First half review

2009 is halfway over. Say it out loud and it's a bit more striking. This year has absolutely flown by. Chaotic capital markets have made things so frantic that time seems to literally slip through our fingers. Take a minute to think of all the major events which have occurred in the past six months. Many of these events will be written in our grandchildren's history books. Some for the better, some for the worse, as we traverse through these trying times.

Some year to date returns from U.S. Markets

YTD

SP 500 +1.78%

DJIA -3.75%

Nasdaq +16.36

Sectors

Basic Materials +8.92%

Capital Goods -14.74%

Conglomerates -15.19%

Consumer Cyclical +6.67%

Consumer Non-cyclical -13.78%

Energy +5.41%

Financials -0.63%

Healthcare -11.53%

Services -4.90%

Technology +12.93%

Transportation -7.83%

Utilities -3.83%

DXY (US Dollar) -1.76%

3-month Treasury +100%

5-yr Treasury +69.5%

10-yr Treasury +60%

30-yr Treasury +62%

VIX (Volatility Index) -33.42%

Gold +6%

These numbers speak for themselves. Most eye striking is the YTD return on the Nasdaq. Clearly investors have indicated technology as the sector which will lead us out of this crisis. It's rather ironic because the other positive performers are our basic necessities: Basic materials and energy. Consumer non-cyclicals are in the red YTD most due to the major run up in commodity prices, thanks in part to China. Consumer cyclicals is a bit of a conundrum, because you'd figure with such a massive slowdown and the ever rising tide of job losses, cyclical products would not have performed well, but it seems as if people are grasping for straws in the dying days of conspicuous consumption.

Since the economy has clearly slowed, the performance in capital goods has reflected that. Companies aren't expanding as much as they were previously and therefore less capital goods are needed. Conglomerates have been catching a beating as well. I've been in the camp that believe conglomerates are a thing of the past. We are moving towards times in which specialty firms will gain market share over the one-stop-shop business models such as Citi, GE and General Motors to name a few. Healthcare, typically a safer sector, has shown weakness since mid-February, when the initial budget was proposed and almost $650 billion was allocated towards healthcare reform aka healthcare nationalization. Transportation, another indicator of the health of the economy, is down nearly 8%. With less economic activity, fewer amount of goods are needed to be transported, whether consumer or capital goods.

The Treasury market has risen in fear of inflation, possible U.S. debt default, or weakness in the dollar. Either way, investors are demanding a higher return in their "riskless" fixed income investments. After touching the mark of the beast, 666 in the SP and then catapulting nearly 44% higher in under three months, is it safe to say we should expect a bumpy ride in the second half of 2009? I believe so. With quarter end finishing with a whimper rather than a bang, watch for the next couple of days to be pretty volatile, despite the light volumes. I will stick with my theory and say that we will see the SP back in the mid 700 range by the fall. We could obviously go lower than that, but on the flip side, we could also see a thrust above 1,000 before we see some serious downside pressure persist.

Earnings seasons should be a doozy, with the second quarter (one time) profitability...ehhh I mean newly sustainable and profitable, banking sector leading the charge. Are these one time gains baked into the cake already? It's hard to tell, but with the recent issuance of the new debt......stock, seemingly flooding the financial sector landscape, I find it hard to imagine future earnings will be as robust as they currently appear to be. Without a properly functioning banking system, no economic recovery is sustainable. With continued job losses and further housing price declines, serious pressure will be applied to the banks balance sheets. How will the markets react once the stimulus euphoria/green shoots (weeds) have worn off? Only time will tell, but it will sure be an exciting and albeit scary ride. In the end, 2009 will, in my humble opinion, look like a W; based on YTD market performance, upcoming earnings season, further deterioration of the housing sector (prime & alt-a), continued negative trending social mood and most importantly, investor psychology.

As always, good luck, and remember, the popular opinion is rarely the profitable one!

A little knowledge can be a dangerous thing

This is an excerpt from one of the professors over at Minyanville, Jeffrey Cooper. This dude is very witty and one of the great trader's, who flies under the radar, in today's capital markets. This one of the deepest and most truthful pieces I've read. A similar concept is conveyed in The Alchemy of Finance by George Soros. Enjoy!

