This week in Barrons - 1-31-10

This Week in Barrons – 1-31-10:

Thoughts – “I believe that our President will someday make this country what it once was... an arctic wilderness.” …Steve Martin

I have no idea what President Obama is going to point to as being a success:
- Coming into office the unemployment rate was 7.7% - it’s now 10.2%
- Coming into office the public debt was 10.2 trillion – it’s now $12.6 trillion.
- Coming into office foreclosures were 274,399 – they’re now 349,519.
- 2009 produced the largest deficit in our entire history
- in 2009 Bankers posted their single biggest profit levels EVER – AND Sam’s Club recently laid off another 1,100, VZ another 10,000 jobs.
- There is no healthcare, no cap and trade, we’re still in Iraq and we’ve added another war in Afghanistan!
- Obama told us that his administration would be completely open – yet we don’t even know how the TARP transactions were paid out.
- Last month existing home sales fell 17% - the largest drop in 40 years.

“Boy, those French: they have a different word for everything!” …Steve Martin

All we did over a year – was:
- spend money we don't have,
- help out Obama’s banker buddies,
- push through things no one wanted, and
- NOW we are in worse economic shape than when we started.

“You know the President’s problem is, it's that he hasn’t seen enough movies - all of life's riddles are answered in the movies.” …Steve Martin

Now, is that because Obama had a lot of great ideas that went wrong, or was this the original plan? Obama ran on a platform of making the tough choices:
- The tough choice would have been to let the big banks fail, and let the hundreds of well-run Regional banks take over.
- The tough choice would have been to tell AIG "no thanks" and let Goldman take it on the chin.
- The touch choice is to declare a ‘freeze’ on the entire budget – not just 18% of it (if that). And - how do you have a stimulus and a freeze?

“Well, excuuuuuse me, Mr. President! We are the wild and crazy guyz!” …Steve Martin

And thank you Mr. Bernanke (who was just re-appointed this week) for your insight:
- "Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited," …Dr. Bernanke, May 2007
- “It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions." …Dr. Bernanke. October, 2007
- “I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." …Dr. Bernanke, February, 2008

“I believe that sex is one of the most beautiful, natural, wholesome things that money can buy.” … Steve Martin

So you ask: “How did GDP increase by 5.6% in the 4th Quarter?” Most companies in 2009 were simply selling existing inventory and NOT replenishing it. Well, according to Uncle Sam – a ‘SLOWDOWN’ in inventory growth is viewed as an increase in actual economic growth (GDP). So removing that 3.4% depletion of inventory - you’re left with 2.2% growth – and that will be whittled down with "revisions". Oh, the Government stimulus IS included in GDP calculations – wonder if that is more than 2.2%?

“Don't have sex – it leads to kissing and pretty soon you have to start talking to them.” …Steve Martin

In my view what we’ve seen from March ‘09 to last week is NOT a bull market – but rather a bounce in a massive bear market. Most bear markets are punctuated with runs of 40 to 60% that seem to prove to everyone that the pain is over – then they sink even lower.

The Market:
How has the market taken all the news this week – honestly, not so well. How many times have you heard me say: "The market doesn't belong at these levels." If the market was a true reflection of the economy, we'd have the DOW at 7500 as we speak, and on it's way to 4500 over the next couple years. There was never any question in our minds that the market was going to roll-over, it was simply a matter of when. As the 2009 run up began getting long in the tooth, and every time the market looked ‘vulnerable’ - “someone” (wink-wink) stepped in and purchased 280,000 S&P futures, and with the stimulus and bail out money not being lent, but being put to work in the markets, there was (honestly) no telling how far they ‘elite’ could push this rally.

When we hit that high a couple weeks back – we sold out of all our positions except our 401K – and we began to sit on our hands. We didn't go short, simply because with all the crosscurrents, and "free money" sloshing around from the Fed, we didn't want to get it tossed back in our face with another blast higher. But what is different about this ‘sell-off’ is the fact that we can't even manage a silly bounce. The market has blasted thru support at 10,500 and then at 10,200 – and is left with defending 10K as the last bastion of hope.

“A day without sunshine is like, you know, Night.” …Steve Martin

Now, I think they are going to make a bigger stand here at 10K – but I’m not looking for ‘higher highs’ – but potentially a 300 to 400 point bounce. And, if we get it – I’m going to sell out of my 401K’s and start loading the boat on shorts and puts. Because even if we bounce for 500 I think that we'll see 9500 soon. In the short term we have become oversold – and at some point the market will reflex snap back a bit.

TIPS:
We sold out of everything except our 401K – and we’ll do that on the next bounce – honestly. I think ‘shorting and buying long term puts’ is almost upon us.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/