The Overnight Markets

Posted by Ray on August 23, 2009 under Markets | Be the First to Comment

Japan opened up significantly higher today, up 320 points, which is sure to boost US stocks in the AM, barring anything happening overnight. The reason for the rise in the Nikkei was because of existing US home sales increase on Friday and higher commodity prices, copper in specific. While the tail does not wag the dog, it can influence its initial opening as optimism is contagious.

The irony is that the housing sales data was not that great when looked at against supply and the shadow supply that the banks are holding. The fact that most of the other economic data is also rather disheartening which, frankly, should not be having the effect on the markets that it is having. The rally has reached a point of being utterly ludicrous. Do not confuse my pessimism as being upset that I am missing out on returns as I have done very well this year, but my pessimism is because there simply is no reason for the rally to continue.

Unemployment, real estate, both residential and commercial, is still a mess and other economic indicators are still very negative. Even if the indicators did turn decisively positive the market has already priced in 4% GDP growth which is not going to happen unless you know of a different set of economic numbers that I haven’t seen or heard of. I have said for some time that 3Q09 GDP will probably be good, but good as in a 1-2% growth rate. Keep in mind that most are expecting 2Q09 GDP to be adjusted down to -1.4% later this week.

I happen to think that we will get a negative initial claims report this week and the revision on 2Q09 GDP will come in worse than expected. If that happens then we are indeed in for a strong dose of reality with the stock market. The largest part of my 25% equities is Asian holdings, so I am glad the markets are going up, but I see little reason for those markets to be reacting so positive to our barely OK data. Their economies are definitely sounder than ours right now and posting positive growth, which is good, but I am worried that even those markets are getting overextended now.

The irrational exuberance shall continue into the early part of the week, but one must remember that the longer we remain overbought the worst the decline will be. By the time unemployment claims, the GDP revision and consumer spending are released I expect we will see some volatility. Just look at the leadership in the markets right now, AIG and Citi Group, two zombie companies, are a huge percentage of daily volume and helping push the markets higher.

One of the few things really helping the market is the fact that banks are not loaning shares to be shorted, but other than that there is nothing compelling to make me buy stocks. As I said before, I might miss a few points, but when the next black swan event happens I am more than insolated. An investor should be guarded if they are contemplating adding new capital to this market. There is also nothing wrong with taking profits, no one ever got hurt by selling a winning position. Good luck and think defensively in the near-term.

Big Gains Following Through to Asia

Posted by Ray on October 28, 2008 under Main | Be the First to Comment

Today Wall Street saw its second best point gain in history. The positive news carried over into Asia with their markets up pretty substantially for the second day in a row. Is this the end of the bear market? Not by a long shot.

While we were happy to see the almost an 11% gain in equities we were not pleased with how it happened. Just like on 10/13/08 we saw significant gains in equities, but the volume was so weak. The market rallied for a few specific reasons.

1. Mutual funds making year end trades, a very big deal.
2. Traders foresee an interest rate cut, which they will get, but they are expecting a .75 – 1% cut, some see a 1.25% cut. That speculation is being priced into equities today, it is clearly buy on the rumor sell on the news. We will see a .50 to maybe a .75% rate cut with the former more likely.
3. Short covering. When the market was up 600+ points with 15 minutes left to go the shorts started covering their positions. This creates liquidity and up tick volume – shorts don’t destroy markets crappy management does.
4. A typical bear market rally. During periods excessive downturns in the market we not only see wild volatility, but also dramatic rallies and selloffs. This was one of those rallies.

However, we did cross a couple of important bench marks today. The market crashed through the 8,500 and 9,000 mark. These levels are technically important, but they are also physiologically important as well. The important day will be tomorrow and whether the markets can hold these levels.

We expect to see some profit taking in the morning and wild swings throughout the day, yeah, we know really going out on a limb there. We fully expect to see a selloff tomorrow afternoon, but with the Fed meeting it could be another very good day. If they deliver a .50% cut then the market will selloff. If it is a .75% the market will probably stay flat to up.

There will not be any cut greater than .75% and it is entirely likely that we will only see a .25% cut at the end of the day which will send the markets into a free fall. This is all speculation at this point as futures are thinly traded at night and there are so many variables in the overnight markets.

We may have indeed hit the bottom, but the next couple of days will confirm that.

