near 200 point loss was recorded. After the close several news items should keep pressure on stocks in the morning, GM has hired legal counsel to advise on a potential bankruptcy as the Senate prepares for a vote which may or may not occur tonight. Bernard Madoff, a prominent Wall Street trader was arrested for running a massive $50 billion Ponzi scheme, not the kind the thing the market needs to see now. Friday will be a challenge for the market, there hasn’t been a hard-hitting sell-off in nearly 2 weeks now, if it occurs, this will be a chance to see a) where the market shows support in hopes of establishing a new series of higher-lows and b) to see if there is some internal divergence, or pockets of strength within a declining market. We learn more about market psychology in the sell-offs than we do in the rallies. Tension over the automakers will remain heightened as the week draws to a close. Whether a bill passes tonite may not stop selling tomorrow morning, but passage will make a difference in psychology and readiness to stem losses quicker. The rally in GOLD and ENERGY is a sign of the contrary play. The 5-day chart in GOLD above has made it one of the strongest markets this week. Emerging relative strength could be a sign that GOLD is ready to be an upside leader. OIL had the making of a great session before paring its gains but this commodity has more work to do to establish its footing. I would think mining and energy (oil services, intl oil) would be good places to take positions on new weakness. Have a great weekend!
2008-12-10 (Wednesday Evening Update) Stocks Bobbed Around Awaiting Auto News – Where US Intelligence is Concentrated Dec 10 (wedesday) – So far the market has behaved as expected this week. Selling pressure has diminished, overhead resistance is not giving way easily, market internals are improving and intra-day gyrations are tied to the ebb and flow off how the auto deal is progressing….or not. Stocks opened firm and rallied up near 200 points, then as rhetoric of Senate opposition to the auto deal heated up - down went the rally only to rebound late with the FINAL HOUR once again strong, a continuing indication that suggests that to be looking for more extreme downside behavior may not be the right play. The DJIA gained less than a percent to 8761 while other indexes gained more than a percent like NASDAQ up 1.17% (18 points) but the star of the day without question was GOLD which soared $35 up 4.4%. (I hope for $3, you all got my NEW GOLD report which is a good perspective for that market and will help me support the people who program this web site!). I can’t offer much new useful insight for stocks this week that hasn’t already been said. The Gov’t Bond market is not an opportunity here, although Uncle Sam is enjoying an ability to finance short-term requirements for free, that’s the cheapest money we’ve ever seen. Tomorrow’s initial and continuing Unemployment Claims will be key to setting the tone for tomorrow’s opening, but the main focus remains on how the deal evolves for the auto makers. WASHINGTON and THE MEDIA Can someone help clear this up for me…. how is it, in this vast country of ours, with all its diversity, all its talent and all its capabilities, that such a high concentration of genius ended up in 2 places -- Washington and The Media? It seems statistically impossible, yet it’s true. Let me offer one single tidbit of insight in this brief dispatch. I’m hearing many reporters as well as Washington insiders loudly projecting this idea that the TARP has failed, and their criticism over its implementation is running rampant in hallowed hallways. You kidding me? Look, let’s you and me put ourselves in the middle of the crisis, the financial system falling apart around the world, the core of the banking system along with the investment banks all teetering on imminent demise, insurance companies floundering from accounting and real markdowns, system cracks everywhere, money market funds breaking the sacred buck, people moving billions of money around by the minute looking for safety and not knowing where to go (that’s why they ended up and STILL REMAIN in ZERO yield paper) and now YOU and ME have got to implement a major $700 billion deployment to prevent systemic violence. I don’t care if you’re the CEO of a Fortune 500 company with your best team of executives…. this project would take months of planning, pre-implementation, systems development, coordination, administrative support and reporting, ongoing evaluation and analysis…and that’s before even $1 would be spent. Yet, here, in the face of the most dire emergency in 80 years, a couple or three lonely guys charged with plugging the dyke, pasting mortar into the cracks and finding ways to nourish a sick system are not only being criticized, but ridiculed, publicly flogged and practically condemned by a slate of people who not only couldn’t manage their own way out of brown paper bags, even after we showed them which was the open end, but these are the same people who had 15 years to monitor the regulations and oversee the system. Fifteen years of sleeping on the job or worse still, abetting and aiding the bad medicine. Now they talk as if they expected a few guys who took their jobs 2 years ago to do the 6 months worth of setup and strategic deliberations and implementations, in the same critical moments while the house was already burning down and the 5-alarm fires were out of control. These critics, this peanut gallery, they are the smartest people in this country. The good news is, they’re all geographically concentrated…so we can keep our eye on them.
