Random Thoughts: It's Now or Never for the Bulls
S&P 1250 is the bovine backstop.
"Last dance with Mary Jane, one more time to kill the pain."
It's a beautiful morning in Manhattan, and we'll take rays of sunlight whenever we can get 'em! That's easier said than done with societal acrimony running rampant, but all is not lost. In fact, I would argue we've got a lot to be thankful for if we view the dew with the proper perspective.
Perhaps I'm being Pollyannaish -- imagine that! -- or maybe I just said my piece this morning when I wrote, Economic Issues Remain in Wake of Debt Resolution. We can put as much lipstick as we want on the political and economic pigs but they'll still "oink" and roll around in the mud.
The question is whether the negativity has become too pervasive (right at the bottom of the 2011 trading range) or if social mood has officially turned -- and we know that social mood and risk appetites shape financial markets. While I have and will share my inclinations on the matter, I'll ask that you see both sides and respect the competing agendas.
The bulls will offer that over 70% of earnings beat Street estimates, and that corporate credit will benefit from the growing discomfort regarding US government securities. As corporate credit improves, they'll argue it will manifest through higher stock prices, stock buybacks, M&A, and LBO's.
As Blue Steel Bennet Sedacca used to say, "Credit players are much smarter -- and less emotional -- than the stock market."
The bears will counter that earnings have already been baked into the cake (given the lift off the lows) and we're playing duck-duck-goose on an active landmine. If and when psychology shifts, they know all the tape-painting and jaw-boning in the world won't stop the bleed. Credit of a different breed -- that of credibility -- will be the issue at hand for markets at large.
"They've thrown a lot of money at this market," Boo told me this morning, "and the tape is right back where it was before QE2!"
Both sides are valid, and the friction between those variant views will be what moves the market. S&P 1250 is huge, technically and psychologically, so keep your right hand up and an eye on a seat if you've tossed a hat in the risk ring.
Some Random Thoughts
- Last week, I shared the following stream of consciousness as we watched George Soros Follow His Own Advice:
"…the most lucid thought I've had since offering in 2003 that we should "sell tech and financials, buy energy and metals, and open a taco stand in Costa Rica" is to edge away from NYC. I'm not the panicky type -- heck, some would say I thrive under pressure -- but I would be remiss if I didn't offer the respect of that honesty. I'm unsure if the genesis of this particular vibe is perceived quality of life or a safer domain for my family, but the intuition is palpable and ever-present."
- I suppose I shouldn't be shocked to read this article, forwarded by uber-Minyan Chris Hayes, which puts some numbers behind the current exodus. OK, maybe it's more of a migration than an exodus, but it's manifesting nonetheless.
- How is "nonetheless" one word. Isn't that just lazy?
- OK, here's the situation. The S&P has a window of upside opportunity, and I would venture to guess that it would have to start soon if it's to happen at all.
- That doesn't change my big picture bent, it's simply trying to sniff the path as we edge towards the ultimate destination.
- Why the window? The S&P is sitting smack dab at the bottom of the 2011 range, which is weird. Wasn't an upside breakout through S&P 1350 all but assumed by market players last week?
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- Absent a drop & pop -- which is the mirror image of what we saw earlier this year -- it "cleared out" the stops on the upside, and could play the same way with a breach of S&P 1250. The window resides between the debt ceiling resolution and a debt downgrade, which is tough to game in terms of timing.
- Why? The ratings agencies are inept (I say this with as little acrimony as possible). They didn't see the financial crisis until the world was sucking air through a straw in the midst of the perfect storm, and truth be told the USA credit rating should have been punted long ago. The entire process is now politicized (as is the market) and that's an unfortunate can of worms for free-market capitalists, or those of us who are still left.
- I was giving a speech at some think tank in 2007 and warned that the USA was on the road to socialization (before it was). There were a handful of Europeans in the room who approached me afterward and said, "Why do you say that like it's a bad thing?" I wonder how far that pendulum has since swung, and how much further it will swing, as The War on Capitalism continues.
- Germany -- widely considered to be the buffest lifeguard on the beach -- is off 11% since July 8 and 8% since Monday's high. We're talking Germany dude, not a high-beta stock like Netflix (NFLX)!
- Watch the European banks -- Barclays (BCS), Deutsche Bank (DB), among others -- as foreign proxies and stateside tells.
- The eyes of the world have now been cast upon Wall Street with a singular question in mind: Was that the last bullet?
- So it's said, I'm all about seeing both sides. You know my short-term take, along with the defined risk parameters (S&P 1250), but I can't shake the sense that we'll revisit the March '09 lows sometime in 2013. That and $2.25 will get you on the subway, so please remember that it's one man's humble opinion.
- You may be right -- I may be crazy -- but it just might be a lunatic you're looking for!
- Good luck today and remember: profitability begins within!
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