Obama's Role in the Market's Next Breakout 51 comments
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And nowhere is it more dangerous than in the investment world, where a wrong hunch can get you a one way ticket to poverty bay.
That said, we thought we’d let you know ours anyway. We have a hunch the market is ready for a very sizeable move. That shouldn’t surprise you; after all the VIX is still hovering in the stratosphere, and big moves are, by definition, accompanied by elevated levels in volatility.
Yet a few things need explaining. First, why the markets have been moving sideways since the end of September ’08 – all the while accompanied by that same massive volatility we just mentioned. Yes, we see 200, 300, 400 daily point moves on the Dow, but nothing is sustained. No cataclysmic drops. No jet-fuel spikes. Just this dreadfully boring sideways snicker of a market that seems to have the last laugh every time we try to make a bet on it, bullish or bear.
That’s where our hunch comes in. There has been a very noteworthy confluence of (non)events this last week that got us thinking. Take a look:
- First, sentiment is still uncomfortably bullish – yet the market has hit no new highs (it hasn’t even bettered any retracements highs). Bearish fund managers have dropped from 65% of those surveyed back in October to only 24% now, according to Merrill Lynch.
- We haven’t tested “the lows” – something everyone fully expects to happen, but that the market stubbornly refuses to acquiesce to. Have they already been tested?
- We have new, back-breaking economic news out on the U.K. – whose currency was last seen making a proud Union Jack of a swan dive into the loo, and regarding whom that crusty old bear Jim Rogers recently stated: “sell any sterling you might have… the City of London is finished.” Here’s the Pound Sterling, for those who can bear to look:
A recent break below U$1.40 looks ominous. A mere six months trading has wiped 30% of the Old Lady’s pompous makeup from her face. Yet the market doesn’t break.
Below is the longer term trade in the Pound: eight years’ of gains held down and given a jolly good, soccer hooligan’s thumping.
The United Kingdom Diet: We all Lose a Few Pounds
And while we’re at it, who can resist the following:
America is not the only country with the cash spigot flowing Niagara-like over the fires of recession. The British have ramped up money supply at a greater than 20% annual pace in just the last six months. And they wonder why Jimmy Rogers (among others) see a selling opportunity here. NOTE: keep an eye out for the evil Hungarian Count, Vlad Soros – a former partner of Rogers – who may again attempt to suck the lifeblood from the Pound as he did back on Black Wednesday, 1992.
One more: here are CDS prices for selected nations – the U.K. is listed about three quarters of the way down:
The cost of insuring British sovereign debt has swung higher by a multiple of 15 in a mere year (8.9 to 135.9). Among the industrial western nations only Austria boasts a worse decline. This is a massive vote of non-confidence in Britain’s ability to service its debt.
- The rest of Europe is again up to their ears in the mud of Passchendaele, and the U.S. economy will likely post its worst two consecutive quarters (4th and 1st) that any living man can remember. This is near certain. Still the market doesn’t break.
- The entire American financial sector has gone to equity hell, registering losses of 25% in just the last ten trading sessions. Take a look here:
Say it isn’t so! And we were told there could be no rally/recovery without the financials. So why haven’t we broken to new lows in the broad market? Why is it holding up? What’s it waiting for?
Glad you asked. Because most agree that the market is simply waiting for a hero. Er, let us explain. The market is actually waiting for the passage of newly-crowned Messiah – er, President – Obama’s spending package before it acts. We’re not sure why it needs to see this. We’ve no doubt the measure will pass. We’ve no doubt the market knows already what its contents will be. We also believe that everyone is watching and waiting so intently because they want to see how this President, whose rise to power has been so unconventional and swift, and who literally took a nation – nay, a planet – by storm, will actually deliver the package that will “save America.”
This is not an everyday occurrence. Only a few short months ago, there was many a respectable journalistic outlet saying that America was not ready to elect a man (or woman) of color as Commander-in-Chief. What will those same outlets/individuals argue now that the future of the nation is literally at stake? What will they say when the President introduces his stimulus package? What sort of reviews will he garner?
We’ll shortly find out. And it will be those reviews – immediate and shallow both – that will determine which way this market breaks.
For America is a stage. There is no substance left in her. Real Presidents, who said what they believed and acted with conviction and a sense of what was right, went out with Truman – Democrat bugger that he was. And now even the Financial markets have become a stage. The whole damn thing is theater. And that’s precisely why the tension surrounding the current economic situation will bring even greater television audiences and ad revenue than the mighty Superbowl ever could. Bet on it. The Obama economic address will have everything but cheerleaders in miniskirts to give it the flourish and zest it needs as political drama.