2008-12-09 (Tuesday Evening Update) An Uneventful 242 Point Decline – 6 Words That Encapsulate Entire Financial Crisis Dec 9 (tuesday) – No surprise, stocks drifted lower today. Funny to say drifted, but that was as orderly a 242 point setback as one could imagine. Most indexes were off over 2%, NASDAQ just 1.55% and GOLD tacked on $4. And while stocks may struggle to keep up the upward acceleration witnessed over the past 9 of 12 trading sessions, there doesn’t seem to be much urgency to get out, even with continually poor economic data and disappointing news from companies, that’s a change in behavior from a month ago. The gov’t auctioned off $32 billion in 4-week bills with a zero percent yield. Step back and realize what a statement of current market psychology that is. Risk is a 4-letter word. Seems so opposite of the euphoria we’ve seen at important market tops in years past. Hey, did we just stumbled into an idea? Surely at some point we will look back upon this period and realize that risk taking may be the right thing for this time. Sure many are saying we gotta test the lows, others are saying there’s another mega wave Bear market decline coming. But who really knows. I would characterize it this way….we may be in the ultimate stockpickers market, the kind of market real investors love. A market where there is a divergence internally. Where undervalued stocks resist further decline and other companies actually start creeping higher. This is where I think we are, and with so many stocks priced at private market valuations, a true investor can have a field day accumulating positions in companies with solid underpinnings and good fundamental prospects looking past the current quagmire. We’ll likely see stocks thrash around this week, looking for cues on news, data and the auto deal. 6 Words – “Broad Home Ownership At Any Price” There is so much debate. So many accusations… So much finger-pointing…. All trying to pin the tail of responsibility on the donkey of the financial crisis. In order to understand the whole picture one must zero in on the root of the problem. Its genesis. If you want to figure out who the culprits are, you must first understand 1) that problems originate with an ideology. And 2) that ideology is followed by promotion, permission and enablement of a process. Finally 3) the third component to stimulate the activity is incentive. Incentives to accept making higher risk loans by being able to offload the paper. If anyone is serious about getting to the heart of the beast and become enlightened to the origination point, all they need do is write 6 words down on a piece of paper – BROAD HOME OWNERSHIP AT ANY PRICE – That’s where the trail begins. Long ago, some geniuses in Washington thought up a brilliant policy to promote BROAD HOME OWNERSHIP…..AT ANY PRICE. Politicians bought into it, policies were changed, barriers were brought down, incentives were created and pathways were both enabled and encouraged. And the entire process was protected no matter how many times questions were raised and challenges were offered to evaluate the worsening situation. If you really want to nail it down, follow that trail. It starts with BROAD HOME OWNERSHIP AT ANY PRICE.
