This Week in Barrons – 07_26_09:
Thoughts:
"I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve Act
- Another 554,000 people had to apply for unemployment benefits, topping 5 Million in 2 years – but to the ‘talking heads’ that meant that unemployment was slowing!
- Existing home sales were up 3.6% - of course 50% of those were foreclosures
- The FHA is back to taking 3% down and securing 120% on mortgages (isn’t that how we got in this mess?)
- Revenues for our top-line companies such as Caterpillar FELL over 40% - and there were cheers for ‘not as bad as it could have been’ and ‘they beat their estimates’
- Remember 1999 – another time when ‘earnings didn’t matter’ – until THEY DID.
- Microsoft – for the first time since going public – had their revenues decline – and their profits fall 29%
- AND then we had half of New Jersey’s leaders and politicians thrown in jail for everything from bribery to selling body parts.
- MANY of the top-line brokerage houses – Morgan Stanley, Charles Schwab, Credit Suisse are facing criminal charges
- AND there are over 35 criminal and civil investigations into issues including suspected accounting fraud, and public corruption concerning the dispersed TARP funds.
- BUT – there is no sign of investigating Goldman for their trading programs!
Remember – the Government can only directly influence it's people if they 1) want to be led around, or 2) are so financially destitute they have no choice but to rely on them. And remember ‘Hope’ – the ability to show you the light at the end of the tunnel – those ‘green shoots’ → just ask any of your local businesses if they are rolling in the dough or if things seem to be slowly getting better – you know that answer.
However, there are still hundreds of trillions worth of derivatives floating around the world like a ticking time bombs, that no one knows how to price, nor even how many institutions are still solvent enough to cover them. While the US taxpayer had to bailout a bankrupt AIG, AIG then paid off Goldman on a $12 billion CDS scheme, (because NO ONE rips off Goldman – NO ONE). FYI – if you wondered – ‘mark to market’ accounting is STILL suspended. It is presumed that Commercial Loan losses will exceed $30 Billion by the end of 2009 – with some 500 regional banks likely to go under. Alt A loans are defaulting faster than subprime, and some 600,000 more foreclosures could be being kept intentionally "off the market" to keep from lowering existing home values. Factually: Regulators on Friday shut six banks in Georgia and a small bank in New York state, raising to 64 the number of federally insured banks to fail this year.
And yes – I realize that the market “looks forward 6 months".
Now The Market:
On Thursday the DOW closed over 9,000 for the first time since the beginning of the year. You all probably know the arguments. We are technically overbought in the short term. This run has been blistering, making advances over two weeks not seen in a decade. We have been long the entire run, but that doesn't answer the question – is this coming week one of serious profit taking, or is it the pure lust to "get in before the train leaves the station" so great that we just continue higher?
We feel that "overall" the run isn't over yet and the market is going to go higher, possibly much higher. But, in the very short term such as this coming week, logic tells us that a profit taking smack-down "should" occur. And judging by how they defended that 9,000 level they achieved on Thursday, I'm guessing that we might see a "pause" here, as they try and build a new base at this level, and then once again push us higher. For every day that 9K doesn't fall, you can consider that another bullet in their ammo belt, to be used to blast us higher again. But just as importantly, if we were to see 9K fail, and experience a good "whoopin" of say 300 points, I'd think that dip would be completely buyable!
TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we’re holding NGD (a gold miner) with No Automatic Stop
- we’re holding MOO (agricultural business ETF)
- we’re hold XLK (a technology (minus healthcare) ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme – we’re very slightly underwater here)
- we’re holding CSCO @ 19.20 / hard stop @ 19.80
- we’re holding DIA’s @ 84.45 with a 88.60 stop
- we’re holding SPY’s @ 91.97 with a 96.00 stop
- we’re holding QQQQ @ 36.26 with a 38.00 stop
- If you’re brave and looking for somewhere to go long ☺ …
- FRO on a bounce up to 22.15 is interesting
- SGR over 30.00 looks okay
- UYM over 22.00 is good
- And SUN over 25.00 could make sense
Until next week – be safe.
R.F. Culbertson
rfc@getabby.com
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