Van Santos

With politicians – not economists – saying the economy is fundamentally sound, and things are not as bad as perceived, the stock market has responded positively in the last week.  Just to remind you, the stock market is not the economy and in not an indicator of current economic indicators.

Nouriel Roubini, the economist who has been on target with a number of predictions regarding the economic climate, warns about the recent stock market rally:

It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally – this time around about 8% in a week - and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market.

Even before the latest bear market rally started last week I wrote the following on March 2nd:

Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract.  But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months.

If I was heavily investing, I would take my profits (if I had any) in the current market until the indicators show the economy is turning – not simply reacting to oversold buying.

All I can say is “WOW!”

The inauguration was highly impressive on a number of levels.  On a very basic level, watching the ceremony unfold, with barely a glitch, in such perfect manner was very impressive.  Take into account the history that was unfolding, add in the sea of humanity, and you have the perfect recipe for a modern day drama. 

I was quite impressed with the class President Obama showed during todays events.  While our nation faces a number of uphill battles, he did not place blame with any one specific person or political party.  He did move away from the political attacks in hopes of bringing the country together and, I believe, in a number of ways he did.  While I found his overall message to be less positive – and more realistic – than I had expected, he provided a message that resonated with the masses in general.

I do have a major problem; however, with something that took place today.  The crowd was booing when VP Cheney and President Bush were introduced (and, yes, they were still the VP and President at the time).  If you have a problem with the former VP and President I fully support you and your views, but you simply do not boo.  This isn’t a free speech issue, it’s a respect issue – respect for the Office of the President – not necessarily the person.  You respect the position. When you disrespect the Office, you are disrespecting the nation, and it only shows the ignorance that still is within our society today.  

Again, best of luck President Obama.  You have a huge task in front of you.  

Stock Market

At the beginning of the year, all of Twenty days ago, I was concerned about how quickly the stock market was rising .  The DOW almost reached 9100, and it was acting as if no recession was gripping our economy. Bad news would come out, the DOW would go up.  Good news would come out, the DOW would go up even faster.  The market was enthusiastic for no real reason, and now it has a huge hangover.  Today the DOW dropped 332 points, closing below 8000 for the first time in 2009.  

Yes, the news looks scary once again.  The survival of US banks are in question. Will Bank of America survive?  How long will it be before The Royal Bank of Scotland will be fully nationalized? What company will go bankrupt next?  Look past the obvious bad news and you can see good news.  REALLY good news, actually.

Take a look…

IBM posted a profit of $3.28 for the quarter - .$25 higher than expected.  Not only that, IBM expects to make $9.20 per share for the 2009 fiscal year, up $.45 from what was previously forecast.  Johnson and Johnson posted quarterly profits 14% higher, though they expect 2009 figures to be flat.  CSX – the rail transportation company – posted a profit of $.90 per share, a whole penny less than expected. 

The earning are there and better than expected from some of the economic bellwethers.  I’m not saying the economy isn’t in the crapper, nor am I saying everything will be fine tomorrow, but I do believe that the market has swung to low too fast.  

Essentially, I think the stock market is way oversold and is trading on emotion, not on the reality of the current situation.

Pilates, I have a new found respect for you

Today was the first day of my workout routine and Pilates was on the docket.  I doubted the effectiveness of a Pilates workout… until today.  For a 17 minute workout I felt the “burn”, as it were, and I was sweating up a storm.  

Seriously, I was very surprised and I cannot wait for the next workout… oh, and I’m down to 162.5 pounds, down 6 pounds in about two weeks.  There is no target weight I have in mind, I simply am taking better care of myself and it seems to be working.

Erasure Pop Remixed!

I had the chance to listen to a promo copy of Erasure’s “Pop Remixed!” and I can officially say that I am disappointed.  Really, not trying to sound negative or unsupportive, but the remixes are really…   thin… weak… uninspiring.  

Here is a quick breakdown.

Always - The Manhattan Clique remix doesn’t embody any of the original – outside of the vocals, nor does it do the song justice.  I’ve never understood the fascination Erasure has with Manhattan Clique as their work never seems impressive.

Drama!  - Really, you would think that Andy Bell would honor his own song in little better than this.

