Wednesday, October 27, 2010

26 October 2010 Go Easy On The Easing

BAGAKOAA; 26 October 2010 Go Easy On The Easing

Hey it was a whacky day in the market today. We have had a chance to unravel all the whos, whats, wheres, whens, hows, and whys of what might be happening. I’d have to say one of the best summaries and explanations for the initial pull back today came from our buddy Mr. Cramer. After reading the Credit Suise Report, and The UBS Research, The Schwab after makret alert, and all the pundits on line and on the air, Brother Jim did his usual succinct hit piece today entitled “10 Reasons Why A Pullback Makes Sense Now.”

His first point revolves around the fact that many pro business people are expecting really big wins for the republicans next week. They will have a lot of wins, but not enough to create a pro business Nirvana. We will have a typical dysfunctional congress and senate. At this state of the game with trillions at stake that is not necessarily a good thing as even I was suggesting a few months ago.

His next point was and it was really played up today, that with the SSSSLLLOOOWWWLLLYYY improving economy (yes I am ignoring the big bad scary liar loan mortgage issue about to bite us in the balance sheet) QE II aka QE 2 is going to end up being a paper tiger as there seems to be disagreement amongst the Fed presidents as to duration and size of the easing. Originally estimated 500 Billion then talked up to 1.2 trillion is now down to 40-50 billion for several months. Chances are it will be much less than anticipated and the big numbers have already been factored into the equity pricing and some bond adjustments.

His next point is an obvious one. How long can you keep the arrow on the indexes going up and to the right? Look at any interactive stock chart and look at the Dow or my favorite the S & P 500 and start the chart on or about September 9th. Mmmm someone called that the beginning of the next rally, mmmmm. OK, August 30 makes the chart look prettier, but the point is the market is up about 13% in two months and this is spooky bad things happen October. Do the math that is 78% annualized.

Then he cited a few stocks that were surprise underperformers of late, but I have stretched the limit of plagiarism for the night so I won’t spell them out.

He then wisely explains that big cap industrials with International exposure (Think CAT or UTX oops mia culpa Jim) benefit from a weaker dollar which is the goal of QE II. If it gets weakened and the economy stabilizes and we have a non majority congress and senate, we are doomed to have a long term GDP growth if 1.2-2% over the next 10-15 years. Sound familiar. That reminds me I have had sushi in a while.

Then he throws out a wiggler hoping for a poor day today before the jobless claim tomorrow so a 7 day bubble does not get burst by a weak jobs number. Now he does not go as far as to throw out a guess so let me take a crack at it. The 4 week floating average is 458,000 new claims. Last week the adjusted figure was 452,000. The estimate is 455,000. Companies are still waiting to see the election tallies and figure out how much new hires are going to cost. Cities and states are going broke by the hour dumping employees, look for a disappointing jobs figure. Initial claims will break 460,000. Watch you stop order boys and girls.

He acknowledges as we have mentioned here that put/call ratio and investor sentiments are getting white hot. To Quote Warren Buffet (again), “Be greedy when others are fearful and fearful when others are greedy.”

He then gives several examples of recognizable names that have had recent put cover buys which basically means hedge fund managers (big bucks) have to stop their put option shortages by buying the underlying stock driving the underlying stock up. You sometimes hear this called a short squeeze. Needless to say it artificially inflates the value of the stock somewhat.

He closes with what I mentioned earlier that October is good bear hunting season but we have caught our limit in the month with some of the most devastating corrections in the history of God. A little dramatic, but you get my point.

In summary, we would suggest that we and you do not know what the next week or so will bring. We have all seen a lot of upside in the last 2 months. Keep in mind the 10 year Treasury is still at 2.6% or so and getting twice that figure annually is a special feeling. I know many of you have seen 7,12, 15 and 20+ percent in the last few weeks. Consider patting yourself on the back and generate some tax revenues to help pay down our huge deficit by taking some money off the baccarat table. If and when the correction comes in the next week or so, get back on that bad horse and ride the balance of this rally into the Q 1 2011. Here is what we have done in a few positions. I’ll give details later this week. If you are up more than 20% in unrealized gains on a position, consider pulling 20% out. It really is that easy. You just have to take your insecure prideful greedy mind out of the decision making process.

A quick thanks to so many of you who have taken the time to complete my quality control survey, especially those of you who were clairvoyant enough to reply before it was sent out. I really do appreciate it and the message is load and clear, you all like the pictures.  The rest of ya, I'm waiting?

We are not posting a picture tonight. Tonight I am going to take a lesson from the Honorable Colonel Tom Parker, who after 1960 never let Elvis ever do an encore (he actually did a few in Vegas but not many). He often said to Elvis, “Always leave them wanting more, son.” But like Elvis would say on those occasional nights in Las Vegas, “We don’t give a damn what the Colonel says.”

"Is is is okay baby just pull on my finger, ain't nothin getting out this leather suit."
Salve Lucrum


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