7-27-09

Last Bear Standing
          
    Let's see how my crystal ball is doing, not to pat myself on the back as much as remind myself of some important mental notes; it's important to stick to your guns as long as the facts continue to support them.

    This from December 18th issue last year:

    "I think it will be a very choppy ride thanks to earnings scares, more scandal and profit-taking, but I think 2009 will see what could be a vicious rebound in stock prices. If not, it will be a first in history after such a drop as this year's. Companies that were doing very nicely before October but are now trading at half that price or less, will come soaring back. What could fuel this will be a round of mergers and acquisitions. Already I'm hearing the mainstream media talk about a "new economy". It's probably not long before they start talking about a "new bull market". An incredible amount of money will be made from this rise, but when the sell-off comes at the end of it, it will be fast and brutal taking the Dow down to levels lower than now. This whole process may extend into 2010."

    And this from the April 20th issue of this year:

    "If history is a guide, this bear market rally will continue through 10,000 eventually... before the final 'death drop' to somewhere below 5,000. Again, this will not happen in a linear fashion. There will be ups and downs to fool you in both directions."

    Finally, a little reminder to myself of something too easily overlooked by all in my own words from an issue earlier this year also:

    "A bull market wants to go up with the LEAST amount of people on its back. A bear market wants to go down with the MOST amount of people on its back."

    I should have listened to myself before somewhat prematurely announcing that this market would fall apart and I should have remembered the old stock market adage:

    "The market can remain irrational longer than you can remain solvent."
   
Silly me. I forgot that the stock market isn't driven by reality but rather the whims and hopes of the public.

    Well, this weekend I'd had just about enough of being the bearer of bad news. It was getting me down and besides, my readers want to hear happy tales (which is why the media keep feeding them to you).

    And so, I grabbed my son and we skipped off into the big wide world expecting the cool feel of "green shoots" under our feet and the view of shafts of sunlight bursting through dark clouds...

    We pulled up at the nearest movie theater plaza to see the new Harry Potter film and set off to the ticket stand. But as I walked, something felt distinctly strange in my field of vision.

    This is your typical retail plaza; a combination of shops, restaurants and cafes centered around the movie theater. Usually, it's buzzing with people because of it.

    Not today. Tumbleweeds blew by...

    Most of the outlets had closed down. I'm not talking about your mom and pop stores either; Marble Stone Creamery, Hollister, Dalton's to name a few, had simply vanished.

    It was like a ghost town, with a movie theater standing alone. This is going on across America. Give us your thoughts on YOUR local area here: info@leagueofpower.com

    I simply didn't understand. I want to be happy! I want there to never be any darkness, only light. This isn't what the newspapers and the talking heads on CNBC told me; it didn't look like a recovery out there on the streets. Those employees aren't spending money anywhere now. The business owners will probably lose everything. The mall owner is in deficit. The spiral continues.

    Not to be deterred from my blindly optimistic mood (it's become all the rage lately, you know), I hoped Harry Potter could offer me some excitement and escape. Alas, even poor Harry seemed intent on bringing me down with what must have been the dreariest episode yet.

    Dear reader, I'm trying really hard to join the herd and tell you what you want to hear. I'm honestly frightened that you won't want to listen to me anymore if I keep telling you bad stuff. I wish I could lie to you. I wish I could live in denial.

    Sadly, I have a conscience and must present you with the facts:

    Unemployment in America is now 10% even according to the obviously manipulated government statistics. Malls are closing everywhere. Families have stopped spending so much and have started saving ever so sharply. Residential and commercial property have still not yet leveled off even at the level of damage already done leaving many homeowners underwater or behind AND a whole new wave of ARM mortgage resets are in the pipeline.

    Obama and co's solution: bide time. Try to get people spending again by instilling confidence. Wing it until real estate values climb to stabilize banks' collateral on their balance sheets. Throw some money at the problem.

    The solution is seen as getting banks functional again so they can lend money so they've been the major recipients of government aid.

    So much so, that this week we saw a medley of impressive earnings reports from Wall Street banks that set the Dow Jones soaring. As if timed especially for the occasion, Treasury Secretary Geithner chimed in with an announcement that the recession is about over.

    Why was I and so many others so sure this would be the week that the market would come to its senses and get real? Because of a time tested technical axiom that NEVER fails (the head and shoulders pattern had broken down on the right 'shoulder'). Instead though, the Dow went parabolic. Not a slight zig-zag pattern like we usually see; a straight line up.

    Markets never move like this and this has manipulation written all over it. But who can blame 'them'- had this pattern been allowed to play out naturally, the market would have ended up at some terrible number lower than 6500 like we saw in March and it wouldn't have been pretty.

    But wait a second... I don't hear any fat ladies singing. This could still happen before the year is out and my bet is still that it will. Banks have had a one-off set of good results thanks to the taxpayer but they still have the credit card and commercial property disaster to deal with, not to mention the continuing decline of property values as the downward unemployment spiral continues.

    By the way, only 7% of the Obama stimulus has been spent; they're saving the bulk of it for next year- an election year. Obama isn't stupid.

    Still, it could be worse... you could be in Europe. In my view, the next big scare will come from the Eurozone. The European banks are in MUCH worse shape and most of all, the European central bank can't do bailouts like the US can; each country has to deal with it themselves.

    Why should you be bothered about Europe? Because of globalization. We're all interlinked now and what affects one affects others like a virus. Globalization is a double-edged sword and we're about to feel the bad side.

    What can you do about it? Well, you can make money by buying certain funds that bet on things like commercial property getting worse. SRS is one example.

    I want the good times back. I don't like all this misery. Two family members just lost their jobs (like all the other unemployed are these people going to drive stocks and real estate prices up??).

    I don't like it anymore than you.

    But sticking our heads in the sand and denying certain truths won't help. Better still, we can legally and ethically make money on the way down as well as the way up (a theme I continually repeat here).

    This recession may indeed have ended (though the vote is still out), but that doesn't mean things can't get worse and/or slip BACK into recession as happened as recently as 1980-82.

    Forget the so-called V-shaped recovery. Any recovery will be slow, shallow and fragile. Trouble is, the stock market is now priced for a trouble-free ride to the 'good old days'.

    Expect the Dow to take a breather now, but near term I see it rising further and we'll all hear the champagne corks at 10,000. I have to say, this impressive rally has scared the guts out of anyone betting on a fall and once again, I feel like mine is a voice alone in the dark just like during winter when I said commodities were a buy.

    One more old market adage to close on that note:

    "The turning point comes when the last doubter throws in the towel."

    Right now, I feel like that last bear standing.

    Until next time
  
    Mark Patricks

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