Fastest Double EVER!
That's the verdict as the S&P 500 adds 666.79 points in 23 months, the fastest gain since the index was founded in 1957. "The scale of this rally is just enormous," said New York money manager Barry Ritholtz. He calls it the most intense rally since the Depression. Even during the go-go 1990s, the S&P typically took around three years to double. For instance, it first cleared 1,000 on Feb. 28, 1998 — 35 months after its first move above 500 on March 24, 1995.
Ritholtz says the average stock market bounce following a crash is 70% or so, and is stretched over a longer period. But of course, in previous cases the Fed wasn't buying up half a year's worth of Treasury issuance and holding short-term interest rates near zero.
"This one is unique," said Ritholtz. "Obviously the Fed is the key difference. We have never seen them throw this much liquidity into the mix." Accordingly, most market observers are now tapping their feet waiting for the inevitable pullback. The average correction following a postcrash bounce is 25%, Ritholtz said. According to Fortune: "There are all sorts of reasons to expect the momentum to turn against stocks after their unprecedented gains. They range from rising bond yields and stretched stock valuations to political unrest in the Middle East and another iteration of the ongoing debt crisis in Europe."
Of course, as Fortune should know, IT JUST DOESN'T MATTER what's going on in the World as long as B-B-B-Bennie and the Fed continue to prime the pumps at the IBanks and last week, the Fed set a new record as well by expanding their balance sheet to $2,492,000,000,000 after adding $23Bn of US Government Securities.
Now I wouldn't want to force you to draw any conclusions that may link those two items. After all, Doctor Bernanke himself says that the Fed's actions have nothing to do with either inflation in the commodity pits or in the equity markets. They are merely providing ample liquidity to their Member banks who, in turn, lever that liquidity 10:1 and spend it in the same wise fashion they always have – like the 10s of Billions of Dollars of "toxic" securities they have been splurging on again, once again hoping to make a quick buck (and get a big bonus) before the bottom drops out – again.
Of course, watching the same mistakes get made by the same people who didn't get punished last time (see Matt Tiabbi's excellent "Why Isn't Wall Street in Jail?") means that we can make THE SAME investments that worked last time. Like yesterday, I sent out an Alert to Members at 10:04 to add USO March $36 calls at .94 to our $25K Virtual Portfolio, which is a very aggressive virtual portfolio aimed at generating $100,000 by December 31st.
Well, USO did what it pretty much always does when the Fed is giving away money (as discussed in yesterday's morning post), which is to say that it went up all day long and those March $36 calls jumped 26% on the day, finishing at $1.17. We will be taking the money and running on that trade this morning as the March contracts settle next Tuesday and Monday is a holiday and there are still 110M open barrels on the NYMEX and Cushing, OK is packed to the gills already and the roll to April (contango) is $3, which is a lot. That leads us to expect a lot of last minute dumping after the morning spike, so we may end up going short on USO today and we will certainly take a short position on the oil futures below the $90 line. I'm sorry if that sounds "flip-floppy" but that's just the way to play this market!
We had a great ride playing oil all the way down from $93, selling March $38 calls for $1.40 on the 28th, against $100 oil not happening. Those dropped to .29 on Wednesday (up 79%) and, of course, we're long now so done with those. You can't fight the Fed when they are hell-bent on devaluing the Dollar at this kind of pace – all you can do is hold your nose and BUYBUYBUY but, as always, we stand very close the the exit doors to make sure we avoid the stampede on the way out. As Barry said in that Fortune article: "The average stock market bounce following a crash is 70% or so, and is stretched over a longer period and the average correction following a postcrash bounce is 25%" or, more succinctly, as Marvin (the Martian) said: "Where's the kaboom? There was supposed to be an earth shattering kaboom!"
Speaking of flip flopping – we also went long on AAPL on yesterday's little dip as people were panicked by a well-timed (for the bears) photo that was supposedly of a very frail Steve Jobs entering a cancer clinic. We had many reasons to question the image, which did not show his face but did show some very cheap jeans and a sweater with buttons on it draped over a very frail-looking man with (from behind) Steve Jobs-looking glasses. On that "evidence" AAPL fell from $365 on Wednesday morning to $351 in pre-market trading yesterday (where I also commented in the morning post that we had our doubts) and now it has been confirmed that Jobs attended last night's meeting with Obama and a dozen other tech leaders so, sorry bears but – He is not dead yet!
Mr. Jobs' very obvious signs of life don't stop the hyenas from using their media attack dogs to try to scare people out of Apple's stock. Take Jim Cramer's TheStreet.com, for example, who headlined a real hatchet piece this morning with the very scary title of: "Dozens of Hedge Funds Sell Apple Shares." This is, of course, totally misleading as the net of fund flows was 6.1 million shares added in the quarter vs 1.6M sold but let's not let the truth get in the way of a good headline, right Cramer?
Of course TheSleaze.com takes the opportunity to allude to the fact that this is about the National Enquirer photos (aka Jim's research department) and they make sure to drop the symbols of 7 very popular stocks (C, GE, SIRI, LVS, MSFT, VZ & T) to make sure Yahoo and Google Finance pick up this article from this "trusted source" as well as tossing in the phrases "iPad 2" and "iPhone 5" – just to make sure their headline hits the fanboy sites as well and causes as much panic as possible. Yet, amazingly, no arrests will be made!
This is how the game is played, folks. These hack publications are nothing but tools of the hedge funds who use rumor, innuendo and, of course, completely misleading extrapolations of thinly researched data to herd you in and out of stocks that they are looking to load up on or unload – depending on the plan of the day.
We have long-term "safe" plays on AAPL with very wide margins of error in our hedges (down to $270) as we did anticipate the possibility of Jobs dying and we did take a speculative bullish position yesterday as a trade but, when I see such a blatant attack on AAPL being carried out by the hedge funds' hatchet men, I have to think now is a really good time to get more aggressive on AAPL, who do have the iPhone 5, the iPad 2 and a $99 or maybe $49 iPhone coming out shortly.
Keep in mind AAPL had $65Bn in sales in 2010 and dropped $14Bn in cash to the bottom line with $25Bn worth of cash and short-term investments (another $25Bn in long-term investments) and a p/e of 20 while Cramer fave NFLX had $1.6Bn in sales (1/40th), $115M in profits (1/121st), $257M in cash and short-term investments (1/97th) and a p/e of 80 (4 times greater). Which one do you think should be the "BUYBUYBUY"?
Today we will be ignoring a lot of bad news like:
- Continuing unrest and deaths of protesters in Bahrain, Yemin, Libya, Iraq and, still, Egypt.
- China's real estate prices continue to spiral out of control, despite government's attempts to intervene (Bernanke take note!).
- Germany DOUBLED their inflation forecasts as CPI rose 2% (not 0.2%, 2%) in January (they had forecast a 0.5% drop because, as every Central Banker knows, there is no such thing as inflaion).
- German bank debt has been downgraded by Moody's.
- The ECB is forced to cover record amounts of bank loans.
- The G20s calls to stop rampant Global inflation.
- Fed Gov. Hoenig saying that: "Soaring farmland prices may be the result of an unsustainable bubble that could damage the U.S. economy when it bursts."
- Foreign Banks loophole right out of the Dodd-Frank law (good for them, bad for US banks).
- Massive oil spill in Norway.
Well, we're not totally ignoring it, we did take a put on the Dow as they tested 12,330 yesterday but we will be looking to buy those F'ing dips because the Fed is still out there – printing money – every day – they cannot be stopped by mortal man….
Have a great weekend,
– Phil
