We've seen a great rally since March 9th. "No doubt about it" would say Mr. Mark Haines.
If enough people want the market to go up... IT WILL. But once that initial move is done, momentum, above moving averages and RESISTANCE becomes counter forces to exuberance.
The somber reality has to be brought back with anecdotal evidence:
- In March 50,000 houses in California went into default.
- Munis refinancing market is sold to an unsuspecting market (pension liabilities are unfunded). There is no pro-interest in the sector ( they know what is coming)
- Some New York commercial properties are changing hands for debt (or 30 cents on the dollar)
In the U.S. market, commercial real estate is worth about $6.5 trillion, and is financed by an estimated $3.1 trillion in debt.
And that debt is going bad at an escalating rate. In March, the delinquency rate on about $724 billion in securitized debt reached 1.8%. As percentages go, that’s a pretty small number. In fact, it’s less than a quarter of the housing market’s record-breaking mortgage-delinquency rate of 7.88% for the fourth quarter, according to the Mortgage Banker’s Association.
- IF Talbots 'latest quarterly report is any indication that retailers with a marginal offering are about to bite the dust, Mall owners will be breaking into negative cash flow soon enough...
If you think banks can make a living on a spread business, think again. Q1 numbers at GS are showing some profits in business lines that aren't likely to be repeated in following quarters. Their competitors missed a golden opportunity to use the March rally to come clean with portions of their books. Waiting or delaying consolidation reporting of mergers (WFC) is NOT going to work for very long.
With the lack of transparency from the FED's decision NOT to report results of the ongoing stress tests, we fear that investors will shy away from committing new funds to this market until another watershed occurs.
Putting this all together suggests our favorite TURBO number S&P 803 is going to be tested fueling a strong move to the down side after that.
NAZ? NO
While the NAZ had a nice rebound, INTC's numbers don't seem to justify the interest in Semis and the rest of the lot doesn't show margin expansion.
OIL? NO
Oil is bound range $44-$54 and nothing seems to offer any viable scenario to see this change any time soon. Production cuts are meeting demand shortfalls step for step. Intense pressure on margins will constrain Capex on all major players well into 2010.
GOLD? NO
While Mr. Bernanke can be congratulated for offering free money all along the yield curve and avoiding the latest attempt at a market implosion from succeeding, he has won BUT a reprieve. Price deflation abounds as all measures of inflation seem to be subdued: Housing affordability, food and energy costs seem well contained and with a supply of 5MM unsold cars on lots... inflation is not coming back for a while. Holding gold therefore is not a productive asset at this point. People are already getting no return on their CDs and their bonds. HELL if pensioners are just going to sit on physical gold to further reduce their monthly income! Best be short treasuries to gain same effect...
SHORT TERM TRADING? be ready for tiny profits
Market pros are playing this market on a day to day basis bagging small profits and with the looming GM bankruptcy, another period of intense angst is about to test supports levels.
SHORT TREASURIES: HOW MUCH?
Bernanke and Geithner riding the Obama wave of popularity. Why fight it? WE are using a measure of $10 of short treasuries ETFs (TBT & PST) for any $1 we commit to short term trading, so when Armageddon hits with the inevitable implosion of the current ludicrous bond yields on treasuries, we will be protected when the market really takes another hit.
INDIA ETF? NO
Unfortunately that country doesn't have the infrastructure or resources to grow its own economy. It still needs foreign investments to fuel job creation> we think it will be a number of years before investments returns in search of what was once a source of English speaking cheap labor.
COPPER? YES
For some odd reason that metal is trading over a five month rally.
BRAZIL? YES
Best bounce back, good currency, great exporter
SELL USD, BUY LOONIE? YES
This has proven a great trade and has another 10 cents in it
Conclusion:
SHORTS:
US MM banks
US Commercial lenders
US Treasuries (7yrs-20yrs)
NAZ
US Oil majors
INDIA ETF
LONGS:
Non-ferrous metal plays
Brazil ETF
Loonie
Good trading to you!
DCW
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