Daily Investment Interpretations

March 10, 2009

2009-3-10  The markets are 5.8% to 7.07% higher today on the good news from Citi bank and Chairman Bernanke. The NASDAQ clambered up 89.64 (7.07%) to 1,358, the Dow tacked on 379.20 (5.8%) to 6,926, and the S&P 500 annexed 43.07 (6.37%) to close up at 720. Oil leaked $1.36 to $45.55, while Gold sacrificed $22.10 to end the day at $895.90. The VIX fell 5.31 to 44.37.
    Citi's good news was received with reservations: Citigroup Sparks Big Rally, But the Pros Are Skeptical, A cover-up?, and Citigroup Will Have To Sell More Assets: Whitney. Below are one reader's (JamesEdward's) comments:

"The 5% up move today in the DJIA and NASDAQ is totally without merit, due to the facts pointed out by Bob Pisanni today on CNBC, who stated that this was simply short covering by hedge funds, in the absense of Mutual Fund buying, namely: The Citi comment today before the market opened, which is the spark for today's 5% advance in DJIA, is GROSSLY MISLEADING because it omits the fact that Citi MUST take a huge loss of "Write-Down" of "Toxic Assets" included in its first quarter earnings report for period ending March 31, 2009, thereby creating a huge loss in their upcoming quarterly earning statement for the period ending March 31, 2009. As Bob Pasanni so aptly pointed out, "You would have to be pretty stupid if you could not show a profit of $8 Billion in two months of lending since Citi is borrowing money at 0.0% and loaning it out at greater than 0.0% !! Marvelous work, Bob Pisanni!!

"Therefore, the large sell-off today in Gold and Silver due solely to the rising stock market is a perfect entry point for new precious metals investors! For example, the recent bullish 3 legs up classical advance in Gold which carried it from $735 on December 5, 2008 to $1,008 per ounce on February 23, 2009 has now today completed a 38.2% Fibonacci pullback on that move to $893 per ounce. Silver has tested its 38.2% Fibonacci pulback even more bullishly today with its low holding about 10 cent above that level!!

"Moreover, with sharply growing Geopolitcial tensions in the Korean Peninsula for the next two weeks due to the U. S./South Korean War Games being conducted and also the impending ICBM launch by North Korea in BLATANT defiance of the U.S. and Japan, we have the concommitance of events for the next up leg in Gold's ongoing bull market to $1,226 per ounce on a "measured move" basis. Silver will follow suit, with its percentage gain about 50% greater than that of Gold. Look to it!!"

    To summarize, I'm guessing that this is another bear market rally on our way down the "wave-slide" to whatever bottom lies up ahead. Martin Weiss today claims that 
(1) the World bank today announced that worldwide wide industrial production will fall for this year for the first time since World War II, and that world industrial production will plunge 15% in 2009. I checked this out to see whether it's true, and apparently, it is: Global economy will contract in 2009 for first time since World ..... (The overall global economy is expected to fall 5% in 2009,)
(2) The Asian Development Bank reported that more than $50 trillion in invested wealth vanished into thin air last year.
(3) Warren Buffett warned on CNBC, Warren Buffett to CNBC: Economy Has "Fallen Off a Cliff" - Warren ..., that the economy "h
as fallen off a cliff"... "is in a shambles", and is experiencing "close to the worst-case scenario". He also says, "But, five years from now, the economy will be running fine.  The strength of the American system will pull it through, just as it has many times in the past."
    One threatening development is New 'Bear Trap" for Markets: Credit is Tightening Again. What's ominous about this is that when things seems to be under control, as they were with the banks, suddenly, the problems re-emerge. 
    Another credit bombshell that is said to be waiting in the wings is credit card debt. For a few months, it was falling, but now, it's rising again. Families can cope for a little while after job losses, but eventually, things get really rough. Credit cards are a last resort for purchases that must be made... e. g., medical care for one's children.      I'm thinking that this is an opportunity to set up for a deeper bear market ahead by buying gold and inverse ETFs.

3-10 (Tuesday Morning)  What should we make of today's rally? Ashbaugh's charts point to rally you can trade. To me, the title Marketwatch has given this article is, maybe, a little bit misleading. Michael Ashbaugh's title is, Take a hit-and-run approach to the current upturn. I would opine that what Michael Ashbaugh says in his technical analysis is that, so far, this isn't a stock market bottom. Sentiment is too "complacent" for a major market bottom. It seems to me that Marketwatch' title isn't wrong, but I'm wondering if it might be putting a positive spin on Mr. Ashbaugh's conclusions by citing Mr. Ashbaugh's charts as pointing "to a rally you can trade".
    So why are the markets jumping today?
    The first reason could be their deeply oversold condition. They're overdue for a rebound. They've been down 13 days out of the last 17.
    The second reason is two pieces of good news today.
    The first item is Citi's reporting a quite-unexpected profit for January and February.
    The second is Ben Bernanke's reassurance, Upbeat Bernanke, that the government won't allow the biggest banks to fail, and that if we can get the financial system straightened out, the economy could still turn around this year and show GDP growth next year. Dr. Bernanke stated today that the biggest problem in the Great Depression lay in the widespread bank failures, and the lack of any redress for savers who lost their life savings when their banks failed. The fact that Dr' Bernanke is one of the nation's leading economists, and the fact that he has specialized professionally in understanding the Great Depression may lend credence to his assertions.

