Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

CGTS: Friday 26 June 2009. Mixed Signals From the Market -- Is this the 'Wall of Worry'?

|Includes: Apple Inc. (AAPL), GS, GSK, SBUX

Clark's Gate Timing System ©
Friday 26 June 2009

I have heard a lot about the infamous 'Wall of Worry' that a stock market climbs during a bullish phase, overcoming bearish scenarios.  This reminds me of the tale of Sisyphus, who climbs his hill in Tartarus rolling the mammoth rock Acrocorinth to the top of the hill, knowing full well that when he reaches the top, the boulder will slip and roll all the way back down the hill again.  Little did I understand, until just now, that the myth of Sisyphus is actually a glyph describing bullish cycles on Wall Street.  Sisyphus was, according to myth, a greedy businessman who broke the law through theft and even murder to enhance his own business position.

Is this a 'Wall of Worry" we are climbing?  And what a wall this is: commercial real estate ready to collapse; a fresh wave of foreclosures to hit residential real estate as exotic 'buy-now pay-later' mortgages finally begin to re-set; unemployment rates heading toward 15%; California melting-down fiscally; China's stimulus stimulating only smoke and mirrors; Lativa sinking into the Sea of Insolvency; Sweden panicking over lost billions in the Balkan and Baltic foreclosed loans; Iran sending out secret militia dressed dressed in black with orders to hatchet demonstrators to death on the streets of Tehran; Israel beginning preparations to bomb Iranian nuclear facilities; President Obama threatening the purity of American capitalism by considering a national health plan; North Korea seeking to incite an exchange of nuclear weapons with America, Japan, essentially anyone who comes forward....

Ahh, yes: those poor insurance companies.  They have been hatcheting American businesses and citizens for several decades now with their collusion on health insurance coverage -- I'm quite amazed that someone finally noticed.  The misunderstood American insurance companies are finding Americans no longer eager to listen to, and respond with frightened horror at, the accusations of 'socialist', 'communist' and 'traitor to American ingenuity and independence' whenever the dreaded words 'national health plan' are spoken.  As far as I can tell, America is the only developed nation that let's people go bankrupt over health care issues, or let's its citizens die because they cannot afford health care attention.  And we give Goldman Sachs millions of dollars so they can continue to reward bankers will million dollar bonuses for destroying the Global Financial System.  Something seems wrong with this picture.

My wife takes medication for her asthma, a couple puffs a day.  This prescription costs us $160 a month in America; the same medication in Vietnam costs the equivalent of about $10 a month.  Who do you suppose is pocketing that extra $150 a bottle?  Insurance companies, pharmaceutical companies, and our dear beloved millionaire doctors in the U.S.  It's a good system for them.  It's bankrupting American citizens and American businesses, but it's good for the said trinity, as well as for country clubs, yacht builders and for luxury home-builders....  What a sad cornering of the market this has proven to be.  Rich doctors, rich insurance executives, rich CEO's of pharmaceutical companies and bankrupt sick American citizens, financially destroyed by our health-care cartel and their managers and defenders in Washington....

But I'm getting a bit off-track.  I was writing about the Wall of Worry.  So, do investors (the so-called 'free market genius' embodied in equities markets) know something that the rest of us don't?  With all this bad news, and bad news trajectories apparently reaching far in to the future, how can the markets continue to advance?  I have read that it is NOT individual investors who are powering this rally.  This makes me wonder who/what is powering this rally?  The Fed has given so much money away to banks and troubled financial institutions.  Is it 'borrowed' taxpayer money being spent hand-over-fist by nearly bankrupt financial institutions in an attempt to garner profits to offset hidden losses on their books that is driving this bear market rally?

Something feels a bit unsavory about this rally.  I can't quite put my finger on it.

The Fed is desperate to keep interest rates low so that borrowed money can fuel another stock market bubble to convince Americans that we are not actually sititng on the edge of a cliff, teetering toward Armageddon?  Attempts to re-kindle a bubble in housing has clearly failed.  Is it not clear to those running the Ship of State that a sickness (a kind of financial edema) of a patient carrying too much debt can only be cured by the patient reducing his debt level -- and this takes time?  New bubbles are designed to save political parties for the next election, and to save the jobs of corrupt bankers who are desperate to hide recent mistakes, misjudgments and crimes.

The markets are attempting to pull back -- but even this is not certain.  I've been working to develop a longer-term trading instrument for some time now -- with some hope of success -- and this new trading system is giving a slough of buy signal on our weekly data this week.  I don't know what to make of it.  I have been expecting a pretty significant pullback in the markets over the next month or two.  What can we make of this?

