The Stock Report
by Mike Turner

If the oil supply is steady and the demand is low, why do you suppose that the price of oil continues to move higher?

If employment has yet to recover and housing has yet to begin to recover, why do you suppose that real estate ETFs and REITs are moving higher?

If banks are, basically, using smoke-and-mirrors (aka, removal of mark-to-market) to make believe that they are actually more solvent today than they were 6 months ago, when many of us know that they are no better off... Why is it that the Financial Sector is moving higher in share price?

If Bernanke is wearing out printing presses by printing trillions and trillions of dollars out of thin air, why do you suppose the price of gold is not skyrocketing under the specter of massively growing inflation? The current US debt is $11.3 trillion and some estimate that the total obligation promised by the current administration is another $10 trillion, when you count all planned budgets and bail-outs. This is a staggering number!

If every other recession in history ended when the economy actually recovers through real and positive changes in fundamentals like unit production, employment gains, increasing of exports, expansion of retail sales, dramatic increase in consumer spending, etc., why do you suppose that so many talking heads and commentators are saying that good times are right in front of us and that the recession has ended; when none of these recession-ending activities have occurred?

Have the laws of economics suddenly gone away? Can all recessions in the future be fixed just by printing up tens of trillions of dollars and dumping those dollars in to companies that are "too big to fail?"

And, who is going to pay for these outrageous deficits?

Certainly, we could just tax the rich. Since the top 5% of those who actually earn money, pay more than half of all US taxes (see About.com: US Government Info), many in Washington believe they can certainly be taxed a lot more. This is an especially attractive plan for the 50%+ of the US adults that do not pay taxes at all. At some point, our government has to realize that they can't tax and spend our economy out of this debt chasm on the backs of a smaller and smaller group of taxpayers.

Should we just close our eyes to this fabricated Bernanke bubble like we did the tech bubble of the late '90's and the real estate bubble earlier in this decade? How gullible are we supposed to be?

But, back to my questions at the top of this week's report... What is making this market move higher?

It is certainly not the economy. Here are my thoughts on this enigma:

* The biggest reason why the market continues to move higher is investors now know that the US government will backstop any and all poorly run companies. With the risk of failure removed from big companies, investors assume that their money invested into the stocks of those companies is equally backstopped by the US government. This is a fool's game and adds credence to the assumption that this could be a fool's rally. Dumping trillions of dollars into companies to make their balance sheets look better does not create anything except better looking balance sheets if that money is not released into the hands of business who can hire people and produce goods and services. No goods or services are being created with the trillions of Obama and Bernanke dollars.
* Another big driver of this market is fear; but not the kind of fear that keeps investors out of the market. No... in this case, it is the fear of being left behind if the next move for the Dow is 10,000 or even 14,000. Individual investors and many institutional investors are jumping in to this market out of fear that they will miss the big Bull Rally of 2009. This reminds me of the great California gold rush in the 1850's. Many thousands of people rushed to those gold fields from the East Coast, but the vast majority ended up completely broke. This Bernanke bubble is worse than the California gold rush, since this rush has no gold for anyone except the too-big-to-fail companies that should have been left to fail.
* Hope is a big driver. Investors who lost a decade of gains last year because of the complete failure of their buy-and-hope strategy, are once again, being sucked in to the belief that buying-and-holding will work. They held on to their losers and rode share prices lower as those stocks tumbled 30%, 50% and even 90%, because they had no sell strategy and are now buying more shares as they hope their beloved stocks are on sale and will recover to their glory days of just a few months ago. In these investors' minds, not only will their stocks suddenly be worth what they were in early 2008, but with all the new shares that they have bought, they will have become significantly richer. This is a terrible trap that, hopefully, will not crush these investors again when this market corrects. I am afraid this rally is built on nothing but a flimsy house of cards held together by nothing more than a printing press.
* As for the price of oil moving higher when the fundamentals do not support higher prices... Think of oil as a proxy for currencies. The weaker global currencies become (especially, the US dollar), the more investors move their wealth in to what is becoming a more stable and expanding currency... oil.


Van benne valami. De ismétcsak vissza kell utalnom a Stan Weinstein könyvre. Egy részvény árfolyama mindig négy különböző fázis egyikében van. Oldalazás, emelkedés, oldalazás, esés. Oldalazás, amikor a részvényesek még félnek, de a keresleti és kínálati viszony kiegyenlítődik. A fundamentumok rosszak, senki nem hisz a feltámadásban. Az emelkedés egy kitöréssel kezdődik, senki nem hiszi el, hogy ez tovább fog emelkedni, mindenki szkeptikus, a fundamentumok bár javulnak, de még mindig rosszak. A tetőn az oldalazás akkor kezdődik el, amikor a fundamentumok szempontjából minden szép és jó, megjönnek a későn érkezők, akik a cég háttere alapján belevásárolnak a részvénybe. És jön az esés, éppen akkor, amikor mindenki happy, és azt mondogatja magában, hogy ez csak egy korrekció, beleveszek mert most már olcsó.

Jelenleg az első szakaszban tartózkodunk, a fundamentumok rosszak, de javuló tendenciát mutatnak (vagy fogalmazzunk úgy, hogy jobbak az igen pesszimista várakozásoknál), mégis, sokan félnek a következő eséstől (végülis van is miért). Egy átlagos befektető/kereskedő nem tudja, hogy mi játszódik le a háttérben, hogy mi várható 1 év múlva, ezért a mondás "trade wha you see not what you think" továbbra is érvényes. Felesleges gondolkodni, a részvénypiacok úgy működnek, mint a birkanyájak, arra mennek amerre a sor elején lévők.