An improving economy versus a deteriorating political environment
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    Weekly mortgage applications fell 0.1%.

    Weekly jobless claims rose 6,000 versus expectations of a 9,000 decline.
    http://www.calculatedriskblog.com/2009/12/weekly-initial-unemployment-claims_17.html

   Other

    An optimistic perspective on the economy (long):
    http://online.wsj.com/article/SB10001424052748704869304574596121329841680.html

    Here is a different (and more optimistic take on the CPI numbers (medium):
    http://mjperry.blogspot.com/2009/12/median-cpi-is-50-more-accurate-than.html

    It is not easy avoiding sovereign debt problems (long):
    http://www.ritholtz.com/blog/2009/12/persian-gulf-currency-union-and-the-forex-risk-to-nations-everywhere/#more-46457

    And this (medium):
    http://www.nakedcapitalism.com/2009/12/greece-a-line-in-the-sand.html

    The House passes stimulus II:
    http://www.calculatedriskblog.com/2009/12/house-approves-next-stimulus.html

Politics

  Domestic

More of your congress at work (short):
http://www.redstate.com/dan_perrin/2009/12/15/dems-offer-nelson-up-to-500-billion-in-earmarks-to-vote-yes/

    We already know why the current healthcare reform won’t work (long):
    http://www.american.com/archive/2009/december-2009/we-already-know-why-healthcare-overhaul-will-fail

  International War Against Radical Islam

The Market
    
    Technical

    The DJIA (10441) finished below the lower boundary of the up trend off its March low (10446-12468); and the S&P (1109) continued below the comparable trend line (1119-1413).  So stocks continue directionless. 

Breadth indicators were mixed thus providing no guidance.  The dollar rose slightly (Wednesday scoreboard: dollar up, S&P up, DJIA down, gold up, oil up).  As I noted yesterday, it is trading right on a resistance level and any meaningful advance will transition the dollar into an up trend.  The VIX fell much more than I would have expected (lower VIX = higher stock prices) but remains in the territory between the down trend off the March high and a previous support level (i.e. also directionless).

    One breadth indicator that is positive (chart):
    http://www.bespokeinvest.com/bespoke/2009/12/breadth-gets-a-little-better.html

    Volume is drying up even as prices advance (chart):
    http://www.ritholtz.com/blog/2009/12/volume-falling-as-rally-progresses/

    The latest from Trade Mike:
    http://tradermike.net/2009/12/december_16_2009_stock_market_recap

    Sentiment among newsletter writers (chart):
    http://www.bespokeinvest.com/bespoke/2009/12/bullish-sentiment-for-newsletter-writers-hits-a-2year-high.html
   
   Fundamental
   
     Headlines

(1)    investors spent the most of the day awaiting the Fed’s decision on interest rates and the accompanying release of the Fed statement following its meeting.  Bottom line: rates were left unchanged; the statement was unchanged [rates will stay exceptionally low for an extended period] except that the wording was slightly more positive on employment.  The only other item worth mentioning was that it elected to remind the Market that it intends to terminate its current emergency liquidity facilities in February and March 2010--the point being that its ‘exit’ strategy is very much in the fore front of its policy decision making.

Pessimist on inflation (short):
http://scottgrannis.blogspot.com/2009/12/inflation-is-alive-and-well.html

Optimist on inflation (medium):
http://online.barrons.com/article/SB126102982191695139.html

The positive take on the Fed statement (medium):
http://www.capitalspectator.com/archives/2009/12/new_years_resol.html

(2)    Citigroup priced its stock offering [to finance its escape from TARP] at a steep discount [even though word on the Street is that it was 17x oversubscribed].  At the offering price, it was below the government’s cost basis, so it sold no stock.  So in deciding to sell stock at a discount, Citigroup’s management screws taxpayers [because to sell at the offering would be a sale at a loss] and screws the shareholders [because it is more dilutive than necessary {17x over subscribed}] but what a great deal for management [because they are now free of government pay caps].  The pricing was announced after yesterday’s close and the reception was basically disgusted surprise--how can the financial system improve when the guys running it are impervious to their past errors?  It could affect today’s pin action.

(3)    the Senate continues to jerk itself off over the healthcare bill.  I have never seen so many, rationalize so much over something so bad.  I can’t believe that the passage of anything beyond meaningless will not bring a negative reaction from the electorate and by extension the investment community.

I am agnostic about impact of the current stream of economic data and the technical factors on stock prices; but the insouciance of the Fed and our elected representatives to the consequences of their actions scare the living s**t out of me.  Unless and until the Market tells me definitely that my concerns are unfounded, our Portfolios’ cash position will remain at the upper end of its range.





Posted 12-17-2009 8:34 AM by Steve Cook