2008-12-08 (Monday Evening Update) Nothing Could Stop The Monday Rally – Not Even The Fall of Tribune Company Dec 8 (Monday) – The rally from Friday continued with strong gains overnight in Asia and Europe. Obama's weekend statement that he will focus more on growth and jobs rather than worry about the deficit was warmly rec'd. By the time Monday morning rolled around here in the States, futures were soaring and expectations were high for another strong session. Sentiment was so powerful that event pre-market announcements by both 3M CORP and DOW CHECMICAL of layoffs and reduced earnings estimates did not dampen the enthusiasm. Convinced the auto companies would get their $15 billion bridge along with the positive take on how stocks shook off nasty employment data on Friday; a broadly higher opening was followed by a steady flow higher throughout the session. Volume was decent and the DJIA was actually up over 400 points piercing the 9000 level during the session, not even caring that TRIBUNE COMPANY filed for Chapter 11 bankruptcy midday. Profit taking trimmed gains and the leading average closed up 298 points to 8934. NASDAQ jumped 4.4% (62 points) and GOLD rallied $17. With the market up over 1500 points from the intra-day lows and a sell-on-the-news mentality now expected, even when the automakers get their gifts, and with the market now bucking the upper levels of the recent trading range (though it did make a higher high on a recovery basis, a good technical sign), it is likely stock prices will take a step back on Tuesday. Heightening that expectation is news after the close released by FEDEX which dramatically slashed their earnings outlook citing lower demand for their services and indicating that economic trends are worsening. As a real bellwether of economic conditions, this report disturbed the street and FDX shares were sent down over 10% after-hours. This stream of corporate revelations is the bogie man that can keep the stock market from a sustained advance. This, plus the most short-term overbought technical condition in the market in quite some time, could make tomorrow a tough session. One thing is certain, it will be quite impressive if the market can manage to moderate itself when selling pressure arrives. From my weekend comments, we were expecting the DOW to challenge the 9000 level, though it could have taken more than a day, but things happen fast these days and it seems that months are condensed into weeks and weeks are condensed into days….even hours. It’s no wonder there are universally widespread expectations for instant gratification. In a recent Q&A taken by Henry Paulson after a speech explaining Treasury activity to stem the financial crisis, a reporter asked: (I’m paraphrasing) - Now that what you did last week didn’t work, what are you going to do next? Really? Didn’t work? The variety of actions taken to address the various aspects of the financial problems; the credit freeze, the systemic risk of the banking system, the LIBOR, the mortgage market... all these things…. Most of these actions will require months, maybe longer to really know if they are working. Are such questions by the press really serious or are they just red herrings? Does an employee of a media company charged with writing news stories really believe there is some magic bullet that when fired will suddenly solve worldwide economic inversion that threatened to rival a scenario of malaise not seen in 80 years, 4 generations?
2008-12-07 (Sunday Afternoon Update) Over Half Million Jobs Lost - Stocks Got Away With Murder On Strong 259 Point Rally LOGIC, there’s that word again….. Dec 7 (sunday) – Market psychology is always an interesting phenomenon. Friday was a confounding day for those who think logic is a useful tool to apply to investing. Not only was logic defied in the stock market, but elsewhere in the real world. I mean seriously, given the choice, which of these two happenings would you have cited as the more improbable? A) The stock market would shake off an early 250 point decline after learning that monthly Unemployment jumped by a monstrous 533,000 to nearly 2 million total, a level not seen since 1982, and reverse itself to post an internally broad-based 260 point gain. Or……… B) One of the greatest NFL running backs of all times, who once got away with a double murder, would 13 years later be convicted of armed robbery and kidnapping and sentenced up to 33 years in prison, as a result of attempting to retrieve some of his sports memorabilia he claimed had been stolen from him. I know you are still pondering that one. The late recovery in stocks (another positive Last Hour move), amid gloomy economic data and worrisome debate over the fate of the auto makers, is a great example how markets operate in a way that defies common logic. Here we are getting pounded with an endless stream of economic data points that are catastrophic. In many cases these numbers are reaching levels not seen in many a year. The comparables are now routinely compared to data points observed in 1933, 1974, 1982 and 1990. In some cases, with declines in housing or in some sentiment surveys and business confidence levels, we are seeing new all-time record low readings. Maybe investors are encouraged that these years for compared data points all seem to be years when stock prices were overly depressed and offered legitimate entry points to produce good returns from those levels. Facing the facts, we know layoffs continue to rise, we know earnings outlooks continue to weaken, and we know consumer spending is as tight as we can remember so there’s nothing economically speaking to provide any hope of recovery, any logic to suggest stock prices can move higher or any rays of light. Logic, there’s