Ricardo Arroja

David Fry's Daily Market Outlook

David, great role as Devil's advocate. You know, I agree with all the thesis going around about current market manipulation and you're great at showing us how it's happening. BUT, please, give us also a couple of investment alternatives or ways to make money.

Badmouthing the market's rise doesn't generate any kind of alpha if you can't profit from it. I really enjoy this column but the argument is becoming repetitive. If you don't come up with some way to make money, and I'm not talking about relinquishing your bear view, people will stop reading you soon.

DJIA: The Most Useless, Overused Tool on the Planet

Thanks Phil for detailing the Dow. I agree - the Dow is useless. David Neubert argues that the correlation between the Dow, the S&P and the OEX is high. However, the Dow is trading at all time highs while the S&P and the OEX are still way below their previous highs. So, basically, they change in the same direction but the Dow either falls less or rises more than the others. I think Phil's post highlights why: the Dow's nature, a price weighted index (not a market cap weighted index), allows rising stocks to exponentially impact the index. Whereas, in a market cap index, rising stocks will impact the index in a linear manner. Last week, there was also a great article in TradingMarkets.com regarding the price mechanism within the Dow - apparently, only four stocks (Caterpillar, Exxon, Philip Morris and one other) among the Dow are trading higher than in 2000. I haven't confirmed that info but the source is credible. So, a handful of such companies are contributing more to the Dow as they rise in price. On the other hand, the "dogs" are contributing less as they decrease in price. The index is skewed and biased. Not to mention the "survivorship bias" - eventually, the dogs are eliminated from the index and a potential star is put in place instead.

The true market benchmark is the US is the S&P500. Or, any other meaningful market cap weighted index. Price weighted indexes are simply flawed.

David Fry's Daily Market Outlook

Dear David,

I really enjoy your comments. However, I must admit that right now I feel tempted not to read you anymore. Why? Because I couldn't agree more and, that is making me angry with current market action. As a professional investor, I feel like shorting the heck out of this market. However, that would be terribly foolish.

Regarding your last paragraph, on "One duplicitous policy father's another", I would suggest that you read about Leo Strauss and his ideological influence on neoconservatives, who now command America. These people have taken America hostage using his main philosophical weapon: DECEPTION. Not only in markets, in politics as well.

Bernanke Comments Reinforce Stable Interest Rates View

The next move in rates is down - soon rather than later. Frankly, it seems obvious to me that Bernanke is the most dovish US central banker since that chap in the 70's (sorry, but I don't recall his name). But then again, where's inflation coming from? In my view, it's a China related phenomena that translates into higher commodity prices. Period. There's no inflation coming from US wages - those are being kept under a lid due to foreign job outsourcing. Inflation is just coming from energy prices. But currently, crude oil is almost 20% below its all time high, natural gas is 65% below its all time higher after Katrina/Rita last year, sugar (despite all the ethanol buzz) is almost 40% below this year's earlier relative high....Bernanke is right to be dovish. However, Bernanke is not right to be the stock market cheerleader - that would be something outrageous for a central banker. Chairman Bernanke: please give us back M3 figures.

David Fry's Daily Market Outlook

Great article Dave!

For years it has been rumoured that the FED and the Treasury are active participants in the stock market. Now, after denying the public to know where M3 stands, it seems clear they are probably doing whatever they can to leverage stocks. Ironically, I think Bernanke is right to be a dovish central banker. He knows that the US economy needs a permanent wealth effect to keep spending afloat. In the late 90's, it was the Nasdaq. After the new millenium, there was nothing and Greenspan/Bush had to rush to emergency actions to avoid a recession. In the process, Greenspan created a Housing market wealth effect. Now, with New Home Sales down 20% YOY, the FED will attempt to lift stocks and create a stock market wealth effect once again. Bernanke is fully aware that with Housing already down and heading lower, stocks HAVE to be positive. If that other shoe drops as well, add in all the private and public debt built over the years, it will be 1929 or 1987 again.

The problem is that in an effort to prevent a BIG disaster from happening, the FED and the Administration will just delay it until one day the disaster becomes HUGE. Let's face it: most governments are bankrupt, most people are bankrupt as well. However, because of on-going credit, both have yet to realize that. Eventually, the party will be over. When that happens, we will have a serious crisis of DEFLATION. Or, if energy prices explode on the upside like Goldman Sachs told us a couple of years ago (by the way, where's that analyst?), we will have a serious crisis of STAGFLATION. In the meantime, let's just remain oblivious to what's going on. Enjoy the good times and the fact that the Dow Jones (quite conveniently, a price weighted average index not a market cap weighted average index like the SP or the Nasdaq) is almost trading at a new all time high. Let's just hope those good old Wall Street bankers and brokers, those good old Treasury and FED statistics guys and, that good old Republican party, convince people to jump on the train so that the SP and the Nasdaq can catch up with the Dow. Everyone will be happy. We'll be living in a fantasy world. But, nonetheless, we'll feel good.