More Market Swings Are on the Way

Early headlines on April 2 would have been far better a day sooner. Then we would have read them for what they are: a late April Fool joke. “Wall Street rallies on HOPE” and “FASB gives companies (read: BANKS) more leeway to value assets”.

A later headline of the day reads: “World markets surge as US data boosts recovery hope”. Lest we forget, it is our government pushing these numbers out the door to an eager press - and for many reasons, it is in the interest of the governing party to make things look as bright as possible, especially when our President is speaking to the world from the G20 meeting.

At the end of the day the market is up another 200 points! But did it climb, or was it pushed? We will never know, but do not ever discount the ability of the President’s Working Group on Financial Markets, otherwise known as the Plunge Protection Team, to move the Dow to whatever level is deemed desirable by covert powers on high.

Another illustration of the strength of Federal government muscle was the coercion of the FASB by Congress. New FASB wording states that pricing of assets on balance sheets will now be at “orderly sale” value, as opposed to “forced” or “distressed”. Who gets to decide what is an “orderly sale” value?

Never mind that this new pricing scheme is being applauded by those firms most in need of shoring up their Balance Sheets. They have a new mark-to-myth tool at their disposal. And since there is some $2 TRILLION still gumming up the bank books, it will take more than “orderly sale” pricing to erase all the skepticism in the marketplace. Some time ago we had a President tell us that “a rising tide lifts all boats”. Sorry, Sir, but not those resting on the bottom with holes and dry rot in their hulls.

Yes, this is being written from a skeptical viewpoint - and with good reason. There is still a whiff of euphoria in the air. As we have heard from the G20 meeting, economies worldwide are hurting. It will take time for them to heal. Nowhere have we heard or read any explanation of how Mr. Bernanke intends to control the inevitable inflation that lies ahead. The many international situations that could become crises are mostly beyond our control. There is a war to be closed down and one left to win. The BRIC countries (Brazil, Russia, India, China) are becoming a strong challenge to perceived US dominance. And the US dollar will continue to be under siege, no matter how nicely the Chinese officials behaved in London.

All of which leads to these recommendations:

1. Store up some SDS, or another contra that tracks a broad index.
2. Begin to collect some GLD as it approaches the 85-86 range.
3. Consider some SWZ, or another CEF that is measured in Swiss Francs (a currency still backed with gold).

We expect to see the Dow back below 7,000 before there is any sustained up-trend. You can expect many more days of 3 digit swings. Intrepid investors will re-build lost capital by taking short-term profits on these swings using the E-Zone System or a similar trading tool.

Disclosure: Long SDS, SWZ.

Comments

[Larry House:]

Couldn't agree with you more. This market is going to have a nasty surprise for those who let down their guard. The market is more dangerous now that it was two months ago.

Apr 03 10:03 AM

[J. D. Swampfox:]

The manipulation of the markets by the PPT is one more variable added to those which market participants have to try to take account in estimating the value of securities. As more variables are added, the level of uncertainty rises and with increased uncertainty (risk), the discount rate rises and values fall...

Apr 03 10:57 AM

[GMiki1:]

It's a mess. Be sure you have some physical gold with the GLD and mining stocks. Should you and your family want to eat.

Apr 03 11:11 AM

[Steve in TN:]

The problem with this rally as I see it is the position and rate of decline of the moving averages for the broad U.S. market. It is still in a downtrend, unlike the status of the 50 to 100 da MA at the market bottoms of '74 and '82. In the previous two bear market bottoms those MAs had flattened out considerably (actually became horizontal) as the stock indices penetrated them.
IMO we still need a few more months of base building before the true lift-off of the next bull market.

Apr 03 11:18 AM

[Darwinist:]

Are we in a financial civil war with PPT,The Gov't,Fed, and Wall Street all on one side and the rest of us on the other side? If you want democracy to continue, we better win this battle. Otherwise, the super economic injustice and inequality will continue and many years of pains will be with us. In Great Depression, the half-time market high finished on 17th month(Feb,1931);this time PPT is trying to fool all of us by pushing a higher price in 18th month(April 2009). Can we examine CFTC book to see who bought futures on DOW and SPY on 3/10, 3/23, and yesterday? I guess not.

Apr 03 11:44 AM

[Francisco M...:]

This market is currently media driven. The press gets the government's input, which is always rosy and investors gobble it up like warm, fresh donuts. It is dangerous and reckless. Of course, long only money managers have to agree with the rosy picture.

Apr 03 01:34 PM

[Paul H. M.:]

Screw gold. That would be worthless in a real breakdown.

I'll take ammo and canned food any day over gold if things really break down.

Physical gold is useless because you can't sell options on it, and it's tough to tell the quality (meaning how knows if its really the quality you think it is?).

Plus, gold is currently in a bubble, which could burst at any time.

I'm selling covered puts in the low 80's, but I wouldn't invest in gold or GLD without downside protection (the gold bubble could pop at any time).


On Apr 03 11:11 AM GMiki1 wrote:

> It's a mess. Be sure you have some physical gold with the GLD and
> mining stocks. Should you and your family want to eat.

Apr 03 05:38 PM

[bsharvy:]

The Swiss franc hasn't been backed by gold for 10 years.

Apr 03 09:07 PM

[Roger Knights:]

"Are we in a financial civil war with PPT, The Gov't, Fed, and Wall Street all on one side and the rest of us on the other side? If you want democracy to continue, we better win this battle."

So investors new motto should be "Fight the Fed!"

Apr 04 02:15 AM

[Steven Hansen:]

the market is being obviously manipulated.

however, part of the problem is the stupidity of the market itself. there are people still income averaging, and your 401(k) money needs to go to work - this is the weight of money on the sidelines.

there are no fundamentals to support this market rise.

Apr 04 03:15 AM

[kirkf:]

In my opinion the market cannot have bottomed for the simple reason that none of the issues that caused the market to drop have been resolved.

-US consumers are still too highly leveraged and mired in debt.
-US & UK banks have not been regulated
-US housing prices have not fallen enough (it was a big bubble)


Kirk

Apr 04 07:00 PM

[Fritz Hotti...:]

If you read anything more on the workings of the PPT, i would be grateful if you would pass it along.

Thanks for your comments!


On Apr 03 10:57 AM J. D. Swampfox wrote:

> The manipulation of the markets by the PPT is one more variable added
> to those which market participants have to try to take account in
> estimating the value of securities. As more variables are added,
> the level of uncertainty rises and with increased uncertainty (risk),
> the discount rate rises and values fall...

Apr 05 10:04 PM