For those who are interested in seeing and hearing the views of Louise Yamada, please go to http://www.lyadvisors.com/ and click on the "Recent Events" bar. The most informative of these is the lengthy interview she did with Tom Keene for Bloomberg Radio. Ms. Yamada has been on the correct side of the following mega-trends:
Long stocks, 1982
Called stock market top, 2000
Pounded the table to buy stocks, spring 2003
Bearish on financials, 2006
Bearish on stocks, spring 2007
Continuously bearish on stocks since then
Current target on DJIA/S&P 500: 6000/600 as first target, then 4000/400 next target.
Turned bullish on gold early part of this decade around $300/ounce price. Continues positive though not wildly so.
Correctly predicted moon shot move up in oil this decade. Turned noticeably unenthusiastic on oil over $130/bbl. Did NOT predict collapse in oil price, though.
Ms. Yamada is a technician. She said in her interview that she ignores "fundamentals", as the market prices those in. She says she uses simple charting tools to determine what forces of supply and demand are moving assets up or down.
There's no question that her recommendations for being long or out of the stock market have massively beaten a buy-and-hold strategy, or a strategy based either on past year's earnings or projected earnings for the coming year.
Re the news of the day, this is a turnaround Tuesday for stocks in Europe and looks to be so here. The pattern of this bear is that even on most "up" days, certain previously-outperforming sectors lagged, and the most beaten-up ones rallied. If that pattern continues today, the NASDAQ will be relatively weak and the best-performing Dow stocks will also underperform laggards such as the financials and P&G. Thus, watch whether BofA, Citi and P&G outperform such relatively strong stocks as IBM and MCD.
Yesterday, Warren Buffett emitted positive sentiments about Wells Fargo, which stock dutifully surged, along with BofA. Today, Citigroup is gushing about how profitable it was the first two months of this year. Without being a sourpuss, I might point out that the U.S. Government has just given it vast amounts of money as direct investment and as a subsidy, and the Federal Reserve (which has almost completely ceased to be independent of the Government) has showered it with free money, guarantees, etc.
Even if "C" is profitable, no doubt this is on an "operating" basis. On a mark to market basis, which is to say in the real world in which you and I live, and Citi unfortunately has to live (or die), the deterioration in the value in its assets this quarter almost certainly is greater than any alleged profits it is booking. From a stock standpoint, the Federal Government can make Citi a $50 stock again if it keeps giving it free money (along with the complaisant Fed). But from a general corporate standpoint, Citi, as repeatedly pointed out here and all over the blogosphere, is a gross distorted monstrosity. Its predecessor National City Bank helped cause the 1927-9 stock bubble; it was bailed out in 1980 and 1990; its very name is toxic, and thus it should die and be chopped up, its parts distributed to better companies.
Now for the new bad news. From Calculated Risk today one sees two important posts, "FDIC's Bair on 'Aggregator Bank'"; and "S&P Puts $552.8 billion Alt-A MBS on Downgrade Watch".
CR, who is generally much more of a reporter than an opiner, is sarcastic about Ms. Bair's views, and he does this with full knowledge that she has had better press than Mr. Geithner, Mr. Paulson, or even Dr. Bernanke: he comments that in her view, "Insolvency is success".
CR also reports that S&P is likely to downgrade over half a trillion dollars worth of mortgage-backed securities ("MBS"). Though one might think that all this downgrade activity has been discounted by the stock and general financial markets, such has not been the case to date; there is thus no reason to expect it to be so with this latest giant set of MBS. One day, we all expect that downgrades will have been fully discounted by the markets; if that day is today, and we have seen the bottom of the stock market, that would certainly be marvelous. For now, the technicals per Yamada and the obvious fundamentals continue to argue for caution. This blog said the same thing 2000 Dow points higher 2 months ago. The action of the markets points out the importance of preservation of capital during uncertain and bearish times.
As the economy and financial markets twist slowly, slowly in the wind, and we all hope that the worst of the news has already been heard or at least over-discounted, it may be apt to quote some lines from T. S. Eliot's 1941 poem "The Dry Salvages", written in Britain during perhaps Britain's darkest days of World War II:
Where is there an end of it, the soundless wailing . . .
Where is there an end to the drifting wreckage . . .
There is no end, but addition: the trailing
Consequence of further days and hours,
While emotion takes to itself the emotionless
Years of living among the breakage
Of what was believed in as the most reliable-
And therefore the fittest for renunciation.
There is the final addition, the failing
Pride or resentment at failing powers,
We cannot think of a time that is . . .
. . . not liable
Like the past, to have no destination.
There is no end of it, the voiceless wailing,
No end to the withering of withered flowers,
To the movement of pain that is painless and motionless,
It seems, as one becomes older,
That the past has another pattern . . .
Not fare well,
But fare forward, voyagers.
No matter what the future holds for us, perhaps the next saying, also coined during World War II, is the more important:
Illegitimi non carborundum:
Don't let the bastards wear you down.
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