Will They or Won’t They?

Will they or won’t they? Bad enough or not? What’s it gonna be?

Almost every “investment vehicle” sans Apple & Google (and the defensives) are trading based on the guarantee of free money liquidity stimulus/pumping coming from every direction; America, Europe, China. And commodities, primarily precious metals, are soaring.

Are these prices justified as “real”? Are they sustainable? Or are they just a figment of the hope of more free money to be pumped into the closed loop of the banking system? Well, my forecast for years has been that the 10 year Treasury bond will yield 1% at the bottom of the “Credit Crisis” and we are not there yet.

One of the most telling signs was from Glenn Hubbard, Mitt Romney’s Finance guy who says that Bernanke should stay if a Republican is in the White House.

You see? Everyone loves, wants and needs free money. But only some will get it. Not you.

Yesterday morning the markets were hot. Red hot. The major indices have been in an uninterrupted uptrend since June 4 but the previous four days have been a ramp-fest, with Apple running almost 40 points in those four days and setting the tone leading to the test of the yearly highs. Never mind that the biggest IPO in history, Facebook, lost $50 billion in a quarter; Apple made those gains in a few days.

Speaking of Facebook, many are blaming Cramer, Thiel, Morgan Stanley. Remember who set the private valuation for the company of $100 billion long before the IPO. None other than the Vampire Squid themselves, Goldman Sachs. And it appears they are getting away with it.

Back to yesterday. Markets appeared to make a perfect double top with the April high. Volume at thirteen year lows. No earnings reports or government interference to deal with. And the Europeans are still on summer break.

All hat, no cattle.

Most market participants will remind you that following price is what is important. But as I’ve said many times in the past, the market lies like a rug. Sometimes for weeks or months at a time. This has been an Apple/Google market with the mega-caps holding everything together. Some will also tell you that the market’s gains have nothing to do with the hope of more free money. We shall soon see.

In the meantime, circling back to the defensives makes all kind of sense to me.

It is the dog days of summer, when everyone is supposed to be “vacationing”. I don’t know about you but I can do almost everything I can do at the office while on the beach. Therefore, there is no vacation any more unless you really unplug. Good luck with that…

After I nailed the market peak earlier this year with the date of a late April peak, the market travelled south for exactly one month. Since June 4, its been one headline risk after another and one perfect uptrend until this moment when markets are just a day away from the yearly peak. And more importantly, since Apple reported its first earnings disappointment in years, the stock has added 15% or about $80 billion in market value in the past three weeks. Never mind that they recognize two years worth of Carrier revenue immediately upon the sale of an iPhone. The issue now with Apple is that nobody will ever sell the stock no matter what because “greed is a bitch”. Also, throw a few sour grapes in because I bought at $225 and sold at $350.

Since Knight Capital entered an incorrect keystroke and lost a half billion dollars, the markets have experienced a 50% decrease in the already 50% decreased volume market. So now we are running at about the 25% mark of 2006 volume. And only the most paranoid, self-loathing and hysterical of the market prognosticators think there is anything wrong with the marketplace. The only thing that has mattered since the crash is price. Please respect price and the uptrend line. You need to know nothing else, for if you do, you will miss the gains, or worse yet, lag your peers. Heaven Forbid!

The fact is that there are no sellers because there is no yield. And no yield forces money managers to reach for risk. Plain simple and engineered by our friends at the Federal Reserve. Bravo as they have single handedly saved the world! Sarcasm noted.

As far as the stocks everyone loves, they continue to trade in a range and are all pushing the top of their ranges. I expect to see the market and the favorite stocks appear to breakout. and then, just as it is “confimed” by biz-media, and folks “get excited”,  we will get a wicked reversal as the breakout will fail. And it won’t need a reason.

Remember, we are in the Silly Season, where the election takes precidence. Wall Street is busy making hay while the sun shines.

QUEST DIAGNOSTICS (DGX) THERMO SCIENTIFIC (TMO)

SANOFI (SNY) PFIZER (PFE)

COSTANZA COSTANZA COSTANZA

The rally since June 4 has been called “the most hated rally” and “the rally that nobody wants”. Sound familiar? It should as each rally promulgated as a direct result of Monetary Stimulus (free money for Wall Street) was similarly labeled.

Since each version of QE resulted in “oodles” of gains for investors and not so much for the overall economy, markets have again taken a page out of the Pavlovian Handbook that says financial assets will rise because of more free money. And why shouldn’t they rise? All those trillions are systematically designed to boost asset prices and therefore confidence. And the money stays locked in the closed loop of the financial system, never to bleed into the real economy, save higher commodity prices. And higher prices for assets are seldom a problem. Clearly markets are the main policy tool of government planning in this administration.

After three years and a 100% market gain with little economic results to show, you’d think they’d try something different? Not a chance, and why should they? There is little volatility, little fear, few sellers with the market at post crash highs. The “public” knows just one thing; that OBAMA IS THE MAGIC PRESIDENT THAT MADE THE STOCK MARKET DOUBLE. Putting my political hat on for a split second, I believe that the only way Obama loses is if there is a stock market crash in October (or his Birth Certificate is a forgery).

Now that the markets are here, most Strategists and Market Prognosticators say the same thing: “Just Follow Price Because Nothing Else Matters.” They are certainly correct for some period of time. And the public doesn’t care to chase because most don’t have money to invest other than the ones lucky enough to be working at our great corporations and who get matching funding in their corporate 401k’s. They buy stocks whether they like it or not.

And if you want to examine some of the technical or fundamental criteria used for investing you’ll find that many are at or near historic or extreme levels. Imagine this, both bearishness and complacency are BOTH near record highs! Is this logical? Even with the warped logic of the markets? All logic, except price, must be thrown out the window in this time of free money for markets. The data, the historic norms, common sense and logic, all discarded. That is the only way to function in this environment. Or you can just watch the madness and protect your profits. 

I’ve said that in each month the markets spend 10 days up, 10 days flat and experience one day of terror. This is what we’ve been programmed to expect and so we trade accordingly. And all the known issues are not a problems simply becasue they are known. Until they are a problem. Then what?