The Dog Days of Betwixt and Between

Idiom: Betwixt and Between - neither the one nor the other; in a middle or unresolved position

The past ten days have seen a drift in US equities with a certain amount of sector turmoil, mostly Financials up and Energy down (see first chart, with Utilities the biggest loser). From a size perspective, the bear rally produced the beta trade with Micro and Small cap doing exceptional well (second chart).

While the bear rally has produced a respite from the well publicized (and, I would argue, near-term overplayed) angst emanating from the twin disasters of banking losses and high energy prices, the far more important stagflation lite with “no end in sight” for both bank losses and housing (which are becoming mutually exclusive) looms large in the 2009 background.

In the meantime, for the remainder of this year the top-down derived $82 operating earnings for 2008 for the S&P 500 seems more and more on target as the bottom up analysts slowing come to grips with reality (see page 3*).

Absent a meaningful catalyst, it is hard to see how leaning one way or the other at this time makes strong investment sense. Marking time and exploiting what little super short term trading opportunities might present themselves may be the best approach as the dog days of summer roll on.

Investment Strategy Implications

The idiom “betwixt and between” seems most apt for the current economic and investment climate suggesting the market neutral position I noted in last Thursday’s blog posting. No doubt time will present the next “great” investment idea. Until then, forcing the issue seems destined to destroy alpha.

Comments

[gabe borenstein]

Another nonsense analysis .This is not a bear market rally.This is a beginning of the mega move to the top.The market has been decimated by the hedge funds and others who could not spell the word bear in 2007.When the financial debacle became obvious ( I had predicted this in June of 2005 ,Bloomberg -Mark Gilbert interview and reiterated my opinion 0n Bloomberg TV September 18 /2007),former bulls became bears under the false pretext of recession.For all of the nonsense ,the statistical recession had never arrived even if the deceleration process is unnerving.The economic stability enhanced by the actions of the FED (let's hope for more easing),the Congress and the Administration is on the way.Major rebound will be enhanced by the capital inflows into dollar assets as a result of of the pending implosion in Europe and Emerging Economies.For all of the wrong reasons the moderate recovery will turn into a mega economic and the stock market rebound.It is only a matter of time before CNBC will be all over this topic.In the meantime let's hear from the bears .
One thing for sure there is unstoppable rally in making in the period ahead.Perhaps 20,000 Dow? 7000 NASDAQ?-I think this is more real than most investors realize.
For the record ,I have reflected the current debacle in the media as early as 2005 -I did not find too many supporters then.

[archman82011]

Well I for one have no idea where the market might be headed.
One thing I do know: The Fed and our govt has mad it perfectly clear that they will do whatever is necessary to prop up and manipulate stocks, financials, etc. The intermediate game means that stocks can go up based on nothing more than the govt pumping money into the market, oh and they have been, day after day.

For the average american:
They will, at some point (though i dont know how far in the future it will occur) pay the price in a huge way for the Fed and our govt, bailing out their buddies on Wall Street and keeping the elitists who really own our country happy as pie.

Dow 20000 and Nasdaq 7000? Hardly. Things "take time" to occur and work themselves out, and though some "news" has been rationalized as good news, I have yet to see any "real" good news out there that says the housing crisis is "over", that consumers are flush with cash and have reduced their debt levels to 1980 levels, that people are using cash to pay for things, not credit, that consumer credit starts going down from its current 950 Billion dollar level, etc.

For those that might think I am a perma bear, well I am not. I am just not excited about investing in a market that is completely manipulated by its govt and where the govt has decided that they can do as they please with taxpayer money.

That is probably why I am up 6% for the year thus far and the only US listed stock I own is PM.

[OldLimey]

Archman: excellent comment.