Oh dear! It's the perfect world we are in. After wasting centuries in developing great but useless ideas and theories finally the greatest country in the world, USA is leading us in creating an ideal world. A world where at last every thing will be free. There will always be eternal bliss. People will have everything they want and nobody will have to work. These are finally the right steps towards creating heaven on this earth. And of course politicians at Capitol Hill and in other countries as well are working really hard for it. It started with free money for banks but then quickly everyone embraced the idea. First ones were the car companies telling you that they will pay for your car should you loose your job. Then banks came with offers to reduce mortgage and credit card payments for those who can not pay. Now finally Sears Holding (NASDAQ:SHLD) today took a giant step in that direction. They are offering free appliances to everyone who looses their job. Soon to come will be Toll Brothers with palatial homes for everyone who can not pay for it and then grocery stores and Safeway, Costco (NASDAQ:COST) and Walmarts (NYSE:WMT) of the world will join in and offer food, clothes and other essentials for free to all those who can not afford to pay. Now I want to know why this clause of "loosing the job" or "not being able to pay" is unnecessarily being attached. First of all why would somebody want to work if they can get what they want for free, second it sounds like discriminating to me.
And whichever company announces free distribution schemes its stock price will jump at least 10%. After all investors should pitch-in the making of this heaven and do their noble part.
This was the scenario for all those foolish bulls roaming on the Wall Street these days telling you that anything goes and stocks go nowhere else but up.
But following is the analysis for few wise people who still invest with their logic hats on. First of all, let’s talk about Sears (SHLD). Did Sears not show us today how tough situation it is in. If it's sounding similar to those car companies then shouldn't its stock be trading somewhere in the low teens rather than a huge $67 a piece. There is a great opportunity to short this stock at its current valuation for those who live in the real world.
Secondly, our government and treasury comes into picture. Since don't believe that idea of money was created to simply mint coins on print paper, there was a much deeper need for a controlled system that created rewards for those who were offering something different. Therefore, governments who have made printing money their sole purpose will be paying a huge price for it in the future. Unfortunately like what happened with the investment banks, people who were the trouble makers were gone by the time consequences of their actions were realized. Similarly Mr. Bernanke and Mr. Geithner will be long gone before USA treasuries move into junk bond category with a return of 6-8%. But remember 30 year treasury will reflect the consequences of their actions. Bond traders are saying that worst is over for treasuries. I want to say that they haven't seen the beginning of it. 30 year US treasury bond will be yielding 5% by the end of next year. I don't buy what China says on a day to day basis. I know that they are smart enough to not let their $680 billion dollar holdings move into junk category tomorrow. So to keep a market for them to unload those bonds they will do it slowly. And their agreement with Brazil to directly trade in yuan-real is a simple step in that direction. So an intelligent investor will be that who balances his/her portfolio much before China does. A good long-term play thus is to short 30-year US treasuries. For some people TBT may be a good play as an ETF but remember that it's 2 times leveraged fund so day to day movements may be quite big.
In general there is a big trouble slowly forming under the surface of these jubilant markets that market bulls are either not able to see or they are simply ignoring it based on the hot air of false enthusiasm pumped in by analysts on street and politicians on capitol hill. But S&P500 index will soon retest its lows until a fundamentally strong and good foundation based on correct remedies is put into place.
Disclaimer: No position in any stock discussed here as of now. I will short SHLD if it breaks above $70.