that word again. If one looks hard enough there’s always a ray or two pushing through the dark clouds. With Oil down over $100 a barrel in 4 months, that’s a huge tax cut to the consumer. At this price that $700 billion in money going from the US to oil producing countries has been cut by more than half. This may only exist for the short-run, but $1.75 gas looks pretty good at the pump. For the moment, this mega hidden stimulus package is one actual benefit from the recent collapse in investment assets. Weekend reports indicate Washington is close to agreement on a mini-financing package that will give the car companies about $15 billion to carry them through the first quarter of 2009. The failure of the auto industry is probably the largest lingering fear hanging over the stock market at this point. The economy is too fragile to deal with another major blow, and with 1 in 10 working Americans employed tied directly or indirectly to the auto makers, that kind of shock will overwhelm a market that is staggering but trying to regain its footing. The entire debate on whether to help the industry survive is rather ludicrous within the context of what’s been required to stabilize the financial system already. Make no mistake, the Herculean efforts to shore up the banking system and prevent system cracks was necessary, even though the amounts are mind-boggling. Some say the system would have survived if none of these rescue efforts were made. Highly doubtful. Sure we can debate that all day and all night, but here’s the problem. If you do nothing, and the system does fail, then you are past the point of no return in a black area that is wholly unacceptable. There would be no putting the genie back in the bottle. And the very same critics who today cry out about too much government assistance would be crying that not enough was done to avert the worst case scenario they’d be living through. Those professional critics would be actively and vocally looking to pin blame. At the end of the day – all efforts must be made to avoid a worst case scenario, and fortunately, all efforts are being made. It would be nice if there was a book out there called “How to Avoid a Depression for Dummies” but there isn’t. There is only one historic real example and it only tells us is what NOT to do. So we try many things, learn from the ways the system and economy responds to those things, and dynamically work to improve strategies by tweaking them as we go along. Any sensible risk/reward analysis, comparing the ratio of capital needed to bridge the auto companies to a better future versus the economic instability and mega costs of dealing with fallout from letting the companies fail, clearly falls on the side of finding a solution to help the industry through this rocky period. The additional unemployment and the negative domino effect of inter-capital relationships between auto-company suppliers and their own immediate cash-flow requirements, and a myriad of other not so obvious business relationships that are systemic to the economy and Main Street are not worth the risk of doing nothing. When up to 10% of the entire economy relies upon or is connected to this one industry, $15 billion or $30 or even $50 is hardly worth debating when we look at the hundreds of billions already dedicated to patching financial system foundations toward preventing an unacceptable collapse. Here's the key question: Why risk undermining all the energy and capital already invested to bolster the economy and secure the financial system over this? Logic...there's that word again! THE WEEK AHEAD FOR STOCKS So can the stock market persist in further gains in the upcoming week? Seasonally December has been one of the best months historically for stocks. Bottoms are often made in the Oct-Nov-Dec time frame so there are some tendencies siding with the Bulls here. And there are some technical indications that the repetition of gut-wrenching selling may have reached an exhaustion point. Many still say the final capitulation climax needs to occur, but by certain measures, one could say it already happened, but just played itself out in a way different from historical panics. Perhaps this time panic was defined in the course of a full week of steady selling, rather than a single day. The second week of October certainly equates to any historical 1 or 2 day capitulation type of panic event. One more example of extreme fear, and in a sense, an ongoing capitulation is the huge amount of investment capital that has found its way into the safety of 30-Day Treasury paper. Paper that has almost NO YIELD! Come on, the best investment is an investment in paper that has no yield? Obviously, that was a great place to be for the past 3 months to avoid the sharpest part of the decline in equities. But there is no way that can sustain itself as the long range sensible investment. Once confidence edges back toward risk-taking, the amount of capital coming out of that paper and back into bonds, stocks and commodities could be of an amount beyond quantifiable description. History can only be told in the future. Meanwhile, we should expect stocks to maintain their recent range-bound movement, though odds favor a move higher to try to regain the 9000 level. Should government fail to pass assistance for the auto companies, the market will once again decline back to the 8000 area. As reports of either real progress or a stalling out of the auto aid package hit the wires, the stock market is likely to lift and fade like a yo-yo coincident with those newswires. The market’s main concern is that the economy is not ready to absorb another large blow. As egos, battle it out, common sense and logic will be tested. Logic, there’s that word again!
