Saturday, May 2, 2009
Only 3 bank failures this week
(link). Looks like our policy makers have got this problem licked as the one week trend for bank failures is down. Thank goodness we have Obama, Geithner and Bernanke. As the new stock bull market has shown, our policy makers have been highly effective and we are now wildly bullish on the economy. The housing market has been stabilized, commercial real estate is showing "green shoots," banks are going to pass the revised stress test with just a little bit more stimulus money, and retail businesses are reporting some brisk spring shopping. Unemployment appears to have stabilized and the Chinese are going to make an announcement next week apologizing for buying Gold and copper rather than holding their U.S. Dollars in perpetuity. Because the stock market is forward looking, it is discounting a recovery that should begin by the 3rd quarter of 2009. Though it will take time to fully recover from our problems, the worst is behind us and stocks are a screaming buy.
Have I summarized the Cramer/CNBC/perma-bull case succinctly?
I cannot call the top or bottom in this market any better than anyone else who follows markets. It's a fools' game. Yes, you can be right a few times but it's more important to get the bigger trend right and catch the bulk of the moves that occur in markets. The potential upside from here is 2 weeks and 10%. The potential downside from here is 2 years and 70%. Trading is trading and has a different set of rules than longer term holding.
Yes, bear market rallies can go higher and last longer than one expects. They are NOT based on fundamentals, so you can't use fundamental data to try to sort out why they are happening or how they could possibly go that high or last that long. The fundamentals are awful and will re-assert themselves, causing the primary trend (which is down for stocks, corporate bonds, and commodities by the way) to resume.
Don't forget this chart, which I have posted before after copying it from Michael Panzer's Financial Armageddon site:
After the fall crash (The Panic of 2008), we rally out to the spring. It's classic and textbook. Short-term timing these things is tough and trading is hard work that can make or lose you money. But for the investors, nothing has changed. Longer-term oriented folks should be out of stocks, out of corporate bonds and out of commodities and they should be in U.S. Dollar cash, Gold, U.S. short-term government bonds, or shorting the things in a bear market right now.
I absolutely do not think it is impossible to go up another 10% from here in the S&P 500 in a final blaze of glory, but I wouldn't bet on it and I don't think we make it out of May before the top is in. And I am not talking about an "A" wave of an "A-B-C" correction, I am talking about a full resumption of the worst cyclical general equity bear market any of us will likely see in our lifetimes. The Dow to Gold ratio is currently at 9. We will be at 1 (and I believe will likely go below one) before this bear market is over.