Tuesday, October 20, 2009

As Negative Publicity Mounts, the Big Finance Stocks Have Begun to Underperform

The markets continue to sizzle, but once again, the price increases were revealed to be nothing more than speculation due to "liquidity", whatever that really is. Stocks started out strongly Monday even in relation to gold, which was down in price adjusted for dollar weakness, but by the day's end, gold and Treasury bond prices--that queer couple--had shown buying interest. Once again, adjusted for the price of gold, stocks went nowhere (this decade, they usually go down in gold terms). Since 9/11/2001, after which the money-printing began to go into hyperdrive, the Dow Jones is roughly even, adjusted upward for dividend payouts and downward for consumer price inflation, whereas gold has at least tripled despite having no yield.

The returns from boring, much-hated Treasuries have beaten stocks this decade and over longer time frames.

Yet it is stocks that get the publicity.

Think different. (Unrelated to finance, click on the link for an entertaining example of how a genius thought differently when asked to solve a simple science problem.)

As suggested a few days ago on this site, there is strong evidence of trend changes in the stock market that may correlate with economic changes. The charts are very interesting in that regard. Over the next several days, we will discuss fundamental and technical considerations in a variety of asset classes.

One quick comment on today's action. Within the asset price inflation that cannot produce prosperity, the large financial companies have started to underperform. Of the big guys, the only one I can find that still has a declining 200 day moving average is Citigroup ("C")*. GE is close in that regard. Citi was down 1% today on a 1% up day for the averages and GE was down 1 1/2%. JPM, GS, BAC and WFC were all roughly flat. If you think these modest degrees of underperformance for the stocks with the worst charts vs. those with stronger charts are random occurrences, well, you are entitled to your opinion. I think the pros care about movements like these, though of course one day's relative strength may reverse soon enough. The trend is your friend--until it isn't.

Also, AIG was down big time and Fannie and Freddie suffered small strokes.

Meanwhile, GSK, Merck (MRK), MCD, FPL, Du Pont and the like: large boring stocks that all yield more than the 10-year T-note, have been very strong today and very recently.

We may thus be seeing an important rotation with broader implications.

More in upcoming days.

* Full disclosure: 1. Not investment advice. 2. I went short Citigroup last week and am long several of the stocks mentioned 2 paragraphs above. Positions may change without notice.

Copyright (C) Long Lake LLC 2009

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