What an amazing market!
Nothing can stop it. A 12.5% increase in unemployment claims – BUY! A 2.5% drop in durable goods orders – BUY! Japan’s credit rating downgraded – BUY! Amazon missing revenues – BUY! Gold falling $35 from Wednesday’s close – BUY! Oil at the lowest level since November – BUY! Thousands of protesters rioting (video of the police shooting a man dead) in Egypt this morning – BUY!
Not only are the markets being bought (albeit on very low volume by TradeBots) under any and all conditions but they are being bought with little or no downside protection – as indicated by the VIX, which has fallen to 16 again, back at the 2008 pre-crash lows, when Bush’s Economic Stimulus Act of 2008 "saved" us by sending everyone in America $300 (which we ended up using to buy 2 barrels of oil as it raced to $140 per barrel that June). At the time (February 14th, Dow 12,400. S&P 1,350, Nas 2,332), I thought it was a very bad idea, saying:
Kudos to Sen Bob Corker of TN (R), who said: "Sprinkling $160 billion around the country and asking people to spend it quickly to me was not a solution worth debating or passing." When we had our economic crisis in the ’80s, Ronald Reagan (who is rumored to have been a Republican) and Paul Volcker fixed the economy by RAISING interest rates to STRENGTHEN the dollar, which lowered those pesky food and energy prices that the government likes to pretend don’t exist. This administration has just three weapons – cuts, cuts and more cuts, and the dollar took another dive this week, failing the critical 50 dma at 76.32 while the Chairman was demonstrating his monoline mindset on how to solve our problems.
I mentioned in the morning post how a gallon of gasoline takes a European 75% further than it takes an American but I forgot to mention that a Euro takes a European 40% further than a dollar takes an American consumer. This is the gigantic, gaping hole of a joke of our economic policy – we import energy and everyone has to buy it. You can’t have an economic policy without an energy policy – it’s a guarantee of failure before you even start. While the dollar drowned on the Bush gang’s $168Bn giveaway, the price of oil rose from $86.24 to $95.55 in the past 5 sessions, that’s 11%!
$9 per barrel costs US consumers $12 by the time it’s refined (42 gallons a barrel, $3 per gallon) and the US uses 20M barrels of oil a day so that’s $240M A DAY coming out of US consumers hands in just the past week! Over the course of the year, that’s $88Bn of damage from rising oil prices caused by the "stimulus" package so, like virtually all policies put in place by this administration, the only thing being stimulated is the price of oil!
What is different this time? As I said on Monday when looking ahead to whether we’d have our Alpha 2 drop pattern we had last year: "Surely the Fed can break this patten as we have as much as $9Bn worth of POMO today, $8Bn tomorrow, $6Bn on Thursday and $9Bn on Friday (see SWW for chart) for a whopping $32Bn of fresh money created by the Fed in just 5 days. As I said to Members this morning – that is like handing everyone in America $100 to spend – you would think that would boost the markets just a little, right?" So you can see why I’m still a little cynical – we’ve seen this movie before and we know how it’s going to end, it’s just a question of when.
Like 2008, the attempts by the Fed and the Government to prop up the economy are doing nothing at all to fix the problem, merely shoving the problems under the rug for another few months until we have that final day of reckoning. If you are a short-term investor, taking quick profits and running – that makes sense, good job – we can make money that way! If you are a long-term, well-hedged investor – that’s good too. But, if you are a medium-term investor who, like most apparently, is not prepared to face the consequences of a sudden 10-20% drop in the market – then you are nuts!
John Nyaradi does a nice job of pointing out that "Global Markets Teeter on the Knife’s Edge" and that it’s déjà vu all over again as we fly "Once more unto the breach, dear friends, once more." Of course, the second part of that quote (from Henry V) is "Or close the wall up with our English dead" – which is very apropos as the English economy is looking very dead these days with the declining GDP we touched on in Tuesday’s post and, this morning, the worst Consumer Confidence numbers we’ve seen in 22 months. "January’s eight point drop represents an astonishing collapse in consumer confidence," said Nick Moon, managing director of GfK NOP Social Research. "In the 35 years since the index began, confidence has only slumped this much on six occasions, the last being in the midst of the 1992 recession."