Our hunch is that there’s too much riding on it, and that Barack Hussein Obama is too polished a showman not to succeed. The market will break. Upward. Wait for it. Time it. And be long calls in the homebuilders and SPYs just before it happens.
Disclosure: no positions.
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This article has 51 comments:
Go Barack Go
Obvious BHO cheerleader here. "Hope" it works for you. I doubt the facts will "change" your mind.
House Republicans are deeply hopeful that they can create another theatrical 777 point dip in the Dow, same as they did over the TARP.
When that occurs, watch your wallet, a lot of money is going to get moved around very fast. You don't really have to watch that close, the money goes to the same crew year after year, production after production, its really useless to keep score, the fat cats just keep getting fatter while the public debt grows.
Obama's main chance to make a difference comes when he recieves the resulting document, all 1,257 pages of it. He could look at it for about 5 minutes and say something along the lines of "not what I had in mind."
Now THAT would be leadership!
Moving sideways since September 2008??? What markets are these???
The DOW? down +26%
The NASDAQ? down 29.5%
The S&P500? down +29%
The Russell2000? down 34.7%
The Japan index? down 28.4%
Eurotop 100? down 24.3%
Druggies? (DRG) down 11.7%
Homies? down 44.8%
Semis? down 32.1%
Even gold (XAU) has had a 5.5% haircut!
If this is 'sideways', I can't wait for your really BIG move!
Look, everybody hates bear markets! Yes, Everybody! We all know how tough it is to squeeze a buck out of this meat-grinder of a market!
When we do finally turn around, it will not be due to ANY government stimulus, bail-out, program, incentive, or initiative whatsoever! Over the last 18 months, we've seen just how fleeting and unsustainable the effects of EVERY government intervention has been!
When we do finally turn around, and we will, it will be because there have been substantial improvements in both market fundamentals and investor confidence that will give us that kind of market climate that brings us sustainable rallies!
Debutantes and old maids can wallow in hopes and wishful thinking! As investors and traders, we cannot afford that luxury!
Yes, all of the factors ("stimulus, bail-out, program, incentive, or initiative whatsoever") can, do, and will indeed impact both the investor and the consumer... The point I was trying to make is that the impact so far has been both fleeting and unsustainable... I most certainly should have made it clear that as a matter of fact at the present time it appears that in the absence of sound fundamental improvements in the markets, the ONLY driver has been government interventions! Unfortunately, none of these has so far produced any sustainable rally.
I should keep a more open mind as to the possibility that an as yet unannounced program or stimulus may just trigger some basic and fundamental improvements, similar to the 'New Deal'.
Thanks for your comment!
On Jan 31 10:09 PM User 348491 wrote:
> wouldn't the government "stimulus, bail-out, program, incentive,
> or initiative whatsoever" shape, modify positively or restore investors
> and consumer's confidence. If this happens, will it in not have significant
> influence on the market?
you are so right about Nancy Pelosi running things. And her Socialist policies will be stifling for business in this country for the next 2 years minimum.
I am looking overseas for a quicker recovery and think places like China, Brazil, India will present investment opportunity sooner than USA.
Meantime, cash and patience.
Markets are waiting on a final and definitive policy on what to do with all of the CDOS, MBS's etc. While the governments dither the risk is that the trading range will eventually break to the downside
Likewise, the stimulus plan is not really an Obama ideal. Bush supported one. It is unconcievable that any new President would not have supported one too.
It's more politics and voodoo economics. Serve sugar rather than medicine and hope the placebo works. Republican or Democrat there is no one to turn off the money spigot anymore.
I need to get the real bull run, so I can get a proper short position in. We need to get all the retarded money into the market, so the big drop can happen.
Our new president Obama, praise be upon him, is just another clueless lawyer, an empty leftist suit.
And why is it that whenever I hear Robert Reich, the evil dwarf from the Clinton administration, speak on Kudlow I have an uncontrollable urge to put in a "short" position? It can't be because he looks like a cast member from the Discovery Channel cable show "Little People, Big World". Stand up, for God's sake, Bobby!
And a Democrat President is always better for the stockmarket than a Republican. Look at statistics.
Peter Jackson
Just out of January and he is being declared the greatest of all time -oops --that was Ali !!! Have they started construction on the new library
yet ???
This my fellow investors is "Change you can count on "
Remember he came from Cook County,Chicago,IL. !!!!
The theme here is what is "your money for ???
It is for me BHO to take it away from you and use it as I wish to do so.
BHO is very similar to the Cubs spend spend spend ---
and going to get nothing in return for it .
It is about JOBS spend on policies to creat e JOBS.
