Clues to the Trend and Cycle Direction of This Market

It makes no sense that Goldman Sachs (GS) can soar +16.3% in market capitalization in a single day when quarterly earnings were reported to have plunged -53% in the comparable quarter.

Even if EPS of $3.23 beat the Street's consensus of $2.58, that is - just by 65 cents, multiplied by four quarters it's just $2.60/share in annual earnings above consensus. Was this “surprise” really worthy of a $10 billion bump in Goldman market cap, or did the moon-shot have more to do with HB&B (ie, the Club on Wall St.) protecting one another?

It could be that Humungous Bank & Broker have a humungous valuation problem that they’d prefer to sweep under the carpet this month end, which just happens to be the end of the quarter.

So, as I see it, this is just putting on appearances. Now, I could be wrong, but, following the pump for the same reason from Morgan Stanley (MS) and Merrill Lynch (MER), we’ll not have to wait long to see. I suspect that around the end of the month, equity market levels will return to the elevator heading down.

Does anybody here see the earnings of these broker-dealers strengthening this quarter and next? Therein lies the clue as to the trend and cycle direction of this market.

Also, the gold stock leader Barrick (ABX) is in real trouble. For the change of trend to be confirmed, there is a need for a Triple Bottom ($49 on ABX.T) breakdown to $48.00. If any of you own this Cara 100 stock, it is time to be very cautious. It is the reason, I published my Buy/Sell Advisory on Goldcorp (GG), which I think is now headed to the mid to low 30's.

Wednesday, Credit Suisse came out with an analysis that the worst of the world's financial conditions is yet to come. Here is the conclusion of this particular report:

Following today’s smaller-than-expected cut, we have decided to retain our baseline forecast that the federal funds rate will reach 2% in the near term, before the FOMC pauses to assess the effects of impending fiscal stimulus on the US economy.

The Fed has done a lot over the past week, to put it mildly, with two separate actions to address liquidity issues in the markets and today’s 75-basis-point cut in the funds rate. In fact, today’s statement suggests that Fed officials have grown uncomfortable with the speed and degree of intervention, and will be reluctant to do much more unless absolutely necessary.

Nonetheless, we still see the risks to our funds rate forecast as tilted to the downside. In the short term, either a particularly bad batch of economic data or a resumption of financial market stresses could push the FOMC to a 50-basis point cut when it meets on April 30, rather than the 25 we currently expect. With the economy likely to grow below trend for much of the next year, we see a possibility of further rate cuts in early 2009 as the fiscal boost wanes.

To end on a positive note, I believe that we ought to be lining up the stocks of ten to twenty companies to start accumulating. When you look back over charts and see the price and volume tracking so much higher, you can say, “There but for the grace of God and the wisdom of this community and the knowledge I have acquired here, go I.”

Comforting, isn’t it?

Comments

[Tony Soprano]

What! No talk of revolution or the spoils for the victor? That previous piece of his was really bad. There for a minute when reading it I thought he was Napoleon.

But now with this new piece, is Mr. Cara now moving to the center? Or he is just backing off?

I take it that the last paragraph was a call to buy? Just keep it simple please. Masterpieces are not necessary.

[clitosil]

I'd have to agree with tony. I didn't really understand a word of the article, save for the credit suisse quote.

[Tony Soprano]

for clitosil,

If you think this piece was difficult try the link below. He posted this one just the other day. The last three paragraphs is what I am referring to.

seekingalpha.com/artic...

[galewhitaker]

Bill
You didn't mention the high price of crude oil. Do you think that there are 20 stocks that are going to be immune to the ravages of higher energy prices. Wake up! Consumer spending constitutes 70% of the GDP. When Joe six pack starts paying $200 to fill up his Tahoe he won't be able to afford to buy beer, victoria's secrets cheese doodles, flat screen TVs or chip board houses. I think this stock market is going to end up on the trash heap where it belongs, remember stocks are only cheap if they have an accelerating bottom line. You may be able to find some gun dealers whose bottom lines are increasing but I wouldn't bet on it.

The Cynic

[Tony Soprano]

Gale Whitaker

You are late for the party. Bill Cara has moved to the center. Bill made the party in time but only by two days. There is a sea change in the markets. Commodities are dropping like a bric (no pun intended). The dollar has strengthened and the Fed Chairman is starting to look like a heavyweight champ.
______________________...