One of the issues generating a buy signal with this new momentum indicator is Starbucks (NASDAQ:SBUX).  Now,  how can Starbucks' stock go up?  It recently publicly announced that it was going to have to ask (negotiate? beg?) owners of their commercial buildings in which their businesses dwell to reduce leases by 25% on a national basis.  They aren't making enough money in the depression.  Starbucks' quality earnings growth is -77%; their trailing Price/Earnings ratio is 122; their forward PE is over 17.  Is this stock really a value at this point?  Only 2 1/2% of their stock is currently held by insiders.  Starbucks has been ratcheting down prices in an attempt to change their image -- especially now that McDonalds is offering cheap designer coffee drinks -- even offering a breakfast menu in an attempt to bite back at McDonalds.  If we are really heading into a sea-change in American spending habits, those $4 coffees and #3.50 slices of brownies are probably going to be quite resistable in the next few years for most Americans.  I wonder who is buying this stock?  Well, in all honesty, no one has been buying Starbucks shares.  So why am I getting a buy signal?

Still, it's technicals seem to be in place for a rally.

sbux chart

Ok, so a rally in Starbucks is pretty insupportable on a rational basis.  What about Apple Computer?  I remember when they appeared with the I-Phone a couple years ago -- and the whole world shook with wonder.  And it became clear at that point that Apple was probably here to stay, which was fine with me since I use Apple computers.  I didn't buy an I-Phone.  $650 seemed a bit outrageous to me at the time.  Now I hear they are offering the baseline I-Phone for $99.  Did someone say last week that we no longer had to fear deflation?  Also, last week, Apple announced that the heart-and-soul of the company, Steve Jobs, was recovering from a liver transplant performed two months ago.  Speculation had been rampant concerning Jobs' health for many months now.  Warren Buffet wondered why Apple hadn't informed shareholders long ago.  One has to think this kind of news WAS public information; and the full disclosure laws protecting investors required such an announcement.  Ok, so Apple's leader is very sick and its cheapest model I-Phone has been scaled back some 85% -- and computer prices are also being reduced.  (The company did say it will not be offering a $500 computer soon to compete with Dell because it does not feel it could make a quality $500 computer.  Watch for a $500 Apple computer for sale next year.)  Here is Apple, showing up on our screen of buy signals.

aapl chart

What about Goldman Sachs?  They were on the verge of being swept out with the Lehrman Brothers garbage last year, before Mr. Paulson -- the White Knight -- stepped in, robbed American taxpayers of trillions, and doled the money out to his buddies, the suddently fallen 'Masters of the Universe'.  Do we really know about the health of GS as an insitution?  Washington has been enabling banks to hide their losses -- accounting tricks apparently CAN calm everyone's nerves -- and Goldman is still growling and threatening critics with annihilation.  They still have a pointman in Washington running intereference for them.  Mister Geithner is being laughed at in China but he is not being laughed at at Goldman Sachs.  I thought President Obama was going to dismantle Goldman Sachs and scatter them to the wind (well, we saw what happened to John Kennedy when he threatend to do the same to the CIA).  There is no point looking at Goldman's earnings statements because everything there has been artificially elevated by friends in Washington.  GS is also giving a buy signal.

GS chart

I am not 'unveiling' this new trading system at this point.  Instead, I am musing on the nature of this market, wondering why we're seeing so much strength in a market that seems to be ignoring economic reality.  We ignored economic reality back in 2007 -- and that was the beginning of a whole lot of trouble.  Another bubble in stocks might make everyone feel a lot better; but bubbles are bubbles; and bubbles break.  If we've learned anything in the past few years, this is something we need to remember.   (For those who argue that the market 'leads' the economy out of recession I would point out that the current S&P 500 price/earnings ratio of 132 seems to be indicating that it is the market and not the economy that is dancing out of tune at the moment.)

Other Momentum buy signals we are getting (but not yet following until this indicator proves itself): 

Adobe, Boeing (despite a whole lot of trouble last week), Burlington Northern (really!), Bovespa Index, Cisco Systems, Dow Jones Industrial Average, Dow Jones Transportation Average, Estee Lauder, EPP (Asian Nations ETF, no Japan), EWC (Canada ETF -- is this presaging a rally in commodities), EWG (Germany ETF -- after I highlighted the technical weakness of the DAX last week, and the CAC for that matter -- see next); EWQ (France ETF), S&P 500 Index, Hang Seng Index (Hong Kong), Honeywell, MMM, Nasdaq Index, Russell 2000 Index, Sony, United Technology, XES (Spider Oil and Gas Exploration), TYX (30 Year Bond), and a slough of foreign equity mutual funds (SCGEX, SCINX, SCOPX, SCPIX, SEMGX, SLAFX).

Time will tell if this is a head fake or an indication that all the money the Fed is dishing out is going to prop up stocks.

Our Seeking Alpha porfolio is up 2% in a week -- a link to the portfolio is listed below.

New positions:

Long - GSK, Glaxo/Smith-Klein @ 35.8

Short - Euro against the Swiss Franc @ 1.523

GSK F 62609



More information on this system can be found at

Portfolio of current ‘Seeking Alpha” trades at

Have a nice weekend all.

MJ Clark

Clark's Gate Timing System
Hanoi, Vietnam

84 4 221 92210