Thursday, June 24, 2010

Near Term Thoughts

The "action" last week looked good; I wrote as much - bad news was ignored, stocks were shooting straight up as "risk was on" (wax on, wax off).  The "action" this week on the other hand has been quite putrid... "risk is off" as all the lemmings move en masse.  Bad news matters again. We actually had a premarket that was down today and did not get bid up in the 7 AM to 9 AM hours - that alone is atypical.

It's always a tricky environment when we sit here near major moving averages.  Making this more volatile is variant levels based on exponential v simple moving averages.  That said we are now firmly below both the 200 day exponential and simple moving averages.  But very clearly a simple 25 point move up can take us right back over both levels which would change the game yet again.

In the near term a few pros and cons.

  • Quarter end window dressing is straight ahead.
  • Apple can basically support the NASDAQ 100 on its own nowadays as its grown so influential.
  • The belief in Ben Bernanke as savior is unyielding as it was with Greenspan circa 2004 before he was exposed as a 1 trick pony aka Ben Bernanke Jr. 
  • Even if in a downtrend we are prone to oversold bounces and they have been vicious the past 2 months, multiple 90% days that include a handful of 3% bounces.
  • It does not take much (1-2 premarket magic moments) to get us over key technical levels
  • Earnings for the multinationals are released in a few weeks; as the world's masters of the universe - running from state to state, and then country to country to lower labor costs while influencing national policy with lobbying groups they are the sweet spot of Cramerica.  I expect good earnings reports.
  • Money is still easy and shall remain so "for a very long time".
  • Premarket magic is a threat to all bears. 
  • Federal government workers are the new elite; immune to any recession and can continue to spend as if there never was any form of slowdown.   State and local government workers are slightly worse off but facing much better prospects than those in private sectors.
  • 7M households continue to ignore their mortgage and juice spending in other sectors of the economy.
  • The market is "cheap" if you believe analysts estimates for 2010 and 2011.*
  • Kool Aid is the preferred beverage of 9 out of 10 sheeple.
*if you believe analysts, Goldman has a bridge to sell you.

  • The world economy ex-Asia, Brazil seems to have taken it on the chin in May.  U.S. economic data has been especially grim, perhaps a reflection of "nesting" similar to 9/11 and Katrina based on BP.
  • The market is below all key technical moving averages
  • This will be the last easy earnings report season in terms of year over year comparisons.
  • The "inventory" rebuild has mostly completed and now organic end demand becomes much more important.
  • Guidance might not be the slam dunk it was the past few quarters - especially with European and U.S. economic headwinds and a stronger dollar.
  • China is slowing, albeit from overheated levels.
  • Copper is screaming danger.
  • Whatever the near term economics, the mid term (6-12 months out) is darkening by the day as a patient (U.S. economy) who needs constantly IV injections of stimuli might be bowing to political pressure to slow it down after 2 years of injections never seen in history.
  • U.S. housing is slowing as we enter the strongest season of the year - this is a disaster.  The pundits said in 2006-2007 not to worry about housing because it is "2.5% of GDP".  Completely misguided and wrong - an entire construction and finance industry, with multiple support service industries - rely on housing.
  • There is little demand for said easy money mentioned above as the last thing over indebted consumers need is ... more debt. 
  • The driver of U.S. job growth is small business - an area the government could care less about since it has no lobbying group to line the politicians pockets.
  • The U.S. personal savings rate remains atrocious.  Consumption continues to be funded via debt expansion, default of old debt, et al.
  • State and local governments will pay the piper, albeit at much slower pace than they should due to federal government interventions.
  • American savers are now a lower caste - getting nothing for their money.
  • Half of America's unemployed are of long term nature - losing skill set and eventually facing loss of benefits (at 2 year mark).
  • BP is destroying the Gulf of Mexico and economic activity in the region will take a hit.  Hurricane season is here - we are now playing Russian Roulette.  Can you imagine the scene of oil being picked up by the winds and thrown down on coastal cities?
  • Any increased rate by banks to kick people out of homes is a net negative for an economy now incrementally dependent on 7M households not paying a mortgage.
  • The market has a very good chance of not seeming so cheap based on the economy that is headed our way in summer 2011.

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