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Wednesday, February 21, 2024

Monday Morning

"We believe the markets are in uncharted territory with developments and characteristics that are unique in our experience and we can only guess at what might transpire over the next several months. Frankly we don't know, history provides no clues and anyone who claims to have some insight or strategy cannot do so on the basis of fact and historical evidence. To us the market today is like the common cold: Clearly identifiable, but not curable and the best (and only) remedy is time." – Birinyi Associates November Newsletter 

Birinyi also pointed out that Institutional Investor magazine released their annual ranking of the best Wall Street analysts. The firm that ranked the highest with a total of 13 number one ranked analysts and 48 total ranked analysts was the now bankrupt Lehman Brothers.  Clearly it is a tough time to be a market advisor or in the markets at all.  We have been playing a trading range that has drifted reliably between 8,200 and 9,500 during October but sentiment has shifted and we need to worry about getting burned to the upside as Santa Clause may finally come to town after the election uncertainty is behind us.

Of course there are many economic issues that continue to make me continue to be wary of the 9,500 line but the biggest is probably the simplest to look at.  We are nowhere near a recessionary low in terms of S&P P/E expectations.  Currently, the S&P is trading at a P/E of roughly 17, pretty high if the deflation hawks turn out to be right.  Lower prices lead to lower earnings, even if the companies do manage to improve margins due to lower input costs.  Spiraling deflation leads to wage deflation and that is the path to disaster and, although that is clearly pricing into commodities – the markets are not pricing this in at all.


Perhaps the markets are correctly pricing in the inflationary scenario I feel is more likely to take place but I was very concerned to see Sears advertising appliances this weekend on terms that were no interest and no payments for 12 months.  That's a hell of a way to have to move product, especially as the financing SHLD needs to make this offer is very expensive at the moment.  

So there are many things to be concerned about and it's a little early to be expecting everything to jump back in the black so soon after the Fed's infusion of capital.  If the cure is going to work, it will work over time but the market is acting more like a junkie that got a quick fix and got right off the floor and headed back to the party – you know that's going to end badly…  There were no new major injections of capital this weekend and we are waiting for the outcome of the US elections and the ECB rate decision – so let's not lose our heads over what was merely a Fed-based rally last week.

I discussed all the data and earnings we have to look forward to this week in the weekend wrap-up so let's just move forward and see what the rest of the World has been up to this morning: 

Asian stocks had another strong day with Australia and India up 5% while the Hang Seng added 2.5%.  Japan was closed for a holiday and had dropped 5% on Friday so, IF the US has a good day, the EWJ ETF should make a nice play at $9 but the 2010 $7s at $2.85 have a forgiveable .85 in premium that can be neatly offset, starting with a 1/2 sale of Nov $9s, currently .62.  Chinese banks led the charge as China raised lending caps and a PBOC spokesman indicated China will be flexible in monetary policy so we have to consider this somewhat artificially boosted.  South Korea also chipped in with an additional $11Bn in tax cuts

Europe is trading flat ahead of a flat-looking US open.  Oil is back down to $66 after that ridiculous pump job on Friday (that we correctly bet on!).  Whatever you may think of Obama winning the US election, it will be viewed as a huge positive over in Europe and we can expect a good rally there on Wednesday that may get some follow-through as the ECB cuts rates on Thursday.  Tempering that is the fact that the Euro-Zone is clearly in a protracted recession and UKs Gordon Brown has already turned to the Saudis for financial aid, indicating the US would not (or, even worse, COULD NOT) help establish a larger global bail-out fund.   Like the US last week, the EU markets are rallying ahead of anticipated rate cuts so it's all going to be about the follow-through

XOM will get a follow-through smack-down after their double rejetion at $77.50 as reports come in that petrochemical pricing is falling apart and production is being scaled back – just another sign of the massive demand destruction the energy sector is reaping after sowing so much suffering on the planet for the past few years.  Chemicals was supposed to be a strong sector for XOM in 2009… 



If we are going to stage a recovery, let's keep an eye on Bespoke's list of October worst performers, there's a lot of good names on that list like PRU, X, AA, FCX and S who we wouldn't mind taking a play on so stay tuned in member chat as we watch the early action for signs of a good entry. 






We'll also be watching the 40% lines on our indexes as nothing is more important this week than holding those levels, which are:  Dow 8,413, S&P 946, Nasdaq 1,717, NYSE 6,232, Russell 514, Transports 1,868, and SOX 329.  The Dow is far above the line at 9,325 but the NYSE is not there yet and the SOX are miles below at 239.  Nasdaq is right on the line and the Transports are just over at 1,887 so they are the ones to watch but, if the NYSE can't take back 6,232 – this is not a rally at all. 

We can expect drift into the election but let's be careful out there, energy rallied on Friday and can take us back down today as it was nothing more than blatant NYMEX manipulation – something Congress has seemed to have taken their eye off as they got distracted trying to stave off a global economic collapse but one that was triggered by those same NYMEX crooks who happen to be the same crooks who oversaw the financial crisis (*cough* Goldman! *cough* *cough*).





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