Wednesday, February 18, 2009

Wesnesday Morning Commentary

Some day, good news may be released from solitary confinement.

Here is today's "Breaking News" (ignore hyperlinks to each article):

GM Seeks Up to $16.6 Billion in New U.S. Aid, Plans 47,000 More Job Cuts
Stanford Attorney's Withdrawal `Screams Fraud,' Spurred SEC to Take Action
MBIA Forms New Municipal-Bond Insurance Company as Part of Restructuring
U.S. Stock-Index Futures Rise; Citigroup, JPMorgan, General Motors Advance
Hedge Fund Managers Pressed to Consolidate After Record Losses Erode Fees
Immelt Waives Bonus as GE Leaves Chief's Salary Unchanged at $3.3 Million
Berkshire Cuts J&J, Procter & Gamble Stakes as Buffett Favors Fixed Income
Obama Says Afghan War Is `Still Winnable,' Will Send 17,000 More Soldiers
California Senate Deadlocked on $14 Billion Tax Increase to Repair Budget.

A Bloomberg video caption quotes a man from a financial company saying that investing in banks is like "gambling". Econblog Review has been saying for some time that investing in stocks in general is for gamblers. At least the Street is catching up to reality. When it gets there, it will probably overshoot to be overly pessimistic in its public pronouncements. Then it will be safe to get back in the stock water.

Here are articles that Naked Capitalism links to (go to NC for links):

Stimulus Big Winner: Battery Manufacturing MIT Technology Review. Egad, I did a study on advanced batteries back in 1993 and got to drive a US manufactured electric car. And guess what? Looks like we ceded leadership to Asia.
Late Change in Course Hobbled Rollout of Geithner's Bank Plan Washington Post
After Manhattan’s Office Boom, a Hard Fall New York Times
Californian dream turns into nightmare Financial Times
Switzerland threatened with bankruptcy Ed Harrison
Adventures in Flackery, Private Jet Edition Felix Salmon
On the December TIC data Rachel Ziemba
Germany may rescue debt-laden EU members Telegraph. This is a big deal.

The news is legitimately bad. Switzerland of all countries threatened with national bankruptcy?

This is not a contrarian signal to buy stocks, however. Given negative price action, long-term topping action in the charts of the stock averages, and poor earnings momentum for the economy, only gamblers should be in the stock market. Presumably at some point the stock market will have a big upward move and people will point to how negative other people were at the bottom and will say to buy on the bad news. But that's easier said than done, the retrospectroscope being the only accurate diagnostic instrument.

Unfortunately, our own Big Mac indicator, the stock of McDonald's Corp. (MCD), has broken support in the 57 range. MCD has been both fundamentally and technically the best Dow 30 stock. Both on a fundamental and technical basis, stocks could fall much, much farther even if President Obama's feared "catastophe" is avoided. Valuations are nowhere close to trough valuations at other major bear market lows, even ignoring the horrors of 1932.

For some reason, the 30-year Treasury bond has been in great demand the last few days. Since we put in our call that the 10-year T-bond looked good at over 3%, the yield has fallen sharply to 2.63%. Geopolitically and "geo-economically", there has been little decoupling of the world from the U.S. and the U.S. financial institutions may be in less poor shape than their counterparts in Europe. Gold continues to compete with Treasuries for the safe haven funds and to have a strong technical chart.

The best hope for the future is that the productive capacity of the world is intact and still growing, and the globe is relatively peaceful. Thus anyone who would like to ride out this economic downturn in Tierra del Fuego, Bikini Atoll or almost anywhere else in the world can get there safely.

Personally, I prefer living in areas suffering from real estate busts.

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