Nothing Fuels a Market Rally Like Free Money 39 comments
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It is amazing how complacent it is out there.
Everyone (and their mothers) awaits S&P 1080 as our birthright. And after that, S&P 1200. When (not if) we get over 1080, we'll have the upteempth "double top breakout" chasing into the market as computers rushing in on that signal has been a huge winner countless times the past seven months. I would expect no less this time around.
I will join the lemmings and rack up some SPY calls and (again by birthright) make money while laughing at how obvious this all is. What is fanciful is the complete lack of fear that we can actually go down for any sustained period of time. But we don't, so until we prove we can... we won't. After two shady weeks, we are back to "correcting" by going sideways, rather than down.
The dollar showed a bit of strength today after Bernanke said, "one day we will raise interest rates". Haha. The central bank will need to tighten monetary policy at some point to prevent the emergence of inflation, but it's in no hurry.
Ooohhhh, very threatening Ben. Shiver me timbers. (Translation: "Dude, we aren't doing a darn thing for the next year, please go forth and speculate at will. I have to pretend I am going to do something and this vague language does the trick.")
Now I want to point out how pathetic things are. In Australia, when the central bank actually raised interest rates this week, the stock market jumped. Because that signals strength. In America, when our central banker even threatens in some vague way to take away the punch bowl "some far off day," the S&P drops in pre-market. Because that signals our leaders might take away our fiscal toys.
Compare and contrast... this is the addiction to free money that curses us.
In last week's summary I wondered out loud if the same old game plan from the last earnings period would be enough. That is, slash enough workers to expand profits to a point you can beat analysts' estimates. (Analysts who apparently have yet to figure out the benefit to bottom lines by taking out 10-20-30-40% of your workforce.) More importantly, are we still going to bid up companies already trading at 40-60-80x forward estimates simply because they beat analysts estimates by 4 cents? (I suppose by bidding them up to 60-80-100x forward estimates). Thus far the early answer is "yes." Valuation means nothing, a la 1999. All this Monopoly money we have must be put somewhere.
With the Evil Empire (GS) and the Franchise (JPM) reporting next week it is very difficult to even consider going short. I anticipate the market performing a "gap up" over that S&P 1080 pre-market after one of these two firms "surprise us with fat profits." We can all chase into the market like lemmings sometime next week, since it's all about technicals and valuation can be damned.
I am hoping the CEO of Goldman Sachs told the troops that last quarter's 97% winning percentage was a bit egregious, and they should at least pretend they don't run the market. Maybe even purposely "lose" a few more days in the third quarter. So here's to a 91% winning percentage in Q3!
Anyhow, whatever the results, just remember to act surprised. Bid up stocks to any valuation because all that matters is that someone else (or their computer) is willing to pay even more than you for said stock certificate. And with US pesos being handed out by Ben Bernanke, the Monopoly banker, we can be confident that buy high, and sell even higher will continue to win.
But, never fear, Ben will "raise rates someday."
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I agree with you on operational versus GAAP earnings but that horse is out of the barn. The US market is far more expensive if we looked at reality but instead we let countless "1x" charges that happen each quarter to repeat, and exclude them. How else could we grant executives massive option grants if we did not pretend they were not a real expense?
On Oct 09 11:33 PM logicalthought wrote:
> I think "fair value" is a 12x multiple on $55 of operating earnings
> (which is where I think S&P earnings will be stuck for the next
> several years), and this would put the S&P at 660. However, markets
> tend to overshoot and that's why a 10x multiple wouldn't shock me,
> nor, frankly would a 14x (S&P 770). I also think that using "operating
> earnings" instead of "GAAP earnings" is bullshit, but what I think
> in that regard really doesn't matter, and fortunately, for the next
> few years I think the difference between the two will probably be
> negligible, as by now companies have probably written off most of
> the dumb-assed things they did when banks and markets were handing
> them capital to waste hand-over-fist.
Unfortunately Canada is attached to the US as Australia is to China.
www.fundmymutualfund.c...
On Oct 10 01:26 PM Albertarocks wrote:
> On Oct 10 07:05 AM chap08 wrote:
Essentially he has said he will just keep pouring money on to prevent the market from going down and if he is forced to stop pouring money on (and the market will go back down) he'll say told you so.
By pouring money on the fire, problem solved. Problem Solved la-la-la-I-can't-hear-you problem solved.
I'm basically annualizing Q2; I don't think it gets any better than that.
On Oct 10 02:53 PM TraderMark wrote:
> I think you are underestimating EPS potential on the S&P 500.
> Just think of all the cost savings of countless chops American employees.
> This is how we are seeing profits maintained.
>
> I agree with you on operational versus GAAP earnings but that horse
> is out of the barn. The US market is far more expensive if we looked
> at reality but instead we let countless "1x" charges that happen
> each quarter to repeat, and exclude them. How else could we grant
> executives massive option grants if we did not pretend they were
> not a real expense?
I too, recall those days, toiling as a lowly sell-side order clerk at the Merrill Lynch office at the CBOT building, working until 7-8 pm to clear the day's business (hey!!!!..we were still using TELETYPE machines to send orders to the market floors...)
Fwiw, I just attended the 22nd annual conference of the International Federation of Technical Analysts and in 3 out of the four sessions that I attended, the presenters didn't see good things, going forward.
On Oct 09 06:04 PM Kimball Corson wrote:
> I think you are right. Free money is a big stock market leg up. If
> we look at the velocity of money in the economy, that is one thing
> and a bit anemic, if we look at the velocity of money in the financial
> markets, that is quite something else. On a good day, the NYSE alone
> can have $5 billion shares change hands. On a typical one, $3 billion.