2008-12-04 Despite Steady Buying All Day, Fear of Friday’s Economic Data Points Invited Sellers Dec 4 (thursday) – Market psychology is a slow transition, yet to listen to the media one would have to go berserk trying to ascertain every intra-day wiggle. It would not be rocket scientry to expect stocks to have a down session given they had finally achieved more than a one-day wonder with a higher close in 7 of 8. Toss in the dreary Capital Hill spotlight on the Automakers, the lowering of earnings outlooks or layoff announcements from key companies like Merck and AT&T, and then the realization as trading entered the final hour that the dreaded monthly Unemployment data will be out in the morning, no wonder several intra-day rally attempts gave way to last hour selling. Let’s be realistic… the stock market is either experiencing a decent Bear market rally phase or it is in a bottoming process, so setbacks are to be expected. Given the velocity of 300 points down, it was not only encouraging that 85 points of that loss was recovered in the final few minutes, but that gains were actually posted in some areas notably in some Homebuilders again, Media stocks (Time-Warner, NY Times, CBS), some Retailers (Home Depot, Kohl’s, Sears), and a few Technology stocks closed higher… even the one of my recent research report (Guidance Software) was up a solid 10+% today. If we compare these bright spots to more recent ugly trading sessions there is the implication of internal strengthening. Over the past 6 months these types of days would end with nearly every single stock in the red. One of the historic technical indicators which often provides useful forewarning of trend change is the Last-Hour Indicator. There’s a myriad of ways to measure it and formulas vary, but the key is that over time, when the final hour action starts to reverse its character, it is usually coincident with a change in trend. Not necessarily a permanent trend change, but at least one that is worthy of intermediate consideration. Throughout the painful bloodbath this year the final hour action has been dreadful, particularly when the waterfall cascade gained momentum from September on. But in the past few weeks the market, despite expectations to the contrary, has actually shown upward tendencies. Even today, with an over 300+ breakdown late in the day, stocks did not close at their worst. Traders are bracing for the Unemployment data Friday morning. We expect the numbers to be bad and stocks to open lower, and this will provide one more test for the market to prove that despite more gloom on the economy, the stock market can use these events to further build a technical pattern that creates an area from which higher prices can eventually emerge. It’s all a process. A process that will continue to be tested.
2008-12-03 Stocks Had Every Reason to Decline Today… But NO! Dow Industrials Gain 172! Dec 3 (wednesday) – If ever the stock market was set up for a down session today was it… lo and behold shares fought off a very weak opening and a failed midday rally to recover into the close for a 172 point gain to 8591. Earnings problems for Research In Motion, a Biege Book report that described weakness across all levels of the economy and a news report that the Port Authority of NY received not one bid to finance $300 million in 3-year notes were not able to prohibit stocks from marking their 7th win in 8 sessions. This is rather amazing given the prevailing psychology that even one of those negative items would have recently sent stocks reeling into another tailspin. My view that the 679 point drop on Monday was not the precursor of another down leg but rather a reinforcement that further selling would be unable to penetrate recent support levels is looking stronger. Not to get overly enthused, the market is probably going to spend some time in a trading range rather than suddenly surge into a major advance, but the good news is that risk appears to be slowly being resolved and stock prices, if nothing else, have appeared to reach a valuation point that has attracted enough interest to offset the ever –diminishing forced selling by hedge funds that may be lingering. Even the Homebuilding stocks were strong today, possibly tied to news that US monthly mortgage applications rose a record 112% in response to the sudden decline in mortgage rates. The Fed Beige Book was not all bad news as there are indications that certain regions are starting to see credit become more available, a sign that some of the Treasury actions may be taking effect. Money Supply. On more than one occasion lately I’ve heard investment managers and market strategists refer to the recent increase in the Fed’s Money Supply aggregate, known as M1 