Watch the AIG hearings; they could be critical for Bernanke
Steve Cook on Disciplined Investing

Syndication

Have You Seen This?

News

  • Make money by accessing all our Portfolios, the supporting research and Price Disciplines using our paid subscription blog, Strategic Stock Invetments. Our work is focused on making money for our Portfolios not as some academic exercise in Internet investing. Check our performance (audited)--our Dividend Growth Portfolio has beaten the S&P by 500 basis points per year for the last seven years but with a beta of only .62. (Mandatory Disclaimer: past performance is not a guarantee of future results.) We give you everything you need to duplicate our results, in particular, a strict price discipline for both Buying and Selling.

Have You Seen This?


The Market
    
    Technical

    Yesterday was another day of churn--which did nothing for the technical strength of the Averages (DJIA 10194, S&P 1092).  No retracement back into the prior up trend; no DJIA trading back above the November to January lows (10238). So the indices remain in a trading range with a known upper boundary (10725, 1150) and an unknown lower boundary (10238/9645, 1084,1009).  Volume was low (bad), breadth deteriorated (bad), the VIX was off strangely enough (good), and the dollar was up (scoreboard: stocks down, gold up, oil down).  Most important despite being a basically flat day, a surprising number of stocks in our Universe broke their March to present up trends--that is definitely not good.

    Bottom line: the deterioration of our internal indicator has me feeling much more negative about the near term prospects for the Market.
 
    The Market leadership (down) suggests a cyclical correction not a new bear market:
    http://www.investmentpostcards.com/2010/01/27/stock-market-leadership-points-to-risk-aversion/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Percentage of stocks above their 50 day moving average (chart):
    http://www.bespokeinvest.com/bespoke/2010/01/lots-on-deck-tomorrow.html

   Fundamental
        
    Bill Gross (Pimco) latest strategy piece (long, but today’s must read):
    http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/February+2010+Gross+Ring+of+Fire.htm

    One thing is becoming increasingly clear; earnings are not driving stock prices:
    http://www.bespokeinvest.com/bespoke/2010/01/cant-blame-earnings-season.html

      Headlines

    The congressional budget office revised its forecast for the 2011 fiscal budget deficit from $1.4 trillion to $1.35 trillion (whew, what a relief, only 9.2% of GDP).  That’s $1.35 TRILLION in FY2011 ALONE; and puts into prospective how insignificant is Obama’s proposed $250 billion cost saving over 10 years.
    http://www.businessinsider.com/chart-of-the-day-freezing-discretionary-spending-is-meaningless-2010-1?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_012610

    China popped back into the forefront, acting to further tighten monetary policy--which investors are interpreting as a negative for US stocks because of the pressure that rising Chinese interest rates puts on the Fed to raise US rates.  I have noted several times that I think that slowly rising US interest rates are a positive signal that the Fed is acting to shrink its bloated balance sheet, which I consider a positive.  Alas, Mr. Market for the moment disagrees; so further Chinese tightening moves (which are likely) will put additional pressure on stock prices.

    Testimony begins today before the House Oversight Committee on the AIG bailout and has the potential of being explosive.  I have linked several times to articles that allege a Fed cover up of events that led to the bailout.  By the close of the hearings, we will likely know the extent of any shenanigans that transpired and, more important, who the major participants were.  The point here is that Geithner and Bernanke are the most likely candidates to be damaged by revelations of misconduct.  Geithner would be no loss; last Friday’s pin action (down big) tells you how investors would likely react in the wake of the exposure of significant Bernanke transgressions.
    http://blogs.forbes.com/streettalk/2010/01/26/the-n-y-fed-and-me/?boxes=Homepagelighttop
    http://www.huffingtonpost.com/2010/01/26/is-bernanke-hiding-a-smok_n_437509.html
    http://www.zerohedge.com/article/darrell-issas-special-report-aig-could-be-end-geithner

    And of course, we have the first Obama state of the union tonight.  These affairs are generally much ado about nothing; and the good news will be if He is satisfied with a similar performance.  Watch for partisan harangue or some new cosmic mission that will cost a lot of money; that would be the bad news.

    An up date on the misery index (unemployment + inflation) and what Obama can do to improve it (good luck):
    http://scottgrannis.blogspot.com/2010/01/misery-index-update.html

    Bottom line: today has the potential for lots of volatility.

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers fell 2.5% versus the prior week but rose 1.9% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales declined 1.4% versus the similar timeframe last month and increased 1.0% on a year over year basis.

    The January Conference Board’s index of consumer confidence came in at 55.9 versus estimates of 54.0 and December’s reading of 52.9.
    http://tickersense.typepad.com/ticker_sense/2010/01/consumer-confidence-up-with-a-long-way-to-run.html

    Weekly mortgage applications fell 10.9%.
    http://www.calculatedriskblog.com/2010/01/mba-mortgage-applications-decline.html

   Other

    More on the distortions to employment made by the government stimulus (medium):
    http://www.investors.com/NewsAndAnalysis/Article.aspx?id=518614

    The Case Shiller Home Price Index continues to improve (chart):
    http://mjperry.blogspot.com/2010/01/case-shiller-index-improves-for-10th.html
   
    Another look at the coming debacle in commercial real estate (long):
    http://www.ritholtz.com/blog/2010/01/an-insiders-view-of-the-real-estate-train-wreck/

    The global outlook continues to improve (short):
    http://www.capitalspectator.com/archives/2010/01/a_brighter_outl.html#more
   
Politics

    A graphic look at the Obama spending cut (short):
    http://scottgrannis.blogspot.com/2010/01/obamas-proposed-spending-freeze-way-too.html








Posted 01-27-2010 8:28 AM by Steve Cook