Free bees DO NOT work.
I just hope the new administration does not screw up
the beer production !!!!
Oh anyone hear about the plan for the Bush Tax Cuts ????
They the Dems sure are real quiet on that Tax Increase that is coming right around the corner.
There goes my beer ------------------
Cheers DuffBeer
Maybe a rally. Only because of the cash infusions. But sell into it on the way up. Inflation.
I expect the next significant market move will be when people begin to fully fathom the effect of the so-called stimulus. It may well be up or down, depending on how the majority of those with money still on the sides see the prognosis. Personally, I see it as unsettling, as the stimulus seems to be more focused on propping up inflated assets, and subsidizing wasteful activities, rather than on creating new, well-paying jobs that create real long term value.
President Obama was elected by the main stream press on the ambiguous verbs of hope and change. To think we elected more than an empty suit,Chicago Politician is false hope. Hope is what you have left after desperation takes over. Why folks think they should be led around by a bunch of talking heads is beyond me. Actually it's not beyond me. Folks are so busy with working and raising kids they failed to notice the gross lies and plain incompentent reporting that come out of our electronic boxes. This is misplaced trust.
What's interesting is that it is the LEVERAGED high yield, preferred stock, loan participation, muni and utility funds that have made the biggest moves. I don't know what's going on but but somebody is anticipating higher prices down the road because the NAV's have NOT kept pace so far.
You can check this out by going to...
www.etfconnect.com/sel... and selecting 'premium'
How much more simple if we abolish the 15% payroll taxes (on the first $106,800 of wages) that penalize most workers, and the companies which employ them. That's about $850 million in 2009. Over 12 months this money could have flowed directly to payroll checks (and to their employers) with a simple computer entry.
Also, regardless of one's views on workers' rights, private employers do not hire when it is difficult to fire. The new government wants to additional workplace mandates, which will reinforce the idea that it is bad business to expand US payrolls.
The decision makers all have public sector backgrounds. They are rehashing failed policies with a welfare bill that poses as "stimulus." We will not be a stronger country one year from now, We will be weaker because of the debt, and our employment base will continue to diminish.
LordDarley
Watch for trading to be halted in C and/or BAC.
Watch for the S&P to immediately move approximately 10% in either direction.
Take a position in leveraged ETFs in opposition to the moves.
Take profits (or stoploss sells within days).
What would cause this? The halting of trade would precede a nationalization announcement. My guess is that a halting of trade would prompt a market drop on fear of the unknown, followed by a strong rally on the nationalization announcement. This rally would be based on the resolution of the unknown and a (probably brief) euphoric feeling that the worst was over. The rally would start fading after a few days because the realization that there is a long road to recovery would return.
Why would I have said, contrary to the above scenario, that there could be a rally on the halt announcement? Because enough people may correctly anticipate the reason for the halt. The rally and fade sequence may then proceed as described above, skipping the original drop.
Why did I say you might exit your trades on stop loss rather than profit? Because I have been around long enough to know that the best laid plans of mice and men.....
Just a few mental gymnastics for Super Bowl Sunday. Enjoy the day.
I too have noticed, also noticed the swings are inverse to Treasuries.
Many an investor sees no return in Treasuries, but gov't (bailout) funds
going to the holdings in these CEF's.
Risk/Reward ratios are high, but could be only place to make money this year.
Disclosurers: (PSY), (PTY), (ACG).
On Feb 01 10:26 AM mavericks wrote:
> If Closed-End funds are any indication of where the market is going...and
> quite often they are...then yes, we are due for a big move. I follow
> alot of CEF's and the moves they are making from 20%+ discounts a
> few months ago to PREMIUMS, some very large premiums...is astounding!
> I've never seen this before and its across the board it seems. <br/>
>
> What's interesting is that it is the LEVERAGED high yield, preferred
> stock, loan participation, muni and utility funds that have made
> the biggest moves. I don't know what's going on but but somebody
> is anticipating higher prices down the road because the NAV's have
> NOT kept pace so far.
>
> You can check this out by going to...
>
> www.etfconnect.com/sel... and selecting 'premium'
The color chart on countries with default risks would certainly give us some second thoughts before runnig up the hill buying up Brazil ETF and other "emerging markets" ETF.
Mat, just to satisfy my curiosity as well as other readers, would you be able to tell us the default risk numbers for Hong Kong, Taiwan, and Singapore? In related article on the SA an author listed five emerging market ETF to buy during these trying times, and HK, Taiwan and Singapore stood out. I'm sure some readers may be as interested to know as I do. Thanks in advance for your attention.
