Daily Investment Interpretations

Thursday, March 23, 2009

2009-3-23:  The markets went wild today, rising about 7%, on what Secretary Geithner's new toxic assets plan will do for banks. The NASDAQ puffed up 98.5 points (6.76%) to 1,556. The Dow expanded 497.48 points (6.84%) to 7,776, and the S&P 500 hopped up 98.5 (7.08%) to end the day at 769. Oil jumped to 53.61, while Gold fell slightly to $952.50. The VIX dipped 2.23 to 43.23.
    With today's market action, the Dow has moved above its equivalent Depression-era level. Mark Hulbert points out that today saw 41-to-1 up-down buying stampede, which, he suggests, might be a record. This makes four better-than 9-to-1 up days in two weeks... a very bullish sign. However. Mark Hulbert throws some perspective tonight on what's happening: Mark Hulbert: Bear market rally or new bull market?  

    So should we buy or not? And if so, what, and how much?
    Given the horrendous last 18 months, I would tread cautiously. If I buy, I'll be  nibbling my way back into the marketplace (Geithner's plan: What it means for investors) with pre-defined stops at which sales occur without debating whether or not to sell. If the value of an investment rises, you can raise the stops to lock in a profit if the markets turn down again. I would invest between 5% and 10% of my available cash tomorrow morning. At some point in the next two weeks, the markets are going to have to digest today's gains, though at what point they'll be, I'm sure I don't know except to guess that it may be above where it is tonight. This is a calculated risk that could involve modest losses, but at certain points in the markets' cycles, it may be profitable to take such a (limited) risk.
    What to buy? My favorites are UUPIX (the Proshares Ultra Emerging Markets Fund), FXI (the iShares China ETF), and PBW (the Wilderhill Energy ETF). However, there numerous good buys out there, and I'll have to do a little homework to expand this list.
    Ill try to update this tomorrow morning.

3-23 (Early-Afternoon):  Here's another sardonic Marketwatch take on Scretary Geithner's "toxic" assets plan: MarketWatch First Take- Geithner re-brands 'toxic debt' with kinder, gentler term
    Of course, a plan that's detrimental to the taxpayer may of benefit to Wall Street.

3-23 (Late-Morning):  The stock market has sizzled today over optimism about the new Geithner toxic assets buyout plan. Should we be buying?
    Yesterday, Paul Krugman published a squib: Permanent Link to Brad DeLong’s defense of Geithner. He gives the DeLong article a sympathetic review. I think he's examining alternatives to his point of view to insure that he doesn't let his own thinking cloud his judgment with respect to alternative possibilities. Today, he's added this follow-on note: Permanent Link to Geithner plan arithmetic
    He's not alone in his concerns: Risk, yes, but is there reward?.Marketwatch's David Weidner writes, "
Taxpayers are certain to lash out at the terms. They will get a share of the profits, if there are any. Investors will get a share of the profits, even if there aren't any. But even if Treasury Secretary Timothy Geithner can sidestep the backlash, he may not be able to dodge the sticky issue that has kept the financial system on the ropes: valuation. " He concludes, "Investors cheered the news Monday. The Dow Jones Industrial Average leapt nearly 4% in early trading. But as the Troubled Assets Relief Program and American International Group bailout have shown, announcing a program is much easier than running it."
    News-driven rallies don't generally last long. This probably isn't a morning to be a buyer.