Melt up?

Every once in a long while the market tone gets very bearish and individuals and institutions become so cautious they maintain a very defensive portfolio and carry lots of near cash positions rather than stay fully invested. Sometimes the market then begins to rise for no apparent reason. Usually descriptions like bear market rally, or correction, or pause are used to explain the action and not many jump on board the upward move. But the market keeps crawling upward and institutional fund managers find themselves underperforming the market for a quarter. Then for a part of a second quarter they still stay out they fall further behind and start to get a little nervous, but earnings season is coming and the market moves a little sideways. The fund managers are reassured the bear will resume or at least weak earnings will give them a sharp correction they can use to get on board.
But lo and behold the earnings period doesn't break the market and a crappy GDP number not only doesn't break the trend but buyers drive the market up sharply and a month in to the second quarter these fund managers really are way behin with less than 8 months to catch up and get ahead of the market. Now jobs are on the line. Soon the "Melt up" begins. An overbought overstretched rally turns into a frenzy as fund managers capitulate on their bearish ideas and buy in with waves of panicky buy orders. The market shoots far further than is justified in a fairly short period of time till the funds are more properly positioned for and up move. And just as suddenly the bull is over, vanished, gone like the wind. The bear resumes.
In 35 years in the market I have seen this once or twice. I think we may see it again very, very soon.
Be careful out there!

New York magazine: A nice article on the view from the other side.

New York : The Wail of the 1%

Shortly after 1:30 on the afternoon of March 18, two dozen traders in AIG’s financial-products division stepped away from their Bloomberg terminals and huddled around televisions to watch their boss, CEO Edward Liddy, testify before Congress. There was much at stake. These were the people who received the greater part of $165 million in “retention bonuses” that had suddenly become, to borrow a phrase, toxic.  cont'd

Jeff Saut: Weekly

from Raymond James weekly commentary
Jeff Saut is always worth reading.

The call for this week: Last week the D-J Transportation Average (TRAN/3137.76) rallied to a new reaction high. Unfortunately, the D-J Industrial Average (INDU/8076.26) did not. Whether this upside non-confirmation is meaningful remains to be seen, but at session 35 in the upside skein we are pretty cautious. Moreover, as the astute Dines Letter observes, “April has been a month with a pivotal reversal of the March trend 67% of the time since 1963; and, at least a semi-important Top has been reached in virtually every April or May since then.” Consequently, while we don’t think the old stock market “saw” of “sell in May and go away” is going to play in 2009, we do believe the trick from here is harvesting trading profits and hedging some of your investment positions using various option strategies. As for that piece of bad news that comes out of nowhere, which breaks the back of the buying stampede, that we have been warning about. Well, we may have just gotten it – swine flu.

Credit Card issues have the administration's full support.

from Think Progress ;

Larry Summers falls asleep during Obama’s meeting with credit card executives.

One thing to note is that Summers appeared to be nodding off near the beginning of Obama's remarks. And then he DID nod off, doing the head on the hand and then head falling off the hand thing. Photogs seemed to be having a field day. All other officials in the room appeared fully awake.



PS. This is not fair to Mr. Summers but it is just too good to pass up.

Treasury Bond yields and tipping points - Whither goest Yield?

from EconompicData :

Ten Year Yields: Higher or Lower?

This is a good bull case or bear case article linking to Across the Curve and Zero Hedge

Donald Coxe weekly commentary for April 17 2009

conference call link

Bespoke: On Corporate Credit Spreads

These spreads are a very good temperature gauge of sentiment about the economy. Right now they are negative but improving. A move back to normal will be very profitable for the courageous buyer of corporate debt, especially high risk debt. charts courtesy of Bespoke.

Taleb on a Black Swan proof world.

Good artice by Nassim Taleb from Fullermoney

Ten principles for a Black Swan-proof world:
      1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks - and hence the most fragile - become the biggest.

read the rest here.

Thanks to Jim Paulsen.

