Tuesday, September 29, 2009

On the edge

Greetings good citizen,

Mr. Market had a bang-up day…what you’re not seeing here is that the market highs were considerably higher before today’s closing bell…I’m sure we won’t have to look too hard to find a pundit that will brush off the end of the day drop as ‘profit taking’…

So, does everybody have their ‘beenie copter’ ready to blast off when the market breaks back into ‘five digit’ territory? (You can bet some of the freaks on the trading desks are already counting their holiday bonuses…even though there’s still another three months of the year left to go…during which time the markets ‘could’ turn around and hand it all back.

I mean, doesn’t it seem strange that the stock market is going up for no apparent reason? Even though the ‘rally’ is five months old, the ‘transports’ don’t ‘confirm’ (verify) the market’s performance…in fact, what was so ‘wonderful’ about today that the Dow tacked on 150 points? (You can be sure most of it turned up in the financials…with the banks buying their own stocks!)

Like the plot of every good novel, we need only ask Who profits?

Creeping Up to 5 Digits Yet Again

Published: September 28, 2009

It is only a number — the stock market equivalent of an appliance chain’s millionth customer, or the gazillionth hamburger served at McDonald’s.

The electronic board of the New York Stock Exchange on March 29, 1999, as the Dow passed 10,000 for the first time.

Still, the Dow, which closed up 124.17 points, at 9,789.36, on Monday, is within reach of 10,000. Who would have thought? [Perhaps more succinctly we should ask ‘who believes?’…and the answer, quite naturally is, who profits?]

At the depths of Wall Street’s crisis, when traders were despairing and shares of Citigroup were trading for just over a dollar, Dow 5,000 seemed a likelier prospect than this. [Don’t look now but the Dow dipping below 5,000 isn’t out of the question, not by a long shot!]

But now, one of the most-watched measures of the financial world is on the cusp of jumping back to five-digit territory. [Before the main indexes slid to 6,000…they first bounced off 14,000…think about it.]

That does not mean the economy’s problems are over, or that 401(k)’s are going to be made whole anytime soon. In fact, this milestone could even stall the rally if enough investors use it as an opportunity to cash in their gains, analysts say.

But a big round number is often seen as a way of assessing the market’s health, and whether it has enough juice to climb much higher. [Ironically, it is also a way to suck in a bunch of idiots who have no idea what they’re looking at, remember, the transports are not ‘confirming’ this rally.]

“Will 10,000 make a difference to some people?” said Stuart Freeman, senior equity strategist at Wells Fargo Advisors. “It’s psychological, but if enough people act on it, it’s meaningful. The higher a market goes, the more that those on the sideline sit there and are concerned they’re missing something. It takes a while for their fear to wear off.” Indeed, investors who pulled out of the market as Wall Street crumbled would have missed a Dow that has rebounded more than 3,000 points in seven months. The Nasdaq index is up 35 percent since the start of the year, and the Standard & Poor’s 500-stock index is up more than 17 percent.[How strange is it to point out that people who miss out on a ‘sucker’s rally’ will end up ahead of the game?]

Some of the recession’s biggest winners are again flying high, with stocks like Goldman Sachs closing at $182.50 a share. JPMorgan Chase reported nearly $3 billion in quarterly profits this summer. Shares of Apple are flirting with record highs. [Even though sales are off…high prices on ‘solid’ stocks only speaks of a dearth of ‘sound’ investments.]

Much of the run-up has been fueled by signs that some corners of Wall Street, helped by Washington’s taxpayer lifelines, have returned to functioning almost normally. Corporate mergers and public stock offerings appear to have rebounded in recent weeks, pulling the market higher. Short-term loans are flowing. Companies with better credit can again raise money without paying huge risk premiums. [More ‘mis-direction’ as we’re talking a hand-full of companies at best.]

Yet the Dow at 10,000 could also herald a pause in the white-knuckle rally. [Curious term, no?]

