This week in Barrons ... 04.27.2009
Thoughts: My worry is that the average “Joe” is paying more attention to what the economic experts have to say, because he's been affected directly by the meltdown. He has seen his friends laid off, his home value fall, and his 401K get decimated. So, he’s now trying to get a handle on current affairs, however he's being fed a line of BS from the very media he's attempting to learn from. So, in a way, it’s not “Joe’s” fault, and he’s becoming convinced that Uncle Sam will ultimately pull us out of all this and life will go on. CNBC tells him that it's the best possible time ever to buy stocks because "by Q4 – 2009 everything will be rockin." The media tells him every day that things are "less bad" than they were, and the numbers aren't sliding as fast as they were. All in all “Joe” has come to the conclusion that it's "all going to be okay". In boxing there’s an old saying “it’s the punch you don’t see – that knocks you out!”
This week we finally got what everyone already knew, that the government forced the buyout of Merrill Lynch by Bank of America. Ken Lewis of B of A told us that Hank Paulson made him do it – “or be crushed.” What about all those great bank earnings – well Goldman posted it's largest loss in December – but cut off its fiscal year in November and restarted recording in January. Where did December go? Morgan Stanley just did the same thing à who as a result of changing ‘fiscal year ends’ from November 30th to December 31st – reported a $1.3B net loss – presented on page 19 of their ‘financial supplement’. So, a $1.3B loss just evaporates from the actual balance sheet – income statement and appears as a footnote on page 19. And all the “average Joe” knows is that things are getting better and Uncle Sam and the FED have pulled off a miracle.
The average “Joe” this week has heard numbers suggesting that the steep decline in housing has ended, and there are "silver linings" in the recent reports. Unfortunately 62% of those home sales were “foreclosures or short sales” AND there are more than 650,000 more homes in foreclosure that banks haven't "taken back" because they don't want the homes to show up on the balance sheet as non performing? At the end of 2008 and into 2009 – most lenders put a moratorium on foreclosing, waiting for Obama's rescue plan, and now that the plan is shown to be of little use, they are foreclosing again. Most banks have allowed people to live in homes "rent free" because the minute the bank actually takes them in, they have to pay property taxes on them, mostly in arrears. ARM resets will hit again this year – and that a record 19 million homes stood empty in the first three months of 2009.
I wonder if the average “Joe” knows that according to Bloomberg, directors, officers and other insiders have sold $353 million worth of stock in this fading month, or 8.3 times the total bought. In fact, insider purchases of $42.5 million are on track to make April the skimpiest month for such buying since July, 1992. Directors, officers and insiders ONLY listen to the ‘front lines’ and are not seeing a whole heck of a lot that they like.
This week in the Market: Please don’t be an average “Joe”. We are racing towards a wicked inflationary depression. You can’t drink yourself softer, and you can’t fis a debt and credit spiral with more debt and more credit. The market is currently at a ‘catch your breath’ place. We are on an economic "landing" now, just catching our breath from the first major wave of the downfall. There's a long flight of downward stairs ahead.
- Continue to own gold and silver. Gold is money, and can't be debased with a printing press.
- Don't overextend yourself – and don’t buy a new ‘boat’ or ‘bit item’ just yet
- Stay away from debt and save your cash.
Currently the market is higher in order to absorb the up-coming news of the ‘stress tests.’ Virtually all the firepower of the institutions, banks, and Federal Reserve is focused on propping up the market. But let’s not lose focus – the market is a constant series of methods of confrontation and confusion. So, at the DOW low of 6600 as tens of thousands were closing their accounts, going short, and stopping contributions to their 401K, the market inflicted "max pain" and ran for 1600 points, and instead of rolling over and dying, it's held up, confounding even more people.
I do expect a major smackdown again, for 2 days – coming shortly – and that should shake out the nervous and the latecomers. So I think the ‘punch’ will come – but it won’t be massive and it will be “buyable.” As most people adopt the old "sell in May and go away", the market will probably confound them and move even higher. Back on 4/17 the DOW hit 8251, and since we're below that right now at 8076, that old high could be short term resistance for a while. I wouldn't be putting much money into the market here, until we put in a good solid close over that 8251. But, if we can do that, we'll see 8500 soon enough.
- We’re up over 50% in UYM, and I'm starting to consider taking a bit more off the table.
- FAS we only have ¼ position left (after the 300% increase) – so I won’t hold if it goes below 6
- So, is there anything else I'd like? In the future we're going to short the retailers, the commercial real estate guys, and the market themselves. But, I think that’s several months away. If I'm right, we'll get a punch down this week, but it won't be cataclysmic, just a bit scary, and it will be buyable. And a few names I’d watch are: Amazon (AMZN) and Apple (APPL).
- Finally you may be hearing about a company called ARAY. ARAY owns a medical device called the "cyberknife", which is a very advanced way of shooting cancers with radiation and the results have indeed been stunning. They are calling it the next Intuitive surgical, and for a small company to have such a successful machine is indeed a big deal to the bottom line. It’s currently trading at 5.99 - has already had a decent run and may be tired. In time, ARAY could be worth a double at some point as more and more operating rooms buy Cyberknife for treating prostrate, brain and lung cancers. So, if you take a position, make it small, and sit on it. You might see 5 before seeing 7, but it's possible that given 6 months or so, it could see 9.
Good luck folks, and please don't be an average “Joe” – remember it’s the punch you don’t see that knocks you out. Until next week – Be Careful!