I received the Monthly Perspective from Jim Paulsen at Wells Capital Management and had the great pleasure to read the following portion:

Many believe traditional economic policies have not worked in this crisis. However, despite potential mistakes made by U.S. policy officials (and each will painstakingly be studied for years to come), its resolution is nonetheless finally emerging “because” ofpolicy official actions! Wall Street has stabilized since November only because of massive monetary, interest rate and fiscal stimulus introduced since last summer!
Since last August, the real M2 money supply has risen at a postwar high annualized growth rateclose to 20 percent! Short-term interest rates have been driven essentially to zero! The yieldcurve has been spectacularly steep! Mortgage rates have plummeted to at least a four-decade low!Finally, federal deficit spending in the seven months since August is in excess of $900 billion!
Despite widespread perceptions these policies were not working, within three months, these massively stimulative economic policies began to stabilize Wall Street in November. And even though policies often take as much as a year before they begin to show noticeable impact on the economy, signs of economic stabilization are already emerging.

I have been pontificating to the young guys at my firm in my role as macro strategist that the media was contributing to the problem of pessimism by demanding immediate results from monetary and fiscal stimulus. Always in the past the rule of thumb was monetary stimulus took 6 to 12 months to produce any real results and therefore no one should even expect to see much from all those programs until at least March and probably a little later. So I continued, don't expect much good news till then but some surprises should begin to occur around the end of the first Qtr giving us a chance of a rally.
I have been expecting this to be a big point of conversation around the forecasting crowd but until Jim's report I had not heard a single mention of this issue. Times have certainly changed. I guess we really have become an instant gratification society.
You can read Jim Paulsen's report here, please note I will not be posting Wells Capital Management reports here since you should be contacting the company for these, but, since I quoted it and Jim is an analyst I admire I am posting just this one.

Prieur du Plessis: Commodities have turned the corner

A fine overview of conditions with commodities by Prieur du Plessis at Investment Post Cards From Cape Town. interesting charts included.

Blodgett: Earnings Recovery Could Take 20 Years

Clusterstock:

Over the long haul, stocks track earnings (the 10% market return over the past century was composed of 2% real earnings growth, 3% inflation, 4% dividends, and 1% multiple expansion). It therefore makes sense to get a sense of how fast earnings are likely to recover once this depression ends. contd.

This is good news but it should have been done 5 minutes after the Navy got there.

from CNN:

Hostage captain rescued; Navy snipers kill 3 pirates

MANAMA, Bahrain (CNN) -- U.S. Navy snipers fatally shot three pirates holding an American cargo-ship captain hostage after seeing that one of the pirates "had an AK-47 leveled at the captain's back," a military official said Sunday.

From now on we should ask once politely and if nothing good happens give the firing orders. Criminal types world wide should have nightmares if they even think about crimes against an american. A "you don't tug on superman's cape" sort of thing.

Five Banks That Don't Suck : Slate magazine

Slate:

Answers to your questions about the news.

Five Banks That Don't Suck

A guide to financial institutions that are doing just fine, thank you.

A nice article on some pretty good banks that avoided the problems in subprime and credit default swaps. However , if you are looking for sound banks go Canadian. The smash up in oil led to a hard drop in the value of the "loonie" the canadian dollar and also a hard hit to Canadian bank stocks. Even though the Canadian banking system is probably the soundest in the world due to sound regulation that was actually enforced. Recovering oil prices should help the currency come back and allow the equity market to improve taking pressure off prices of the many very sound banks in Canada.

Pretty soon you are talking real money.

What does one TRILLION dollars look like?

One more thing President Bush did and never got credit for.

from Bloomberg

President’s Emergency AIDS Plan Saved 1.2 Million in Africa

April 6 (Bloomberg) -- The largest U.S. foreign aid program fighting the AIDS epidemic has cut the disease’s death toll by 1.2 million from 2004 to 2007 in a dozen hard-hit African countries, researchers said.

The President’s Emergency Plan for AIDS Relief, started by President George W. Bush in 2003, lowered the AIDS death rate on average by 10.5 percent a year in those countries, said study author Eran Bendavid of Stanford University in a study published online today in the Annals of Internal Medicine.