> I can remember when $5 million was a busy day on the NYSE. There
> is the economy and then there is the market, they glace at each other
> occasionally, but that seems to be about it.
I find it amusing that so many are writing about and picking stocks like they have a keen insight or intellect into the markets when in fact all you need is a media outlet and maybe some rudimentary communication skills and you to can be a 2009 market master.
I often wonder if the saying “they are laughing at you not with you” is actually applicable to what we have become as a society.
But are markets really up as far as it seems? Not really, if you price it in gold.
www.planbeconomics.com.../
Yes someday Bernake needs to do something about it. Sadly, his solution is always the same as Greenspan's, cut interest rates, devaluate, and lie while hoping no one notices for eternity. Like that's going to work indefinately. Bernake is liable to go down in history derided as a failure as much as Greenspan if not more.
Most of the the French nobility didn't.
On Oct 09 06:18 PM a fat panda wrote:
> It is a little like baseball. If you want to hit more home runs,
> move the fences in.
On Oct 11 02:51 AM ebworthen wrote:
> They are going to blow the bubble up so big again, that I hope they
> have a place to hide when things go to hell.
>
> Most of the the French nobility didn't.
Is that part of the Fed's charter: to sponsor a continuing party no matter what, so the drunkards always have enough to drink?
Ben is laying the ground-work for a very ugly future of class-warfare. I think he doesn't even realize it, he's congratulating himself so much for saving Western Civilization. He saved Western Civilization, just like his 'dad' Greenspan did -- that is, he's destroying America by destroying the nation's currency. Oh, well, the party 'must go on'! Brink out another punchbowl!
Do not try to call tops. Let the market tell you when it is time to top. You will have climax runs (just like in Jan-March 2000 and July-November 2007) in leading stocks. When these stocks show topping signals that William O' Neil has painstakingly proven via research going back over 120 years, then and only then should anyone being trying to call a top.
Do you know how many stocks are flying higher, with price over the 50 dma, with the 50 dma over the 200 dma, and volume consistently over the 50 dva? There are too many to name! So many stocks are running but are not quite yet showing climax tops. So until you see these climax tops (which are obvious to those of us with extensive training in technical analysis--14 years) there should be absolutely no reason to call tops or predict the end of the rally. Just go with the trend until it ends. When it ends, move to cash, and then get short, if a new bear market is starting.
If you know your history and actually give yourself more than one year to "make-it-rich in the stock market," you might find that this game isn't as complicated as 99% of the comments on every post on Seeking Alpha makes it sound like it is.
My system: a form (my own) of CANSLIM. Can you learn this system in one year? Absolutely not! This stuff takes years. This is my 14th year in this business and the only thing I know is that I know nothing. However, my charts know EVERYTHING there is to know at that exact moment. Do surprises happen? Uh, yeah. Of course. This is called life. Is TA a crystal ball? Heck no. Think of TA as a windsock. If the wind is blowing to the west then it is blowing to the west. If the market is moving higher, then it is moving higher. Fighting the trend, calling tops/bottoms, and making your ego bigger than the market is a sure-fire way to poor performance and/or a complete burnout.
This game isn't easy. Those that get rich quick usually end up giving me all the money they made that "easy first month/year."
Listen, I am a Conservative and I am a hardcore proponent for lower taxes and less government. However, how do you all "know" that everything will end bad? You don't. You are only speculating on the future. The only thing you should be speculating on our stocks and you should only be doing that if you really know what you are doing. You might be able to tell someone you know what you are doing but inside your own head you know if you are lying to yourself or not.
Bottom line: When the market is moving up and stocks out there like RINO, CTFO, OMN, PAET, RTLX, TXIC, AXU, and BZ, since the rally started in March, are making such big gains, there is absolutely no reason to top call this market until you actually see some real topping action. I have been hearing top callers the WHOLE way and look at the gains they missed. Such a shame.
Here is a helpful hint and it is real simple. Go take a look at the history of this, if you don't believe the truth. If you would ONLY go long stocks when the general market is above the 50 DMA with the 50 DMA over the 200 DMA and go short stocks when the general market is below the 50 DMA with the 50 DMA below the 200 DMA, 90% of you would CRUSH your returns (obviously, I am not talking to everyone so please don't attack me too hard ;)). I am simply stating facts and nothing but facts. I have all the proof you need and I did not even come up with all the info. These guys did:
William J. O'Neil
Jesse Livermore
Nic Darvas
Bernard Baruch
Gerald Loeb
Richard Wyckoff
Jack Dreyfus
If any of you do not know the stories and history of these individuals, you might want to take some time the next downtrend (you guys call it a "bear market") and read-up on some of these guys. :)
me:
bear market = no such thing
bull market = no such thing
there is only a market "in an uptrend" or a market "in a downtrend." When you call it a bull or bear, you might not realize this but you will subconsciouly adopt that position and hold onto it more than you would had you simply called it "a market moving up" or "a market moving down."
Hey, when the market tops, I'll write something for Seeking Alpha proving why we will have a real top. Just like I did on RealMoney.com in early 2008 when I was initially called a "fool." I welcome the friendly and non responses to this post, if there will be any at all. Once again, aloha.
This is my good act of the month and I hope you all enjoyed this being typed from a very prime surf location on the upper west shores of Maui. Mahalo for reading and aloha nui everyone, surfs up!...just like the market.
that should obviously (I know someone will say something :)):
then and only then should anyone try calling a top.
The financial press shouts out: "Stocks Climb" -- but the dollar's demise is (in a long-term sense) a much bigger story.