How is it possible for 3 often negatively-correlated asset classes to rise simultaneously when neither has been oversold via a selling crisis?
The answer, my friends, is blowing in the Fed.
Leverage is back. Stocks and the long Treasury each rose 1/2% in price today, while gold made up for a one-day "correction" and rose will over 1%. Platinum was very strong, and silver was strong. Metals buyers know that with labor in oversupply, commodities prices can rise without having much effect on "inflation".
Richard Russell, dean of technicians, has a writeup on gold out (h/t Credit Writedowns and Prieur du Plessis). In an excerpt of his Dow theory Letters, he lists 6 reasons to buy gold and for those who would like a concise rundown of the major themes amongst longer-term gold investors and speculators (such as yours truly), his is a good writeup. Interestingly, at the end of the excerpt he quotes from another technician who, as I did last week, questioned whether the gap up following the news that India was buying was a short-term sign of too much froth. It's welcome to see that I was in good company in smelling a setback that never came.
When almost every asset class is going up, then in at least a Zen sense, nothing is going up. There is too much speculation based on cheap printed or electronically-created money, much of it then lent and relent to drive prices higher.
In the meantime, the financials have been notable underperformers. Citi and BofA stocks are below downward-sloping 50 day moving averages. JPM is close. Worse, two smaller (but large) financial services companies I use as canaries in the coal mine are UMB Financial and Northern Trust (UMBF and NTRS). Each has thoroughly broken down judged by moving averages. While Northern Trust provided the mortgage on Barack Obama's home, my sense is that it is cleaner as an institution than the megabanks; it repaid its TARP money quickly. Everyone knows the financials have troubles; we will find out if that it in the stocks.
So far as new leadership, it's hard to say. I'd be very cautious about tech. It presaged the stock recovery via superior relative strength and the former successful bear Bill Fleckenstein (now a precious metals bull) has said recently that he's seeing double ordering in the tech sector and is preparing to short stocks when they are technically ready. Aside from gold, old stalwarts such as MCD and IBM are the belles of this ball. Leadership has changed, as it should, from speculative stuff to giants with large international presences and no problem accessing credit whenever they want.
Dr. Bernanke may be like Archimedes, who would have moved the world but for want of a lever. The Fed can provide an "elastic currency", but that does not guarantee sustainable economic growth. Even bigger and better levers come for the people themselves.
For now, the Street is partying as if it were 2000 and something. Are we already close to October 2007 and another economic and stock market peak? I hope not but would go with quality first and foremost.
Copyright (C) Long Lake LLC 2009
Showing posts with label Richard Russell. Show all posts
Showing posts with label Richard Russell. Show all posts
Friday, November 13, 2009
Monday, April 27, 2009
Monday Morning Update: Good News Remains Scarce
This blog has since inception considered Tim Geithner to be the bad penny and asked that his nomination as Treasury Sec'y be withdrawn. Thus it is with positive emotions that an important blog from Naked Capitalism was seen this morning, titled Are the Knives Coming Out for Geithner? If you haven't, please read it.
That post by Yves Smith and the lengthy NY Times article that it keys off of, are not in conjunction with an apparent pandemic of swine flu enough to knock the stock market off its stride.
Yesterday, however, Larry Summers was reported on by Bloomberg as follows:
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said yesterday on “Fox News Sunday.”
In conjunction with this downbeat comment from Dr. Summers, TrimTabs reported today via Email that:
- U.S. Economy in Much Worse Shape Than Wall Street Realizes: Income Tax Withholdings Drop 3.1% Y-o-Y in Past Four Weeks, and TrimTabs Online Job Postings Index Falls 4.2% in April.
In addition, the debt monster is back: Bloomberg reports that companies have sold a record $468 B in debt so far this year (presumably this is a record for this far into a calendar year).
The news remains poor, and a veteran market observer comments (courtesy of Zero Hedge and GreenLightAdvisor Views):
Richard Russell of Dow Theory Letters, provides the following note April 20, 2009:
“(1) The market turned up in a V-shaped reversal off the March 9 low. However, almost all bull markets start with a period of accumulation. This entails a sideways move, sometimes taking weeks or even months. Or it may require a non-confirmation of the Averages as per December 1974. At the March low, we saw neither - no indication of accumulation. And that bothers me.
“(2) At the March lows, we did not see the ‘great values’ that usually accompany major bear market bottoms (i.e. P/E’s in the 5-8 area, average dividend yields of 5-6%).