M2 and M3. (Here are 2 links to provide explanations http://en.wikipedia.org/wiki/Money_supply - http://www.theshortrun.com/data/Financial/aggregates/msexplain.html - What fascinates me is when I hear these references to M1 a little bell goes off in my head. For those of you who were around when the great Bear Market of the 1970’s ended and the new Bull market launched in 1982 there was a noticeable emphasis on Money Supply data. In fact, each week investors waited eagerly, particularly for the M1 number, which if I recall, was released by the New York Federal Reserve Bank on Thursdays, either late in trading or after the market closed, and is still reported on Thursdays. Back then an accelerated growth in M1 was the tip that the stock market was finally ready to sustain an advance, and in fact, in 1982 a major Bull market started that in my opinion, lasted 18 years ending in March, 2000. Some argue that the subsequent move to 14,000 last year was a continuation of that market. Back in 1982 that weekly M1 Money Supply report was the most anticipated data each week, just as today everyone fears the weekly Unemployment Claim stats. Back then weekly jumps in the Money Supply was the fuel that launched that enormous Bull market. People are starting to notice the growth of M1 lately. Interesting.
2008-12-02 Resilient Stock Market - Roller Coaster Ride Produces 270 Point Recovery Rally! Dec 2 (tuesday) – Give credit where credit is due. Stocks bounced back after another tumultuous session that puntuated the 7th worst decline in the market's history. Then as a 260 point early rally evaporated, one could feel the fears of sliding into another dismal freefall grow as prices dipped slightly negative midday, but a robust late day recovery brought the averages to close back up at session highs and reinforced the idea that there is a bottoming process taking shape. Today's result was particularly useful on a technical level as it now makes yesterday's massive selloff look more like a secondary low that could earmark a diminishing point for the kind of heavy selling days that always smell of massive hedge fund margin calls. With dismal economic data in the background of trading, including horribly weak auto sales (on the same day the Big 3 submitted their financial rescue plans to Congress), we may be starting to see a market that is able to shake off bad news. And for investors, that would be a very welcome thing. After al, it's been quite a long time since stocks when up in 6 out of 7 trading sessions, a few more pattern developments like that and we could call it an emerging trend! I suspect we shall see a back and forth trading range with support in the 7900-8000 area and find resistance approaching 9000. This type of process can be healthy, particularly if trading calms down and volatility decreases. The Gold stocks acted very well today eventhough Gold itself only rose about $4, suggesting this sector could be under meaningful accumulation.
2008-12-01 Market Psychology Leads to Rough Day in the Market - Dow Falls 679 Points! Dec 1 (monday) – After the first 5 day rally in more than a year, which saw the DOW Industrials rally over 1200 points from the bottom, the stock market retraced more than half that advance on Monday. The retail sales figures from "Black Friday" shopping came in surprisingly higher than the 2007 retail numbers, but there was too much negative market psychology lingering that permeated the day long selloff in stocks. Let’s look at some factors that influenced trading which led to a 679 point decline. * The rally last week was the first sustained upward move in stocks since the decline accelerated in September and therefore the psychology of traders was to lock in profits quickly, with the mindset that the market is not ready to sustain an uptred. * Public comments by Bernanke (morning) and Pauslon (afternoon) was a stark reminder that the economy is not out of the woods and that the government programs, while showing progress, is a reminder that actions taken to bolster the financial system are not quick fixes. * The National Bureau of Economic Research (NEBR) released a statement that the current recession officially started in December 2007, based upon a broad slate of economic statistics, and this had to be digested in an already weak stock market, though some say because the recession is now already 12 months old, it may be a sign it is nearer the end than the beginning. * The broad decline was inclusive of hard assets including Oil and Gold, both down sharply, as well were all other basic metals prices. * Another psychological overhang was the growing recognition that Tuesday brings a return of the Big 3 Auto execs back to Capital Hill to seek the interim $25 billion funding to provide a lifeline. The pall hanging over these hearings caused some investors to trim holdings as markets may again weaken as that dialogue continues. * The rush to longer-term government bonds drove yields down further and this signaled a continuation of “fear” which has been the prevailing psychology in the financial markets. There is so much capital that has sought a home in the safety of government paper that the 30-day Treasury has virtually zero yield. This reflects that money is looking for confidence in a return of capital versus the more typical goal of a return on capital. There is a bubble in this market which will eventually burst and that will free up enormous pools of capital for all other asset classes. The only question, the most difficult one to answer is, when will that process become evident? Tuesday will be an interesting trading day. If the stock market is indeed in the process of creating some kind of bottom formation, these setbacks from rallies will have to be dealt with. So there is a good test here which provides an opportunity for stocks to stabilize and make a higher low (than the recent absolute low) and thus prepare a base-building platform from where a more sustainable advance can occur. One bright spot went largely unnoticed Monday as Johnson & Johnson made a $1.07 billion offer to acquire breast implant maker Mentor Corp who's shares jumped $14 to $30. I would expect to see more acquisitions as companies look over choice assets that have become much less expensive. Who knows, maybe this will be the first in a new wave of Merger-Mondays (more to come?)
Stock Market Rallies 5th Straight Day! Nov 29 (saturday) - The stock market held true to tradition by rallying through the Thanksgiving Day holiday. In fact, the shortened 3-1/2 day trading week turned in the largest percentage gains for any week since 1974, a period which turned out to be an important stock market bottom. The 1973-74 stock market reached rock bottom in September 1974. Nonetheless, the financial media kept painting a dark and gloomy picture of the economy and kept forecasting even lower prices ahead for stocks. Here are snippets from Barron's and The Wall Street Journal from that period: “The University Of Michigan Index Of Consumer Sentiment for October-November 1974 dropped to 60.9, the lowest recorded in 28 years….. Housing starts fell 35% in 1974 from the prior year….. Durable goods orders plunged 11.1% in December, the sharpest in 20 years….. Productivity dropped 3% in the September Quarter in the face of soaring labor costs….. The LEI (index of Leading Economic Indicators) plunged 2.5% in September….. Unemployment jumped to 6% in October, a three year high….. Investor confidence was shattered. At a well known Advisor Seminar, not a single speaker offered hope for the market in the immediate future. They agreed that a final bottom was nowhere in sight.” ABOUT THE AUTHOR
Glenn Cutler was one of the most recognized investment newsletter publishers in the 1980's & '90's and was known for identifying unique opportunities in the stock market for institutional asset managers and individual investors through his investment publications: Market Mania, The Red Herring and DMC Market Fax. Glenn achieved "Timer of the Year" awards in both GOLD and STOCKS by Timer Digest. After years of retirement, he now sees excellent opportunities to make money in stocks and he's making his research and comments available once again. Glenn has been an investment advisor, mutual fund manager (equities), market strategist and venture capitalist known for keen insights, forward vision, solid research and skillful risk management in the financial markets. He was a regular contributor to Financial News Network (predecessor to CNBC) and he was profiled as an opinion leader, money manager and stock market strategist in many leading financial publications. (The Wall Street Journal, Barron’s, Forbes, Fortune, Money Magazine, Investor’s Business Daily, Business Week). Mr. Cutler was also featured in many books, including The Wall Street Gurus (1986) by Peter Brimelow. Glenn Cutler is a current contributor to SeekingAlpha.com DISCLAIMER
These blogs and reports are publications dedicated to the education of stock investors. The report is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The investment picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of Cutler’s Special Situation Reports (CSSR) may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. CSSR staff makes every effort to provide timely information to its readers but cannot guarantee specific delivery times due to factors beyond our control. Copyright © 2008-2009 Cutler’s Special Situations Reports (CSSR). |