Schumer shows his ass again.

from the WallStreetJournal:

New York Sen. Charles Schumer on Sunday unveiled a plan to introduce legislation banning the resale of concert and sports tickets until two days after they first go on sale to the public, the latest example of ongoing wrangling between the politician and Ticketmaster Entertainment Inc.

So in the middle of a real financial crisis this is how Schumer spends his time. I believe it is about time the voters chuck Schumer out of office. What a cretinous blow hard the guy is.

Where Is Austin Powers When We Need Him?

Gateway Pundit points out this article above The Sun.

300 cities to hold Tax Day Tea Parties

and the number of cities is growing. Hat tip to Instapundit

look at this map for the cities

TimesOnline: Barack Obama fails to win Nato troops

TimesOnline headline:

Barack Obama fails to win Nato troops he wants for Afghanistan

Barack Obama made an impassioned plea to America’s allies to send more troops to Afghanistan, warning that failure to do so would leave Europe vulnerable to more terrorist atrocities.

But though he continued to dazzle Europeans on his debut international tour, the Continent’s leaders turned their backs on the US President.

Gordon Brown was the only one to offer substantial help. He offered to send several hundred extra British soldiers to provide security during the August election, but even that fell short of the thousands of combat troops that the US was hoping to prise from the Prime Minister.

Just two other allies made firm offers of troops. Belgium offered to send 35 military trainers and Spain offered 12. Mr Obama’s host, Nicolas Sarkozy, refused his request.

I would like to suggest that President Obama pay for the extra Afghanistan troops by reducing the U.S. contribution to Nato by the amount needed to fund the deployment of those troops. Nato had a usefulness once but no longer. The U.S. should withdraw and have a treaty with the UK and new democracies of Eastern Europe. Does anyone anywhere actually believe mainland europe would support the U.S. should some conflict emerge overhere. Furthermore, it may be time for the U.S. to present an inflation adjusted bill for the cost of World War II in the european theater. Western Europe has been free riding on the U.S. defense department for more thanhalf a century. Let's face it,Sarkozy, Merkle and others consider us an opponent now not an ally. We need dismantle our rigid state depaartment and decide who is really an ally that we can count on. Remove all spending and defense commitments to those who are fair weather allies only.

A good early season baseball article at The American

The American: What Moneyball Missed

The only problem was that Lewis’s explanation for the A’s success was the same as Commissioner Selig’s—the team was an aberration. Since “most every other team looks at the market pretty much the same way,” as Lewis explained, if every team tried to exploit these same inefficiencies, then no team could. The market would correct, and the most valuable players—i.e. the players with the attributes most likely to produce wins—would be bought by the wealthiest teams. The championship would be for sale again.

But it isn’t. Moneyball missed something. That something is known as the reserve clause.

I would like to hear what Michael Lewis or Talmadge Boston think of this argument. Also I am in the middle of and really enjoying Talmadge Boston's latest book "Baseball and the Baby Boomer"
.

Head up, eyes forward, this too shall pass

This chart from Bloomberg is of the total value of world stock market capitalization. This means the value of each share of stock of every public company added all together. The high was 10/31/2007 at 62.6 Trillion dollars and the low on 03/09/2009 was 25.6 Trillion dollars. This is a loss of 37 Trillion dollars of value in a year and a half. Assuming roughly 5 billion people on the planet that is $7000 per person, a staggering sum of money and financial damage. The markets have to bounce back from the lows by 150% to get back to the highs. That isn't going to happen quickly. But it will happen if Obama and Congress can avoid throwing the baby out with the bathwater.

Review of 1st quarter

I decided to take a look at the first quarter compared to my expectations at the beginning of 2009.
I have posted my document on SCRIBD but I am still trying to learn how to use it. If you have problems please note in a comment so I will know to fix it.

Ouroborous Review Mch 2009.

Popular Science: Rust in the Food Suipply

at PopSci .com:

Rust in the Food Supply

A threat to wheat is a threat to the world.

A good article except for the gratuitous reference to globam warming as the potential cause with no suggestion of any proof.