David White

Wall Street Breakfast: Must-Know News

The preliminary GDP figure was -6.1% (a shrinkage). This was significantly worse than the -4.6% to -4.9% figure expected. Retail has been doing badly. Big oil has even been doing badly. We have a possible pandemic brewing with the swine flu. I don't see the good news. Yet the market is going up this morning.

Perhaps it is the upgrade of the banking sector to Neutral by Trone. If so, I find this highly questionable logic.

The old saying, "sell in May and go away", may be proving itself true again this morning. We are not in May yet!!!

It may be that people are just delighted that the preliminary GDP number for Q1 was less than the final figure for the previous quarter. They shouldn't be. The figures have tended to get worse on further updates.

It may be that people no longer fear the swine flu. That to is probably a mistake. The WHO raised the pandemic threat level to 4 yesterday. That is "upward", not downward. It is simply too soon to tell how serious this epidemic will become. The first US death was reported today.

If Trone thinks the banks are well enough capitalized, he is not seeing the big picture. Conditions have done nothing but worsen over the last 6 months. Each time the IMF puts out a new world GDP estimate, it is lower. Ditto the Fed with its estimates. There are still a lot of toxic assets. There is still rising unemployment. The credit card industry is quickly becoming highly unprofitable as the charge off rates are increasing quickly. Commercial real estate is supposed to implode this year. Residential Real Estate is still supposed to have serious problems this year. I could go on. The banks cannot wait until they are in imminent danger of going under before they raise capital. They will then not be able to. The Lawmakers think the stress tests are likely not stressful enough (i.e. too close to current conditions). I tend to agree. Apparently Mr. Trone thinks he knows more than the Fed and the Treasury experts. Grabbing at straws is a mistake. Banking stocks will eventually recover. However, they are likely to go through a lot of pain this year. I'd stay away with May on the near horizon. I certainly wouldn't bet the entire market up, just because one analyst sees improvement in the banking sector.. I am sure many others see just the opposite. The one person bucking the current "generally accepted thought" got all of the headlines because his opinion is in such contrast to others.

There is one more day until May. Next week will likely be the end of the major earnings period. What will happen to the market then???

S&P 500 Back above 50-Day Moving Average

I agree with the comments. The S&P500 is still in a confirmed downtrend. The Fed confirmed today that conditions have worsened since their December meeting. They said there was a stronger possiblity that there would be no 2H recovery this year.

The Davos economic summit has been saying similar things (a definite negative trend). Dr. Roubini claims we still need to write off about $3.5T. It seems likely this means the stock market is going to fall.

The IMF today revised their prediction for world economic growth this year down to 0.5%. It had been 3% in October, and they predicted 2.2% as late as November. The trend is clearly downward. The stock market isn't likely to go in a reverse direction. The US economy is predicted to contract 1.6% in 2009, and it is predicted to grow 1.6% in 2010. Keep in mind that the trend is still downward so far. Even going by these predictions, you might think there would be little growth in 2H 2009. If 2010 is only supposed to grow 1.6%, one might think it would grow faster in the 2H of 2010. If we guessed 2.5% in 2H of 2010. That might mean .7% in 1H 2010. That would likely translate to little or no growth in 2H 2009 for the US.

If the downtrend for the S&P500 is still in place, that means the MA will likely begin to move lower tomorrow or the next day to get back below the 50-day MA (as it has done through out the downtrend). It looks to me like the good news is probably temporary. It would be nice to be able to say otherwise.

Replacement Candidates for David Merkel's Portfolio: From AA to ZZ

NM is a good bet. It has excellent value. It has an extremely low PE and FPE. It also has an excellent Price to Book value ratio. Further it has both a new fleet in South America (for the river traffic mostly) which is supposed to begin adding 35% to EBITDA beginning in the 4th quarter of this year. It got pushed further downward in the recent market move in that direction, so it is an excellent buy now.

20 Guidelines for the Individual Investor

Re POT: Fast Money held a CEO conference update on the AG sector stocks. The CEO's they interviewed all stated that the fertilizer growth scenario will continue for the near term foreseeable future (the next year at least). They saw no definite end to this growth cycle for AG companies. A lot of people will have seen this video by now. POT should move upward today (and possibly for several days) barring a market meltdown.