Asian Markets

Posted by Ray on October 27, 2008 under Main | Be the First to Comment

Currently the Asian markets are mixed with no real direction. Of course, they were trading flat last night as well with a surprise decline before trading ended. The US futures are trading higher at the moment, but as stated last night, that does not mean anything until they firm up in the morning.

We did see significant strength in the US markets today, but had selling at the end of the day. We predicted, the night before, that there would be a rally in the US markets, but changed our course by early morning. We were correct in both moves, a positive rally with a negative closing, or as close to correct as possible.

What happened today is not a good sign for forming a bottom. We are getting closer, day-by-day, to the lows of 10/10/08, 7,800 on the Dow, which will be the test of the lows. The Dow is in a definite downtrend at the moment making lower highs and lower lows. This is a sign that the decline is far form over and it is technical at this stage of the game.

We believe that the selloff is now way overblown, but it is not over by any means. After all the entire banking system almost went bankrupt this was kind of a big deal. We are seeing more bank mergers which is not surprising given the weakness in the sector and the abundance of government cash injected into the largest banks.

Consolidation will continue over the next few months to strengthen the banking system and end the blanket Fed guarantees, which they could not actually pay for if they had to. Inflation is not a concern as energy prices, which was the major cause of inflation, have subsided with some estimates of the price of crude dropping to $20 a barrel, unlikely, but we can hope.

This will lead the Fed to cut interest rates as other countries have already done. a 50 basis point cut is definitely in the works, possibly 75 or 100, but 50 basis point is a certainty. This needs to be done and we thought it would have happened a couple of weeks ago, but the Fed decided to guarantee the banking system instead.

We expect to see the markets open higher in the morning based on what we see tonight, but the end of the day close is unknown, obviously. We expect to see the same volatility tomorrow as we have seen over the past few weeks. Right now fund managers, hedge funds and pension managers are still building cash positions for redemptions that are still coming.

There is still a 15 to 20% decline coming as the technical indicators are still pointing in that direction. Caution is important for those looking to buy stocks right now.

Reverse of Position

Posted by Ray on under Main | Be the First to Comment

Well, last night certainly took a turn for the worst in the overnight markets. We saw steep selloffs in Asia and Europe. While we think there is a strong chance of a rally today we are leaning more towards weakness by the end of the day.

Futures are showing a modest decline, but they were also limit locked down on Friday, but the major selloff never materialized. We know the one day major correction is coming as it needs to happen before the markets can recover. There will be a fools rally coming, but it just may not happen today.

As the charts start to create a base it is clear that a major market movement is coming, either up or down. We tend to see it more towards the downside at this point in time. However, long-term things will be OK, but we need to endure through these bad times first. If you hold cash then keep it in cash or dollar cost average in as we have been advocating, 2 – 5% at a time, never put it in all at once unless you have a 20% plus selloff.

Talk to you midday.

Asian Markets

Posted by Ray on October 26, 2008 under Main | Be the First to Comment

The Asian markets were mixed with the Nikkei trading flat, but China and Hong Kong are down about 3 and 4% respectively. The US futures are volatile, which is not uncommon in overnight trading, but showing a small loss at the open for the US.

Korea did cut interest rates by .75% which is a first emergency cut since 9/11/01. This shows continued world wide efforts to try and stop the pending global recession. These efforts will have some impact, but will not stop a recession.

As stated before, Asia is an indicator of how deep the recession could be as they are our manufacturing center. With the Nikkei at 26 year lows there is major pain heading our way. While the events we have right now are unprecedented and the emergency measures may stem much of the pain it is clear that only time will tell whether these efforts will have worked or not.

The times we live in right now are historic. We staved off the complete insolvency of the world banking system, which was a very real situation on 10/10/08. The world almost went bankrupt, it was that severe. However, the governments have stopped a potential major depression, but we still face the toughest recession, borderline mini-depression, is still on the horizon.

In the meantime, we expect, obviously, choppy trading in the AM and a relief rally by the end of the day. Of course, this is speculation, but indicators point to some strength in the markets, for a change. We could see a dramatic rally in the near future, perhaps spectacular like the 900+ point rally on the 13th. We recommend selling into that strength when it happens as you will be able to buy stocks cheaper soon after that potential rally.

These are the times when variable annuity living benefits are earning their “high” cost. All the pundits who said they are too expensive and recommended index funds instead should all be fired. They are flat out wrong, unless 40% declines in portfolios are a good thing…