“(3) The market was severely oversold at the March lows, a condition that often sets off a ‘relief’ (‘let off the pressure’) rally. The advance was probably triggered by the severely oversold condition of the market.
“(4) The one thing a money-manager cannot afford to do is be on the sidelines during ‘what could be’ a major rally. Once the market started up from the March 9 low, many money managers leaped in. The big short positions were immediately squeezed. The rise became a momentum advance. Retail buyers moved in, many trying to retrieve some of their brutal losses.
“(5) The rally moved up ‘too fast’ - action more typical of a bear market rally than the slow, plodding rise that is characteristic of the advance in a new bull market.
“(6) Two groups that led the rally were Financials and Consumer Cyclicals. Interestingly, these two groups contained respectively 5 billion and 2.7 billion shares sold short. This suggests strongly that a significant part of the rally was fired up by short-covering in these two groups (thanks Alan Abelson for this information).
“(7) Many investors and analysts turned optimistic after the market had rallied for only a few weeks. At true bear market bottoms, investors remain stubbornly sceptical or bearish for months after the bottom. Remembering 1974, people were actually angry when I turned bullish at the bottom. I was receiving hate letters and subscription cancellations.
“All of the above have kept me skeptical and cautious about this rally.”
To the above list one might add that around now is the time that a traditional honeymoon period ends for a media-favored new President. The Geithner lashing out of the leading Democratic organ, the Times, may signal a less gauzy picture of the new administration reaching the public, which in turn could lead to a less optimistic view of the future.
We shall see what we shall see.
Copyright (C) Long Lake LLC 2009
That post by Yves Smith and the lengthy NY Times article that it keys off of, are not in conjunction with an apparent pandemic of swine flu enough to knock the stock market off its stride.
Yesterday, however, Larry Summers was reported on by Bloomberg as follows:
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said yesterday on “Fox News Sunday.”
In conjunction with this downbeat comment from Dr. Summers, TrimTabs reported today via Email that:
- U.S. Economy in Much Worse Shape Than Wall Street Realizes: Income Tax Withholdings Drop 3.1% Y-o-Y in Past Four Weeks, and TrimTabs Online Job Postings Index Falls 4.2% in April.
In addition, the debt monster is back: Bloomberg reports that companies have sold a record $468 B in debt so far this year (presumably this is a record for this far into a calendar year).
The news remains poor, and a veteran market observer comments (courtesy of Zero Hedge and GreenLightAdvisor Views):
Richard Russell of Dow Theory Letters, provides the following note April 20, 2009:
“(1) The market turned up in a V-shaped reversal off the March 9 low. However, almost all bull markets start with a period of accumulation. This entails a sideways move, sometimes taking weeks or even months. Or it may require a non-confirmation of the Averages as per December 1974. At the March low, we saw neither - no indication of accumulation. And that bothers me.
“(2) At the March lows, we did not see the ‘great values’ that usually accompany major bear market bottoms (i.e. P/E’s in the 5-8 area, average dividend yields of 5-6%).
“(3) The market was severely oversold at the March lows, a condition that often sets off a ‘relief’ (‘let off the pressure’) rally. The advance was probably triggered by the severely oversold condition of the market.
“(4) The one thing a money-manager cannot afford to do is be on the sidelines during ‘what could be’ a major rally. Once the market started up from the March 9 low, many money managers leaped in. The big short positions were immediately squeezed. The rise became a momentum advance. Retail buyers moved in, many trying to retrieve some of their brutal losses.
“(5) The rally moved up ‘too fast’ - action more typical of a bear market rally than the slow, plodding rise that is characteristic of the advance in a new bull market.
“(6) Two groups that led the rally were Financials and Consumer Cyclicals. Interestingly, these two groups contained respectively 5 billion and 2.7 billion shares sold short. This suggests strongly that a significant part of the rally was fired up by short-covering in these two groups (thanks Alan Abelson for this information).
“(7) Many investors and analysts turned optimistic after the market had rallied for only a few weeks. At true bear market bottoms, investors remain stubbornly sceptical or bearish for months after the bottom. Remembering 1974, people were actually angry when I turned bullish at the bottom. I was receiving hate letters and subscription cancellations.
“All of the above have kept me skeptical and cautious about this rally.”
To the above list one might add that around now is the time that a traditional honeymoon period ends for a media-favored new President. The Geithner lashing out of the leading Democratic organ, the Times, may signal a less gauzy picture of the new administration reaching the public, which in turn could lead to a less optimistic view of the future.
We shall see what we shall see.
Copyright (C) Long Lake LLC 2009
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