This Week in Barrons – 1-18-10:
Thoughts – “It’s Wabbit Season, and I’m hunting wabbits, so be vewy, vewy quiet!”… Elmer Fudd (cartoon character)
Narrator: It is a well-known psychological fact that people's behavior is strongly affected by the way they dress.
Elmer Fudd: Bang, bang, bang! Come out of your holes, you cowardwy wabbits! Bang, bang! And I'll bwow you to smitteweenies!
Buoyed by strong post-Christmas bargain hunting, retail store sales rose 1.5% from the previous week and 2.3% Y/Y. Now, what didn’t say was: Vacancies at U.S. strip malls hit an 18-year high in Q4, with a vacancy rate of 10.6%, worse than the vacancy rate of the "commercial real estate depression" of the early 1990s. Unemployment and inconsistent consumer spending are expected to continue weighing on retail properties for at least another 18-24 months. And in the commercial space in general – the square footage of space available for office rent in Manhattan is 38% higher than a year ago, totaling 43.8M square feet for lease (11% of the city's total office space). Oh – I forgot - people without jobs don't spend money, and small businesses don't need to lease office space if there is no business.
Well surely all the stimulus money that's about to come roaring down the pike will solve all these problems yes?
Bugs Bunny: Hey, Lemme see the rabbit, mister! Can I see da rabbit?
Elmer Fudd: Awright.
[Bugs goes inside basket, comes out other side]
Bugs Bunny: No rabbit in there, Doc! You've been robbed!
Recently – a huge study finds stimulus dollars spent on road construction had no material impact on local unemployment. The analysis reviewed $21B in stimulus projects in every state, and found no statistical difference between counties that received the most money and those that received none. Now why is that – well, when Uncle Sam decides he wants to go spend money, he doesn't look for bargains, he doesn’t analyze the market – he simply waves his hand and spends the money. Now, because there are no market or pricing decisions being made – why would you believe that any government stimulus projects would have any effect on a market-driven economy? If Uncle Sam waves his wand, produces 100K dollars and hands it to you to dig trenches – more often than not you won't be researching the digging of trenches, and manufacturing a new more efficient way to do it. Yet if that trench was being bid to all the known trench diggers, chances are good someone would invent something quite efficient to help him get the job done quicker and easier. Government spending stifles that type of ambition, slows invention and progress. Not to mention, it's a zero sum game for the most part.
Okay, a while back I said that at "some" point, things would get so dire at the Treasury that they would impose rules that pension plans MUST buy our Treasuries. They would have to because no sane investor around the globe wants to lend money to Uncle Sam at the ridiculous rates he offers. So, in the past couple months, the FED has been buying between 40 to 80% of our own debt – but this isn’t enough. And just this week Rick Santelli hit the wires with this very discovery. You’re seeing the first steps towards Uncle Sam moving to capitalize on the trillions of dollars sitting in pension funds, by first "allowing" them to roll into a Gov't backed annuity (buying our treasuries) which I believe will be followed by a move to "make" them invest a certain percentage into the market.
Daffy: It's a lie. It's a lie. My name is Jack, Jack Rabbit.
Bugs: Oh, no. You're Jack, all right.
Daffy: I’m not. You're Jack.
Bugs: You are Jack and you know it, because it is a fact.
Elmer: I guess I'll have to open up with a pair of Jacks.
Finally, sometimes the baloney is so incredibly bizarre, that even the media can't get their arms around it. On Wednesday, while the big bankers were testifying to congress about how they saved the known world, we received this news blurb: “The White House this morning congratulates itself on last year's stimulus package. The stimulus package has allowed nearly 38M people, or one in eight Americans, to rely on food stamps.”
They say history doesn't repeat itself, but it sure can rhyme. My stance during this ‘bear market bounce’ has been that it’s stimulus injected, fiat currency manipulated, a Federal Reserve based run up – that MUST end badly.
My original feeling was that coming into the New Year, they'd move us up into earnings and they did. Now will the market move us up – past earnings – before rolling over – the jury’s still out on that one for me – and here’s why.
Elmer Fudd: Gaze deepwy into my eyes.
Bugs Bunny: Heh, Dracula.
Elmer Fudd: You are getting sweepy, sweepy.
[Bugs goes into his hole, Elmer sticks his head in]
Elmer Fudd: You are Asweep. Asweep and helpwess.
A Chicago floor trader remarked this week that “out of the blue” someone purchased 228,000 S&P e-mini future – and seconds later the market shook off it’s ‘funk’ and ran higher. The trader then remarked – “with that kind of Government intervention, the path of least resistance seems to continue to be up". So someone with substantial backing – goosed / manipulated the market and made it go up. And, if it weren't for that kind of back door dealing, it would be VERY simple to tell you that: "it's time to go short and buy long dated puts".
But, how can I say the 2010 run up is over, when it's still clear that Uncle Sam is letting the banks goose the market when ever it seems ready to roll over? At "some" point the collective running for the exits will overpower the dark pool stimulus that keeps getting injected.
I am just not ready to say ‘now’. We sold out all our short term positions this week, it seems to be a really good time to think thru the miners for signs of life. (Often when the market drops - gold and silver will go higher, and mining stocks might go with it.)
We sold out of everything on Tuesday of last week. I looked at ORCL on Friday but didn’t pull the trigger just yet. So, right this second, I am technically out of the market except for our brokerage accounts. Now, this is an interesting development on the heels of Intel beating estimates – so there is a ton of ‘secret selling’ going on in the background.
I might go right back into ORCL if it crosses 25.50 again, I like it.
We’re still buying hard gold and silver – fyi.
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Until next week – be safe.