Thursday, April 16, 2009

Top Ten Reasons Market Rally is Confusing

Get your Friday night entertainment requests in. I have a feeling some relief will be needed tomorrow night.

Gold and Silver Thoughts
Loyal readers know I am a huge fan of both Gold and Silver. I was stopped out of my latest positions a little while back (first time ever) in Goldcorp and Kinross Gold for a minimal gain. It seems the miners never really took part in Gold's upside from around $850 to $1000 but rode the drop back down very hard to the downside. Quite a mess.

Today was another hit to both metals. While not a technical fan, the charts are not favorable and as long as this market rally has legs pressure is going to mount on the precious metals.

With an eye towards S&P 1000 and DOW 9500-10,000 I can see gold falling to the $750-$780 range through early summer, think July. Silver may see $8 in the same time frame. If those targets are met, I will be loading the boat on both through various channels, much like I did in the 2002-2003 time frame.

It kills me to write so harshly about my favorite market sector, but everything is telling me this is the way it will be. Not investment advice as usual, but a glimpse at MY plan going forward.

Top Ten Reasons Market Rally is Confusing
The current market run has many observers a bit confused, Economic Disconnect especially is included! Trying to assign reason to any real time market action is guesswork at best and foolish at worst. It is what it is.

In a David Letterman like manner, I will present the top ten reasons this market rally is confusing:

Reason Ten: The shadow world of "Quant Funds" is WAY over my head. Tyler Durden at Zero Hedge has some compelling data about volumes and market trades exploding among quant funds. This may mean something, or maybe not but either way it adds to a confusing picture. Latest quant post here and backtrack from there.

Reason Nine: Goldman Sachs reported great earnings (with some sleight of hand for good measure) and stated they really never needed government bailouts. JP Morgan was out today and one upped Goldman with the firm statement that JPM has NOTHING to sell into the new PPIP program. They did add that the program itself may be good for the markets, but again they do not need it. So what is the deal? Systemic banking collapse or over-reaction by the FED and Treasury? Who knows, but certainly it adds to the confusion.

Reason Eight: Every stock rising on any news and rising like crazy. See Liberty Media Corp through Slope of Hope today.

Reason Seven: Strange bull market behavior. Lifted this comment from an article over at Clusterstock: Professor says "Sustainable rallies "climb a wall of worry." This rally is climbing a wall of giddyness." true usually, but not this time.

Reason Six: Nouriel Roubini is getting little time on air and in print with his "We are in the middle of the recession" talk. I mean that is ultra bullish for that guy, and yet not much coverage.

Reason Five: After the Tech crash of 2000, nobody I know even mentioned stocks for over 3 years. Then they just talked about granite countertop 2x ETF's. Right now everyone I know is only talking about stocks and never stopped even after a 50% haircut. Bottoms tend to be more discouraging. Confusing again.

Reason Four: Ok, I will play "second derivative" and "green shoots" for a moment. If I submit that jobless claims are getting worse at a lower rate, what would be the area of employment that will make unemployment go down? Confusing indeed. Maybe less folks get canned, but they sure are going to be hard pressed to find other work!

Reason Three: If banks have turned the corner, did anyone notice the credit card loss estimates for JPM and Capital One escalating at an increasing pace? How's them second derivatives!

Reason Two: If banks were in such great shape last quarter, have they allotted for the huge wave of foreclosures set to pour in? Oh, remember that foreclosure moratorium from December to March? Yeah, it's over now. Get ready for some monster jumps in foreclosures. Will this matter? Not by the market reaction so far. Confusing again!

Reason ONE: Nobody knows how to price the markets. Some would have you believe that S&P 666 was the market pricing for the end of the world. So is S&P 865 only for kind of the end of the world? The banks are not all going to zero. But are they going to go up 20% a day forever? GM may or may not have a "surgical bankruptcy". The take home point is that prices right now are not tethered to anything and thus can go anywhere. This makes the rally, you guesses it, confusing!

Addendum: You simply must read The Automatic Earth introduction for tonight. Like, right now.

Have a good night.


watchtower said...

I'm praying for gold to get in the $700 range, if it takes the market going to 10,000 then so be it, I have friends and relatives that would love to be able to get out of the market at that range and I hope they get their chance.

I feel bad requesting songs all the time, I wish someone else would request one, sometimes that is how I find a new favorite.

getyourselfconnected said...

Put in an addendum to read the Automatic Earth introduction tonight. Wish I could put it all together like that!

Never fear! You know I will put up all kinds of wide ranging tunes. Besides, I like your requests. Maybe Lisa will ask for a NON-Beatles tune.

On gold and silver, I really hated writing my piece tonight. But then again this move in the market may allow me to really position myslef for the endpoint I envision.

Lisa said...

