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Don Dion
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Don Dion (donalddion@gmail.com, @DRDInvestments) is the owner and Chief Investment Officer of DRD Investments, LLC, based in Naples, FL. and Williamstown, MA., a family office focused on managing a long/short hedge fund, real estate assets and various other financial assets for the Dion family.... More
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  • Don's Outlook 1 comment
    Apr 23, 2009 5:29 PM

    Positive earnings announcements continued to buoy stock prices this week. Apple delivered better-than-expected earnings after the bell on Wednesday and shares are up 5 percent in early trading.

     

    Earnings season has widened economic sentiment among market participants. Bullish investors believe the worst may be behind us, at least for corporations that adapt to the new operating environment. Bank bailouts may or may not be viewed negatively by these investors, but all the bulls believe the amount of capital being pumped through overt and covert (to the general public) means is sufficient to stabilize the sector. Profitable banks will begin lending again and recovery will arrive later this year or early next year. Meanwhile, the Apples of the world are finding ways to grow profits.

     

    Bearish investors, conversely, hold the opposite opinion, and the bulls’ optimism is itself a reason for their increased bearishness. Bears expect the stress tests to reveal weakness in the banking system, possibly unintentionally, because investors may not trust the government’s report. The Treasury’s economic assumptions are too optimistic: in the worst case scenario, for instance, Treasury assumed 10.3 percent unemployment in 2010, but at the current rate of job loss unemployment may exceed 10.3 percent in 2009. Also, while many companies have reported strong earnings, many have not. UPS missed estimates this morning and announced a profit decline of 56 percent. The delivery firm said it will seek to cut costs, a popular tactic at present. 

     

    Economic data will worsen even as the economy improves because data is backward looking, and many indicators, such as unemployment, lag the economy. Stocks will climb a wall of worry and many naysayers will miss the start of the next bull market. Right now, there’s plenty of worry, and it has stopped the rally in its tracks. After a full six weeks of higher closes, the market is down for the week following Monday’s 4 percent sell-off. Several high-profile investors, such as Jim Rogers, have said they didn’t buy the rally, but they aren’t shorting it either. It speaks to a level of uncertainty among all the market’s savviest participants, but clarity may follow the full release of the stress tests on May 4.

     

    Themes: Macro
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  • squark62
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    i'm right with you, in the last paragraph particularly, regarding your bear-bull analysis. i happen to be bearish myself but will have to go where the market goes. i do believe we've been in a sort of "no-man's land" right now since April 9th relative the markets performance over the last 6 - 8 weeks. i think staying range bound like this till May 4 is about all the bears will take before they start driving the market back down. i also believe the thesis that we are still in an overall downward market direction. those lows in March will be tested and i'd say there's a high probability the market will breach those lows and continue to go lower. when that happens is anybody's guess. no matter how much money the fed prints, it goes nowhere if the banks don't start significantly lending. why would they do that while unemployment increases? the banks don't seem to care about lagging indicators. they'll be the last ones accepting a new economic paradigm. they've got too much toxic assets and it's apparent they aren't telling anyone how much they really have.

     

    cheers!
    23 Apr 2009, 11:18 PM Reply Like
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