A Little Respect – Hello bad late 90’s Euro Trance music

Fingers and Thumbs – The full remix is long and, at times, seemingly pointless. Worse yet, the remix uses a vocoder on Andy’s voice…  The edit version is OK, but nothing impressive.

There was such potential here but my fears, I believe, have been realized…. 

Until next time, stay (fill in the blank).

The last post about the S&P volatility got me thinking about what 2009 has to offer for the stock market (and the economy).  I don’t have a crystal ball, so don’t take what I am saying as gospel truth… just putting two and two together based on information that is publicly available.   

1. The economy will stay in recession for most, if not all, of 2009.
2. Stock markets will continue to have volatility and remain range bound until October, shortly there after the market begins to move out of the range toward the positive in anticipation of the Recession ending in 2010.
3. Due to the massive amount of capital put into the market the dollar will remain weak unless there is a major war that breaks out.
4. The housing market is in the crapper for most of the year, values continue to fall and foreclosures will continue to rise – the fed will take more action to stop the decline in values which will create an environment that will allow for the housing market to bottom late in the year.
5. Unemployment will catch most people off guard and may go higher than 10%.
6. The credit market will being to defrost (and in some regards it already has) which will help the economy come out recession.  The big indicator here will be when Companies start to merge/buy each other out by returning to the credit market.
7. Inflation will be a non-starter in 2009 but will come back in full force come late 2010/early 2011.
8. More bailouts to come…

Again, I have no clue what is going to happen, no one does.  Just experience and a bit of knowledge talking.  

The big unknowns are the global and geopolitical factors.  A war breaking out, a major terrorist attack or huge natural disaster in a major economic zone can change the playing field in the blink of an eye.

If you pay attention to the stock market, you know this past year was a roller coaster ride.  What you may not know, however, is just how drastic the trading year was.  Take a look at this graphic from Bloomberg/New York Times:

This last year was the worst in terms of volatility since the 1930s.  There is no way that the volatility will end simply because the new year has started.  While it may not be as bad as last year, expect some wild rides in the next trading year….

As of this writing (12:30 PM central on 1/2/09) the DOW is up roughly 4.92% in the last 3 trading days – roughly a gain of 419 points.  In that time nothing has change in the economy, and actually, the news that continues to surface points to bad economic fundamentals.

Just take a look at what has come out in the last three days..

Ford expects an industry wide fall in auto sales of 35% in the month of December, year over year

Manufacturing orders hit a 60 year low

The manufacturing index drops to a 28 year low

Continuing Jobless claims rise in December, point to hard 2009

It is said by many that the stock  market looks forward roughly 6 months. That is to say the price today reflects the economic activity in 6 months.  With the news that is continuing to hit the market, there is no way one can reasonably expect such a quick economic recovery.  I would say that the stock market has moved too far, to fast on no positive data.

This may be due to the new year or because Obama will be taking office in a matter of days, no one can be sure for the 5% move, but I am very wary of such a large advance on no fundamental change in economic forecast.

Update at 3:15PM: The market closed up above 9K, up 6.1% in the last 5 days.  Is this the famed Santa Rally?  Also, Martin Feldstein, Harvard Professor of Economics, believes the economy will be worse off 1 year from now.

With a new years comes hope of better times for the stock market.  Here is a remind of how far we’ve fallen in the last year, thanks to dshort.com.  While the decline is significant, make sure you take notice of the other bear markets as well.

Obviously, as during any bear market up and downs seem to come for no reason while the bottom is being established. The question that is now in mind is this: is a bottom in place?

I know I’m sounding repetitive now, as I’ve said this over and over, but I need to say it once again as I am very frustrated.  Uncertainty Creates Fear!

Now you one could call me paranoid, but now I have some ability to show just how the market is impacted when Bernanke and Paulson speak in public about the current state of the market.

Here is some evidence via Newsbusters:

That message and others like it have had an impact on financial markets. Altogether, it has lost a total of 2,507 points during the 21 days listed on the Federal Reserve Board’s Web site that Bernanke delivered public remarks. That’s more than half of the 4,127 points the market has lost in that time.

