Recently I have posted some strategic thoughts about changing relative investment merits given the huge move down recently in bond rates.
On a more tactical basis, I have been commenting for many months about the technical deterioration in the financials. This continues and is worsening. In addition, the general stock market as judged by the SPY looks terrible based on moving averages, with the SPY now below a down-sloping 50-day simple moving average (SMA) and a down-sloping 150 day sma about to drop below a flat 200 day sma. Ugly, to the point of being fugly.
One of my favorite relatively unknown financials, UMBF, has moved below its 2009 low despite rising earnings estimates. NTRS (banker to young Barack Obama back in Chicago when a crook named Rezko helped enlarge Mr. Obama's backyard) also is one of the non-Big 5 (or whatever the number is) financial firms I have followed to see what the real world is doing, and its chart is definitely fugly. And NTRS's earnings estimates have been declining, and it still sells for over 13X projected 2011 earnings; and who knows what they will really be?
The bigger bellwethers of JPM and WFC have ugly and fugly charts, respectively. Uh-oh.
In the meantime, though, if the American consumer is so badly off, why is DLTR going to new highs and Tractor Supply (TSCO) holding up so well?
Other stocks holding up well so far in this decline are CB and RE, which are an insurer and a reinsurer; and McDonald's, which has a picture-perfect chart.
So there are lots of cross-currents now.
Meanwhile, gold has an even more picture-perfect chart than MCD or CB, and silver looks OK as well.
The dean of stock analysts in America is probably Richard Russell, and he is uber-bearish on stocks. His view deserves respect; I do not look at him as someone to be contrary against.
Putting matters together with seasonality, matters are setting up as I projected in May when I stated that stock rallies should be sold. I am concerned about the tw0-year pattern in stocks.
Two years after the 1987 stock collapse, a mini-collapse occurred in fall 1989; that did not take the averages to the 1987 lows, as in retrospect the stock market was only partly through its structural multi-year bull market. Stocks are certainly acting as if they could reprise 2008, just as 1989 reprised 1987. Now, however, stocks are mired in what I believe to be a structural bear market. Any collapse, I believe, carries with it real risk of new lows, given that the 2008 low fell below the 2002 low in nominal terms (worse in inflation-adjusted terms).
The U. S. and the world are in more unusually uncertain times than usual. Regular readers of my blog know that I have excoriated Ben Bernanke as amongst the worst Fed chairmen of all time, and perhaps the single worst. For all the blame Sir Alan deserves, he left when the leaving was good, and who knows whether what he would have done when the rubber was hitting the road in 2007-8? This is Helicopter Ben's Fed and Barack Obama's government, and IMVHO they are and have been stinking up the joint with ineffective and harmful policies.
Just as I believed at the time that Paul Volcker (a Dem) and Ronald Reagan (a former Dem) were the right men for the problems facing the country, and invested accordingly, I want them back! I think that we have just the wrong men for today's problems in these key offices. If Mr. Obama were to give Tall Paul real authority, wouldn't that make a statement that the President is willing to face up to our very solvable financial and economic problems and overcome them? But he didn't do so, and he won't. So we have a tax fiddler running Treasury (and IRS) and a Wall Street hanger-on sitting by the President advising him to make Big Finance happy as a way to help Main Street (assuming LS really cares about Main Street).
Historically the stock market has gone up more under Dems than Repubs, but the ineffective inflationist with two inflationist Fed chairmen named Jimmy Carter was an exception. Mr. Obama may be following in Mr. Carter's footsteps.
The path of least resistance for the stock averages is down. Fundamentally the S&P 500 can be considered to be a massive 40+% above fair value. The experience of the 1930s and 1940s prove that low Treasury rates can easily coexist with depressed stock market values. Japan for the last many years proves that as well.
America is blessed with a hard-working population and a lot of smart businesspeople who want to make money the old-fashioned way, which unfortunately is neither the Chicago way nor the modern Big Finance way. What the old-fashioned types need is for government and the Fed to be old-fashioned as well. No matter how pure the motives, statism in very large, complicated economies is very different from statism in small Scandinavian countries where "everyone" is related to each other.
Money should be treated with respect, not with zero interest rates. And the standard financial principles that failure should not be rewarded with bailouts should be restored post-haste. If Citigroup is still insolvent after all that has been done (unfairly, IMO) to assist it, so be it.
There is no surprise in this observer that the stock market is acting badly. An economy that creates neither jobs nor optimism amongst small businessmen is a very troubled one. "Don't fight the Fed" worked when the Fed could engineer lower rates and the real world extended more and more (imaginary, to be sure) credit.
In this era of all-time record low interest rates, the Japan scenario shows that the next shoe to drop after a credit collapse is equity valuations if prices don't rise. While longer term I vote for stagflation, in the very short term a rerun of 2008 with collapsing commodity prices could occur. There's no way to even guess. And to be sure, I agree once in a while with Keynes: as he said, if the facts change, I do adjust my thinking.
The stock market is voting lately against the policies of appeasing the titans of Wall Street. Where it goes nobody knows, of course; at least I don't know; but I do know what I think about freedom-friendly and economy-friendly governmental and Fed policies.
What ails the economy is not all that complicated. The money-printing has stayed almost hermetically sealed within the Street. The statist and Big Finance-friendly policies of the Bushbama Continuity just aren't allowing the inherent dynamism of the American worker and business community to do what comes naturally.
Money should be treated with respect, not zero return (while lenders charge crazy high rates on credit card debt even to credit-worthy borrowers).
Mr. Bernanke and Mr. Obama, tear down these policies. You have nothing to lose but your failures.
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