Separately, the Confederation of British Industry Thursday said retail sales growth slowed in January, and is expected to continue to decelerate. Its monthly measure of sales volume fell to 37 in January from 56 in December, the weakest reading in three months. The balance is the percentage of respondents reporting higher sales than in the corresponding period the previous year minus the percentage reporting weaker sales. "Consumer demand is expected to be weak in the coming months, as the spending power of households is hit by a combination of sharply rising prices and weak wage growth," said Ian McCafferty, chief economic adviser to the CBI. "Retailers can expect a challenging period ahead."
Don’t worry kids – I’m sure that won’t happen here. England is nothing like us – they speak a different language and everything! Sure our household spending power is also being hit by sharply rising prices and weak wage growth and sure retailers are already showing signs of not-so-great Q4 numbers with margins contracting and top-line sales failing estimates but USA, USA, U! S! A! There, see, no problem…
Joe Stiglitz read the riot act to Tim Geithner and the other belt tighteners in Congress this morning commenting on Geithner’s comment that Keynesian economics is not working saying: "Anybody who says that doesn’t understand economics. Keynesian economics does not say you don’t deal with the deficit. What it does say is that, when you have excess capacity – and ANYBODY looking at the United States says there is excess capacity, 1 out of 6 Americans who would like a full-time job can’t get one. Those are times in which you HAVE to stimulate the economy and what matters is the quality of the spending. Over the long run, over the long run you have to have fiscal order."
I love Stiglitz! He also said "The real problem is the way we are spending money, not the amount we’re spending. Right now, if we cut back on our support, the economy is going to get weaker, tax revenues are going to get lower. What we really need to do is actually increase our spending on investments in infrastructure, technology and education and cut back our spending, for instance on weapons that don’t work against enemies that don’t exist in wars that we are going to lose in any case and let’s focus on strengthening our economy." That pretty well sums up our current National policy, doesn’t it?
When I was at the Buttonwood Conference this Fall, I sat next to Joe and I will tell you that the expression "the smartest guy in the room" is about Joe Stiglitz. Joe’s wife Anya is no slouch either. She wrote "Bad News," about how the MSM completely missed the signs of the brewing financial crisis and cheer-leaded us straight to Hell (kind of like they are doing now). Anya wrote a very funny article on Davos where, among other things, she noted:
The point about Davos is that it makes everyone feel wildly insecure. Billionaires and heads of state alike are all convinced that they have been given the worst hotel rooms, put on the least interesting panels and excluded from the most important events/most interesting private dinners. The genius of World Economic Founder Klaus Schwab is that he has been able to persuade hundreds of accomplished businessmen to pay thousands of dollars to attend an event which is largely based on mass humiliation and paranoia.
Speaking of the last crisis. It turns out that "only" 12 of the 13 biggest Financial Firms in the US were on the brink of failure in 2008. Bernanke told the Financial Crisis Inquiry Commission. "In that period… only one… was not at serious risk of failure… Even Goldman Sachs (GS), we thought there was a real chance that they would go under." The deeply divided 10-member panel’s final report was endorsed only by its six Democratic members. It criticized the culture of deregulation championed by former Federal Reserve Chairman Alan Greenspan and said the government had ample power to avert the crisis but chose not to use it. A competing minority report from three Republican commissioners largely exonerated Greenspan, a fellow Republican, saying, "U.S. monetary policy may have contributed to the credit bubble but did not cause it." Thank goodness we put those guys back in charge, right?
The report also notes how $2.9Bn was handed from Treasury to Goldman Sachs through AIG and, according to analyst Josh Rosner: "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman’s shareholders." What does this mean for our virtual portfolios? Why BUY of course! The GDP was a miss at 3.2%, Ford’s (F) earnings were a miss on earnings, Oshkosh Trucks (OSK) missed revenues, Dominion Resources (D) missed top and bottom, Chevron missed revenues by 4% and Employment Costs are rising at just 0.4% for the quarter, which means the American people continue to earn less money for doing the same jobs relative to inflation (if they are lucky enough to have jobs at all). Relative to the BS total lie Government inflation statistics, that is. Speaking of America – Moody’s now says it may need to place a “negative” outlook on the U.S. That’s USA! USA! U! S! A!
So, in conclusion – BUYBUYBUY! Come on, it’s what Cramer is going to tell us to do tonight. EVERYBODY’s doing it, right?
Well, maybe not everybody – but we’re getting very lonely on the sidelines. As promised, we will hold our noses and buy something next week as we start our new $25,000 Virtual Portfolio for Members – looking to turn it into a virtual $100,000 in the next 11 months. If the market keeps going the way it’s gone since our December picks – it will be a piece of cake!
Have a great weekend,
– Phil