 

Jerry Bowyer, chief economic advisor to BenchMark Financial Network and columnist for National Review told the Business & Media Institute it is reasonable to assume this is more than just a coincidence and the barrage of live media coverage of Bernanke has something to do with it.

 

“Yup. It’s quite reasonable,” Bowyer said. “After all CNBC usually runs the Dow on a split screen with Bernanke speaking on the other. I’d also look at Paulson - same pattern seems to hold.”

 

It’s an issue of trust, according to Bowyer - Wall Street is leery of Washington.

 

“Big Picture: the investor class doesn’t trust the political class, even if they are Republican,” Bowyer said.

The administration needs to speak with one voice because the credibility of the U.S. is in question when public officials are providing two difference views of the situation.  It really makes it look like someone isn’t at the helm of the ship.

For the last 10 years I have been an active investor in the stock and options markets. During my time I’ve seen three significant downturns (2000, 2002 and 2008), and if there is one thing investing taught me it comes down to this – uncertainty creates fear. If Wall Street doesn’t understand where the market is headed stock indices tend to react with major volatility.

The idea that uncertainty creates fear isn’t solely confined to the financial markets; I believe this is a normal human reaction. Think about it… if an individual is uncertain about what may happen they begin to protect themselves today because they are unsure if they will be able to do so tomorrow.

Take corporate America for example…

Here we have MegoCorp, a Fortune 10 company. It turns out, due to economic conditions, MegoCorp will miss profit numbers by 10% and management is in a panic. As of a result of the confusion, different members of the senior executive team are not speaking with the same message (uncertainty) and a rumor begins – layoffs are coming. Now middle management begins to take action to “protect” their turf (fear).

Cross-divisional projects are hastily cut to save the budget of one area without giving thought to the impact of another division. Different teams begin holding information from each other due to the misguided belief they are creating a competitive advantage for their own area, and before you know it morale in MegoCorp has hit an all time low. Not only is the business now in danger, workforce productivity has dropped, which will only deepen the misfortunes the company is facing….

The MegoCorp example happens all the time, and cases exist when companies never regain their former glory after such events, but with the understanding that uncertainty creates fear, when I hear mixed messages, I begin to take notice.

Now read the following passages from a TimeOnline article “Barack Obama is warned to beware of a ‘huge threat’ from al-QaedaSecurity. Officials fear a ‘spectacular’ during the transition period”

Passage one

General Michael Hayden, director of the CIA, this week acknowledged that there were dangers during a presidential transition when new officials were coming in and getting accustomed to the challenges. But he added that no “real or artificial spike” in intercepted transmissions from terror suspects had been detected.

Passage two

Lord West of Spithead, the Home Office Security Minister, spoke recently of a “huge threat”, saying: “There is another great plot building up again and we are monitoring this.”

Passage Three

Intelligence chiefs on both sides of the Atlantic have indicated that such warnings refer more to a general sense of foreboding than fear of an imminent or specific plan.

Passage Four

“As far as we know there is nothing from the intelligence world to indicate that anything has changed dramatically in recent months to put us on alert for an attack at the moment,” a source said. The present threat level is “severe”, which is the second-highest alert status. But a senior counterterrorism official suggested last month that this should be regarded as “the severe end of severe”.

So, which is it?

Are government officials in the UK and US simply saying it’s business as usual, just be aware that anything can happen, or is there “another great plot building up again and we are monitoring this.”

Again, mixed messages are a good way of creating uncertainty, and that is exactly what security officials in the US and UK are doing. In times filled with enough fear as it is, how will such messages be interpreted by the general public and what will the collective impact be?

I’m tired of the uncertainty and fear.

So, the world markets have no crashed and the world did not end. Markets are actually mixed the day after the “great sell-off”. Also take into account that DOW futures are 145 points in the positive makes one wonder if the market is OK with the current situation.

For those who blame Republican policy - not greed and poor oversight - please explain to me why Europeans are rescuing banks? Dexia, a large Belgian, wouldn’t be getting a $9.2 billion government bailout if this was simply a U.S. / Republican party issue, would it?

Finally, there is still no word on where we go from here….

I wonder what today will bring.

While it mean nothing in terms of the bailout, it’s nice to see the DOW futures poining to a positive open - up 76 points as of this writing.