    In his article, Animal spirits, Dr. Irwin Kellner observes that consumers seem to be buying more, albeit at discounters like Walmart and Big Lots. He points out that this may presage an eventual return to the pre-Crash economy in which 70% of the GDP is generated by personal consumption expenditures. He continues by mentioning the fact that average hourly earnings are up 3.6% over the year, while consumer prices were flat over the year. "
If these plusses were not enough, the savings rate is now 5% -- a 14-year high.
    I have a few questions regarding these numbers and conclusions. First, it's my understanding that long-term, personal consumption expenditures averaged about 65%. The 70% number was based upon a negative savings rate... upon consumers going deeper and deeper in debt. Do we really want, or can we expect personal consumption expenditures to rise to the 70% level of the past few go-go years?  Second, the money that permits a 5% savings rate--a rate which has been rising month-by-month, I believe--is, it would seem to me, money that's saved instead of spent. A dollar saved is a dollar that isn't immediately spent. It's good that average hourly wages of the 146,000,000 who are still employed have risen 3.6% over the past year, but 4,000,000 people have lost their jobs over the past year. (My guess would be that most people are saving because they're afraid of what might be coming next.)
    I chuckled over Dr. Kellner's last sentence, "
Where is conspicuous consumption now that it's really needed?"
    The article, From hiring to firing, is a bit interesting. I had read another article earlier today that said that layoffs are expected to exceed hires by 1%, and that employers were going to take a wait-and-see approach from April through June. It sounded as though the layoff rate was going to drop way down. But this article puts the matter in the opposite light: hiring expectations have fallen from quarter to quarter, reaching their lowest level in the upcoming second quarter.

    This article, Six Signs The Recession Is Ending, lists market behavior characteristics that can signal that a recession is drawing to a close.

    This Paul Krugman article, Permanent Link to Credit protection madness, states that the risk premium for U. S. bonds and other debt obligations has seven-folded over the past year: U.S. sovereign-credit spreads jump. Paul Krugman says about this, "
Has the risk of a US government default risen? Probably. Nonetheless, the people buying these contracts are crazy. A world in which the US government defaults would be a world in chaos; how likely is it that these contracts would be honored." He then quotes Nassim Taleb, the author of "Black Swan" who has written about buying Credit Default Swaps: "It would be like buying insurance on the Titanic from someone on the Titanic."

    This Paul Krugman article, Permanent Link to Can America be saved?, quotes House Minority Leader John Boehner, R., Ohio (whom Paul Krugman identifies as the second most influential Republican in the land after Rush Limbaugh), saying, “
It’s time for government to tighten their belts and show the American people that we ‘get’ it.” Dr. Krugman responds, "What’s insane about Boehner’s remark? ...we’re in a world desperately short of demand. If you consume more, that’s GOOD for me, because it helps create jobs and raise incomes." He ends on this note, "Again, this is what the leaders of a powerful, if minority, party think. Can this country be saved?"

Energy Stocks That Should Double (VLO, CHK, FSLR, COP, BHI)
Stocks That Should Double: Tech (AAPL)(QCOM)(ADBE)(NOK)(YHOO)
Another Dozen Reasons The DJIA May Go To 5,000
Caution: falling dividends

Tuesday, Pre-Market:
    In a just-published Paul Krugman article, Permanent Link to Japan reconsidered, Dr. Krugman says, "
Even with the knowledge of what happened to Japan to motivate us, so far we’re following exactly the same path. And given what the next couple of years are likely to look like, Japan’s lost decade — yes, growth was slow, but there wasn’t mass unemployment or mass suffering — is actually starting to look pretty good." He concludes, "I still hope we can do better than the Japanese did, but it’s not at all obvious that we will.".
The bright spots amid the bleak data, the authors point out that the jobless data over the past three months has been improving. In December, 681,000 jobs were lost. In January, that dropped to 655,000, and in February, it became 651,000. "Typically, a recession will end within four months of the peak of payroll losses. If that four-month rule of thumb holds this time (and the data aren't revised too much), the recession would end in March." The authors go on to say, that it isn't likely the recession will end this month, but that the rate of decline may be slowing. "The economy likely contracted at about a 6.5% annual pace in the fourth quarter, and is expected to drop at a 6% rate this quarter. Next quarter could be just 2% or so." The article concludes, "There are reasons to think the economy may improve later this year. The credit markets should be significantly helped by the latest Fed program to funnel lending to consumers and small businesses. The fiscal stimulus will begin to have a real impact as well."