Since there is so much angst directed toward the Fed and the US Government, I decided to listed some events, not all of them, that had dramatic ramifications on lives, cost and the psychology of our country. I started in 1906 because it’s just a little over a hundred years. As I compiled the list, I could not help but feel the great sacrifices that many American’s have made and what a resilient country, economy and government we have in American.

The 1906 San Francisco Earthquake and fire, registered 8.25 on the Richter scale; estimates range from 700 to 3,000 dead or missing, approximately 225,000 injuries and $400,000,000 in 1906 dollars.

Recession, May 1907-June 1908, 13 mo

Recession Jan. 1910-Jan. 1912, 24 months

Completion of the Panama Canal, 1914 – 27,500 workers are estimated to have died

Recession Jan. 1913-Dec. 1914 23 months

World War I -- 116,708 killed – 33 billion

Spanish influenza, 1918, killed over 500,000 people in the worst single U.S. epidemic.

Recession Aug. 1918-March 1919 7 months

Recession Jan. 1920-July 1921, 18 months

Recession May 1923-July 1924 14 months

Recession Oct. 1926-Nov. 1927 13 months

The Great Mississippi Flood of 1927, flooded 27,000 square miles, 246 killed

The Great Depression, Black Tuesday, crop prices fell by 40 to 60 percent, after the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.

The Dirty Thirties, longest drought of 20th century. Peak periods were 1930, 1934, 1936, 1939, and 1940. The dust bowl covered 50 million acres in the south-central plains during the winter of 1935-1936.

Labor Day Hurricane of 1935, 400 killed

Recession May 1937-June 1938 13 months

World War II – 408,306 killed – 360 billion

Wartime Controls: 1941-1945 rationed consumer items ranging from sugar to gasoline

Recession Feb. 1945-Oct. 1945 8 months

The Marshall Plan, July 1947 – 13 billion in economic and technical assistance were given to help the recovery of the European countries

Recession Nov. 1948-Oct. 1949 11 months

Korean War, July 1951 - July 1953 – 33,000 killed in action

Recession July 1953-May 1954 10 months

Recession Aug. 1957-April 1958 8 months

Recession April 1960-Feb. 1961 10 months

The Cold War, some estimates shows $8 trillion was spent, worldwide, on nuclear and other weapons between 1945 and 1996

The Cuban Missile Crisis, Oct. 1962

Good Friday Earthquake (1964) In Alaska, it was the fourth biggest earthquake recorded

Vietnam War, 1963 – 47,378 killed in action

The murder of JFK, 1963 Nov

The Gulf of Tonkin Incident, Aug 1964

The murder of Dr King, April 1968 and Bobby Kennedy, June 1968

The city riots of April, 1968 – 30 cities affected

Hurricane Camille, Aug 1969, 259 killed

Recession Dec. 1969-Nov. 1970 11 months

Stagflation of the 1970s began

Nixon first imposed wage and price controls on August 15, 1971

Oil Embargo, Oct 1973 long gas lines

Recession Nov. 1973-March 1975 16 months

Articles of Impeachment of Nixon started
(Approved by a vote of 27-11 by the House Judiciary Committee on Saturday, July 27, 1974.)

Deregulation: 1974-1992 this era began when Nixon left office

Three Mile Island nuclear power plant crisis, March 1979

Mount St. Helens eruption 1980

Recession Jan. 1980-July 1980 6 months

Prime reached unbelievable 20% in January 1981,

AIDS was first reported June 5, 1981 by the government – It is thought that more than one million people are living with HIV in the USA and that more than half a million have died after developing AIDS.

Recession July 1981-Nov. 1982 16 months

California earthquake 1983

The 87 market crash - Black Monday

California earthquake, 1989

Recession July 1990-March 1991 8 months

Iraq invaded Kuwait on August 2, 1990

The Persian Gulf War, 1991 or Desert Storm Jan 1991

Hurricane Andrew 1992 very destructive United States hurricane

The Great USA Flood of 1993

Intervention in the Former Yugoslavia,

Dot Com Bubble, climaxed on March 10th, 2000 with the NASDAQ peaking at 5132.52

9/11 Attack, 2,974 people died

Recession March 2001-Nov. 2001 8 months, Airline Industry Collapsed

Enron bankruptcy in late 2001, employed 22,000

WorldCom, July 21, 2002, filed for Chapter 11
Iraq War, March 19, 2003 – 4,000 dead

Hurricane Katrina, late August 2005, 1,836 people lost their lives

Start of the Great Housing Recession or Sub-prime Recession 2006 or 07, 08? Date to be determined.