Wednesday, March 24, 2010

Market Tone Changing?

Amidst widespread blogosphere revulsion against all sorts of sovereign debt, for whatever reasons the markets decided to sell Treasuries, which tied in with a stronger dollar against even weaker currencies, and gold acted like a weak currency but was the strongest of the precious metals complex.

Got that?

In stocks, what does smell a bit "correctional" is how many individual issues I follow that have developed positive movements over the 50,150 and 200 day moving averages. And meanwhile Gallup still shows hiring and spending becalmed in depression-range lows. Bill Gross of PIMCO may be selling stocks, as he touted them over bonds. Who knows?

The roiling currency markets are sure reminiscent of 1997-8. That actually marked the end of the great broad bull market of the 1990s, with the Value Line Index peaking then and the rally narrowing through 2000 to the best-known large caps and the flashiest tech-type stocks. In a secular bear market, is the past year's rally enough to lead to a similar scenario? Here we had AAPL up today in a down tape, ORCL down just a bit but with a strong chart, and the breakout candidate WPI (Watson Pharma) up a bit as well. Except for bottom fishing in RE, which is trading way below tangible book value, I am avoiding relatively weak stocks such as FPL (which can't get out of its own way) and have taken some significant percentage profits on some of the discount retailers.

One of my working hypotheses has been a sudden collapse in Treasury yields if even a mini-version of late 2008 strikes. There is precedent for this. The sharp 1987 October bear market was followed 2 years later by a lesser but significant bear move in part related to something or other with United Airlines.

As said many times and not profoundly, all days are new days, but we are in exceptionally unprecedented times. Just because so many aspects to the economy look like typical bottoming processes followed by significant upturns does not prove that this well happen again. The obvious reason to be different is that the Fed is out of interest rate reduction bullets and has monetized amazing amounts of debt.

Yours truly is unpersuaded that the dollar is sound, and the traditional thing against which its soundness is measured is gold. Who knows if gold got too popular, but it certainly didn't move to a 3 standard deviation outlier position vs. anything else, which is the standard definition of a bubble. The other metals are a different story, however.

If we get a sharp sell-off in stocks, the betting here (but not with much money or with any leverage) is that money will flow into Treasuries. If not, then Bill Fleckenstein and Nassim Taleb's disaster scenario may be here, and look out below. Then it would be bills, gold and meals ready to eat if you can find any.

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