Teutonic
the consumer will still either need a job or by trying to keep one, be in debt without a bailout, and be too scared to spend -
when those two forces (wishful investors, myself included, and strapped consumers, myself also included) meet, realize the latter won't support the former, the next true leg down will begin....
just my hunch :-)
The stock market will not recover till the real estate market recovers. Now many experts are saying the recession will last through 2012. Unemployment rate will continue to go up, more banks will get into troubles and more business especially small businesses will close. President Obama's package looks good on paper but would do the economy little good and will not create enough jobs to save it.
Therefore, the question is: when the DJ will drop below 7,000? To me that is almost inevitable.
B
check this out...
finance.yahoo.com/echa...;range=1m;indicator=vo...
2 .Positive forward earnings "expectations"
3. Institutional high volume purhases
4. Sentiment expressing some new hope in the future, along with
Positive mutual fund money flows (less relevant than before)
5. Improving Enterprise Value to EBITDA , and other key ratios
6. Declining small business failures
7. Higher and valid S&P Target Price
It's going to take some combination of these factors for a sustained rally to happen. Ask yourself when how far away do you think this will be?
Meantime , strong oversold exhaustion rebound rallies will take place somewhere along the line due to stimulus and various technical factors, but anyone who thinks they are going to be sustained in 2009 has got a far different grasp of things than I do.
Commodities are always the wild card, and anything could happen there for an unpredictable amount of time, and so place your chips where you may. At least it should all be interesting.
The first year of a new Presidency is almost always the Worst.
Since the stimulus plan will be modified, I believe a rally between mid-February to March is probable. Thereafter, it will be earning, earnings and expectations for future earnings.
Japan's trading day is almost over. Some economists over there feel that Double digit declines in their GDP are coming.
The value of suspending the patroll tax rather than making a $500 per person tax credit is that it puts more money in the hands of those likely to spend it. Someone making $30,000 a year will see an after-tax income increase of almost $2,300. Such a person will spend at least some of that money, almost certainly way more than $500.
The employer also has a similar savings. For an employer of 50 such people, the extra capital available (before income tax) is $115,000. That is a significant amount for new business investment or adding a couple of more workers.
There are many possible formulas that could be evaluated, including making the tax holiday progressive (full holiday for those under a certain income, say $50,000, and phasing in higher tax levels up to the full 15.3% by some higher income, say $250,000).
On Feb 01 12:14 AM AlexS wrote:
> Kunst, you're absolutely right. But there is nothing in Obama's past
> to suggest he is a leader, other than a leader in getting elected
> to successively higher office. He will go along with the Party, as
> he's always done, and will be a figurehead, to be trotted out to
> give speeches that sound good for about as long as he takes to give
> them. For the next 2-4 years we will be governed (ruled?) by Nancy
> Pelosi, the actual Chief Executive of the United States.
The Republicans went and mindlessly threw $700 billion into the ether -- so of course the Democrats now have to throw an even bigger number into the void. Americans measure how much a politician cares by how much money they throw at the problem, not whether the idea is any good.
More misrepresenting a $900 billion **LOAN** from future generations as free money falling from the sky. Everyone will act surprised when they learn we have to pay it back
You say "Who here on this board does not agree that this country's infrastructure needs to be rebuilt and modernized?" I can agree that some modernization is needed, and we already have a porcine transportation bill passed in the last congress to do that. The additional funds in the "stimulus" bill for highways amount to $30B - about 3% of the total package. More goes to rail and mass transport for which users do not pay the cost and that need perpetual taxpayer subsidy.
The majority of the appropriations are going to typical liberal Democrat constituencies, e.g.: justice assistance grants ($3B); NSF research ($2.5B); workforce training ($4B); grants to local education agencies ($13B); Pell grants ($15B); and the biggest grunt of all, state fiscal stabilization fund to bail out the most profligate states ($79B). I see no stimulus here for the private sector, just for enlarging the corps of bureaucrats.
With each trillion dollars added to the national debt, we incur another $50B of interest expense each year at the 5% average rate currently paid on Treasury notes and bonds. With $10 trillion of debt outstanding, we devote $500B per year to interest alone (nearly 25% of the federal budget), with no hope of actually paying down the debt. At least some individuals are paying down their own debt, but not the government. Where does this end? In a US default? Are we going to wind up like Argentina?
Forget the idea that BO or Mme. Pelosi know what is needed to resuscitate the economy - neither have any background in business, and BO has hired a bunch of academics and tax cheats to give him economic advice. Experience has demonstrated that increasing tax rates will result in reducing government revenues. The only things shown to reverse the downward spiral we are in are a major war or a reduction in tax rates. Not a "new" New Deal.