Analysts are divided about whether the stock market is overpriced or underpriced now, but stocks have gotten much more expensive since the main indexes hit their lowest points in a decade in early March. A share of Bank of America, which was selling for a little more than $3 in March, now costs $17. Shares of the American International Group, the corporate image of the financial crisis, have surged sixfold, although the price is still a small fraction of what it was before the government rescued the company. [Worse, most say AIG will never be able to pay back the government ‘loans’ once the choice parts of the company are sold off to competitors at ‘favorable prices’.]

And even if the recession is technically nearing an end, 15 million people are still unemployed, and stagnant incomes and higher rates of personal saving could reduce corporate revenue growth to a trickle for years to come. [So why is the Dow rallying?]

Then there are the potential new waves of mortgage foreclosures; fresh losses in commercial real estate; consumer defaults on credit cards; and the possibility of another bubble in oil prices, all of which could prevent markets from enjoying anything like exuberance for a while.

“The bottom line reality is, it’s still an economy that’s in the midst of a major change,” said Bill O’Grady, chief market strategist at Confluence Investment Management. “The real debate that underlies the Dow 10,000 story is the raging debate about what is going to be the form of the recovery.”

The enthusiasm over that round figure is now a decade-long phenomenon. Consider this: President Bill Clinton was in office when the Dow Jones industrial average first closed above 10,000 in March 1999. It retreated in the years after the dot-com bubble deflated, then retook 10,000 in late 2003 and peaked at 14,000 in October 2007. We all know the cataclysm that followed. [The market wasn’t ‘realistically’ priced then…nor is it ‘realistically priced’ now.]

So Dow 10,000 does not mean that the market is finally edging ahead; it is simply catching up to where it was a decade ago. “It’s been a bad 10 years, a really bad 10 years,” said David Bianco, chief United States equity strategist at Bank of America/Merrill Lynch. [Um Bobo, we’re only 2 year away from when the Dow hit 14,000, what ’10 years’ are you talking about? Or would it be more correct to ask if Earth is the planet you wake up on ‘every day’?]

The constant march of inflation also dilutes the meaning of 10,000. Prices rose an average of about 2.8 percent each year in the last decade, meaning the Dow would have to reach about 13,200 in today’s numbers to equal its value then. If this limbo seems dreary, imagine spending the next decade talking about Dow 10,000. [While ‘non-existent’ inflation keeps pushing the ‘true value’ higher…]

The Dow first closed above 100 points in 1906, when Theodore Roosevelt was president and American Car and Foundry and National Lead were members of the index. And it did not go much higher from there. It was still trading close to 100 as the 1920s began, then spiked at the end of the Roaring Twenties. But it crashed during the Depression, and was once again hovering around 100 as the United States entered World War II.

In 1966, the Dow came within 20 points of hitting 1,000, then fell off sharply. The stock index kept bumping its head against that threshold for more than 15 years as the American economy endured high inflation, oil embargoes, price controls and regular swings in the stock markets.

Not until 1982 did the Dow move decisively above 1,000. [And we can only wonder why…]

“You can spend years around a particular milestone,” said Tobias Levkovich, chief United States equity strategist at Citigroup. “I’m not talking about a year or two. I’m talking about way more than 10. They’re not short-term phenomena.”

The New York Times ran a front-page article about the Dow’s first trip across the 10,000 marker in 1999. This article is being written in September 2009. Investors should hope there will not be a similar article in 2019.

There are several disturbing aspects of the Dow hovering in ‘striking range’ of the 10,000 mark again, prime among them being the transports…the transports are not ‘confirming’ this alleged ‘spike’ in economic activity.

Letting these numbers climb unchallenged only enriches the shareowners…at the expense of the workers…add to that the extreme high likely hood that it is taxpayer ‘bailout funds’ behind the rally and we really have a beautiful case of privatized profits and socialized losses…

But like they say in the intro…it’s only a number…

Thanks for letting me inside your head,


No comments:

Post a Comment