Gold may suffer because we are in deflation, with inflation timing uncertain. Without going over every great "reason" for the rally, know that after the '29 crash the market rallied insanely as well. Just don't look past that '30 rally :) or you'll have nightmares.
Great post, as usual, GYSC!

Lisa said...

Oh, forgot to mention, from the WSJ: The head of the US auto task force, Steven Rattner, is involved in a probe of an alleged kickback payments.

How many criminals are "in charge" right now? Hmmm....

getyourselfconnected said...

Maybe we need a "criminal Czar" to oversee all the failings of yet another entire subset of government.

Glad to hear from you Lisa, still have a tea bag? Great insight on the GD 1.0 action I had a chart up to that effect not too long ago.

Lisa said...

No tea bags :) I've been drinking so much tea I have a monster headache, though. If anyone is interested, check out the NRA and Pelosi and Obama are hell bent on restricting gun ownership. The bills are being proposed right and left, hoping something sticks.

getyourselfconnected said...

Tea holds a bunch of tannic acid, which in low doses helps in kidney function and as a mild antibiotic. Too much and it is a dehydrating substance, thus shrinking your dura mater over your brain causing a headache. Drink 2 glasses of water, read my blog, and all will be well Lisa!

Did you vist Boston on your journey?

watchtower said...

Hey Lisa how about taking GYSC up on his offer to request a song?
I know you have to have other artists on your faves list besides the Beatles (which I personally don't mind at all).

Anonymous said...

Hey all,

I didn't see any comments on the video I linked to, so what did everyone think?

What also amazes me is how much digital money is going into the netz.

Seriously guys the way things look like they will end up will ruin everyone not standing on the sidelines hunkered down in their bunkers.

The metals/market spot price is no longer relevant guys. My local dealer price is way over $100gold/$5silver spot and it shows how messed up things are.

Ammo is non existent and firearms have been driven up in price like I have never seen.

Heck, dinner tonight was outside of reality. $31 for fried fish and a salad. Yeah..... deflation .... I don't think so....

These are just my opinions but more and more I am becoming less interested in TV, internet news, papers etc... and running on people and real life examples to set my instincts by.

Refuse the lies and seek the truth.


PS: I didn't get that job I was seeking... time for plan B.

Lisa said...

Really sorry about the job, G.
Thanks for the advice, Dr. GYSC :) I drank water (with my Tylenol) I should know better than to drink so much tea :(

GYSC, about recent gold move: Spot Gold is lower by more than 0.20%, despite the declines being seen in US stock futures. In NY trading, gold closed down by more than $13 and some of the weakness was attributed to upcoming options expirations. During the prior session one trader noted that the lack of recent inflows into the gold market has weighed on prices and just today the SPDR Gold Trust ETF disclosed that its holdings declined by 8.25 tons, which was the first drop since April 3.

I have no song requests, just been listening to that Susan Boyle on YouTube. Amazing! Over 16 million views already. Look it up if you haven't already. Good night!

watchtower said...

I checked out Susan Boyle and all I can say is WOW, that lady can sing.
Thanks Lisa for making mention of her.

Anonymous said...

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”

Rather than continually buying small stakes in banks, weaker banks should be put through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Lynyrd Skynyrd-That Smell

‘Revolving Door’

“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”


Anonymous said...

Bank-regulating lawmakers in swing districts are reaping increased campaign contributions from firms most affected by their actions, government filings show.

Ya think?

ilene said...

Hi, is there a way to send you an email or can you send me one first?

Thanks, Ilene

Anonymous said...

Barney Frank's track record as a financial analyst is, shall we say, mixed. The House Financial Services Chairman said for years that a collapse of Fannie Mae and Freddie Mac would pose zero risk to taxpayers. For most people, a mistake of that magnitude would trigger introspection, if not humility. But not the sage of Massachusetts. He's cooking up another fantastic subsidy -- and like the last one, he swears taxpayers won't feel a thing. In his words, "it would cost the federal government zero." Uh oh.

With liars like Barney running this country who needs enemies.


getyourselfconnected said...

Wow, great comments section on this post, thanks to all!

Ilene, if I had an idea about what you would like to contact me about I would possibly be able to accomodate you.

Anonymous said...


david said...

good post!!
I think gold will be weak if the market rally continues.
gOING INTO 2009-10 I think currency instability may be a bigger driver for gold than the inflation/deflation argument.

Im currently reading this book - A Bubble that broke the world - by Garet Garrett.The book was written in 1932. Heres a few lines from Ch1.

'You have only to find a way to multiply your creditors by the cube and pay them by the square, out of their own money.The fatal weakness of the scheme is that you cannot stop
--Garet Garrett''

Lisa is right about the mega rally post the 1929 crash. By Apr-May 1930, the market was a very convincing sucker rally!

david said...

Sorry forgot to include the link
Bear Market Rallies