Tuesday, April 28, 2009

Lower Prices are Inevitable.

"Recovering Economy".."Healthy Financials".."Government Stimulus".."Housing Stabilization"

..These are the words currently being used by everyone in the main stream media.

"Unavoidable".."Inevitable".."Greatly Underestimated Risk".."Overly Optimistic Assumptions"...'Next Down Cycle Of Credit Destruction".

..These are words to describe what I see happening over the coming months.

I just don't see the logic in thinking and assuming that after $20 Trillion in Global Wealth that has been lost, that suddenly after just 10 months worth of pain - we are back to business as usual. It cant be all that easy? Can it?

We are now past the 100 day mark of Obama's Presidency, and all I have been hearing is what a great job he has been doing. The media's love affair with Barack Obama (I Voted For Him BTW), is truly mind boggling. Sure, he has been efficient, thoughtful, and is a brilliant thinker, but lets get real, $3 Trillion in stimulus has not nearly stabilized the banking system, and the economy is not showing any signs of getting out of its funk. We have millions in job losses, housing prices are set to hit another round of declines after the banks begin to foreclose once again, credit is still deteriorating, and the banks are still insolvent, regardless of what the Stress Tests say. Any talk to the contrary is pure fiction and not based with respect to reality.

The S&P 500 is up over 30% since the March lows, but down 46% from its highs. This market has been dominated by the short/sell side community for the last 16 months or so. They forced the market down to levels not seen in decades, then had to cover their shorts in the recent rally. There has been not a single statistic that leads me to believe that Institutions, Pension Funds, and large investors are back in this market. Just look at the recent cash and money market levels, which have barely moved.

The recent gains in this market is based off of the faulty and erroneous earnings results stemming from the one time accounting gains that the banks were able to use to inflate profits. There are no more rabbits for Wells Fargo, BOFA, and JP to pull from their hats. We will see serious credit quality issues in the coming months.

All is not that bad....

What is nice to see is that the NASDAQ (As Previously Predicted) has shown some serious leadership as earnings reports from the likes of Intel, Apple, Amazon, and RIM have that index vastly out performing the broader markets. This will continue as investors focus on healthy balance sheets and predictable, stable, and real earnings from tech land. It also helps that technology companies like IBM are actually buying back shares in this market.

2 comments:

  1. The rally in banking is truly shocking. The "profits" they recently reported are all accounting smoke & mirrors. Not even standard tricks, but rather one time special profits they could book on the value of LOSSES. I truly hoped Obama would be the man to break business as usual in Washington, get away from entrenched interests and do the right thing.

    Looks like we'll have to wait until next earnings season to expose the banks...

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  2. To many people short the banks. That trade was over crowded. The snap back rally though is over extended.

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