Is there any other way to trade other than technicals? Sure, buy and hope....hope that the information you're gleaning over and the numbers you're crunching are meaningful and the data points are real.

Don't confuse information with enlightenment any more than you would your position with your best interests. Don't confuse speculation with fundamentals because in the end, we're all speculating as to an outcome; some have a sharper edge than others. Some have a better hand than others, as in the marked deck that recent history has revealed and the ancient history of the stock market.

After all, following the great short campaign of 1929, is it any coincidence that the fox was put in charge of the hen house with Joe Kennedy becoming head of the SEC?

Quoting George Soros, "economic history is a never ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend, whose premise is false, ride that trend, and step off before it's discredited."

The Street and the public love a good story. P.T. Barnum said there's a sucker born every minute. There's two born every minute in financial markets.

Don't confuse long lasting trends with a truthful premise. Time doesn't make a falsehood any less of a lie.

Jay Leno once asked a young girl on his show what two animals signified the stock market. She replied, "the snake and the mouse".

Those that "control" the game have always been the snake and investors have been the mouse.

Unless you have large amounts of capital (translation - staying power) such as Paulson, who bet against the CDS market in the beginning of 2005 or Julian Roberston, who bet against the "new paradigm" in 1999, you must use technicals to weather the storm, no matter what you think you may "know".

The D word

Sorry, for the delay, but I had issues with my internet connection and I was away for a few days attending the U.S. Open in New York. The weather caused the tournament to be a bit hectic, but nonetheless it ended with a bang. Not going to lie...I was rooting for Mickelson. With everything he has gone through in the past weeks, and will have to face in the near future, it's hard not to root for Lefty. It was great to see Duval, who overcame vertigo, make a run for the championship as well. Congratulations to Lucas Glover for playing well on Monday to win the Open. I would have liked to see the Open played in better conditions but it is what it is and the tournament was a success. The atmosphere was great. It was my first major and surly won't be my last. I like the fact the PGA gives public courses the opportunity to show they are worthy of hosting a major.

While in New York, I attended a Mets game as well. If you weren't aware, they recently built a new stadium, Citi Field. The amenities were great and the staff was friendly. The lines for beer were quick and they even served corona...a major plus. A far cry from Fenway, but still great to see a new stadium. The overall atmosphere doesn't compare to that of Boston, but what else can you expect after watching most of my professional sports games in the most diehard sports city in the country.

I'd like to talk about one of the major debates going on in the economy today. The inflation vs. deflation issue. For the sake of keeping the blog quick and concise, I'll talk about the side which I strongly believe will play out.

Most of the people you hear talking will this side with inflation. In fact, I'd go as far as to say about 80% of pundits believe inflation is the major concern. Sure, inflation will no doubt be an issue down the road, but it could be years away before we see a whiff of it....at least the runaway inflation scenario which everyone seems to be so concerned with. Being a contrarian, I like to go against popular opinion and side with the deflationists. Any practical economist should be able to see deflation looking straight into the eyes of the U.S. economy.

Listen, the Fed would not have throw trillion upon trillions of dollar at this mess, to re-inflate our economy if they didn't see the deflation locomotive heading right at them. Even after they've thrown trillions of dollars at this, the phantom of deflation is still winning the battle.

First off, the U.S. is a credit (debt) based economy. Simply put, this means there is far more debt in our economy than cold hard cash, thanks to the fractional reserve lending system. As I've discussed before, debt (credit) was cheap (low interest rates) after the burst of the tech bubble. This cheap debt inflated nearly every asset class. Now that that debt can't be repaid, asset prices need to readjust back to reality. This is called debt destruction. Debt destruction is deflationary because money is destroyed which causes general decline in prices. This can easily cripple an economy and was the monetary phenomenon that took place during the Great Depression, which is why the Fed is trying to avoid it all costs....literally.

To avoid deflation the Fed has given trillions of dollars to the banks to shore up their balance sheets. If the banks don't have money to lend, businesses cannot operate, consumers cannot borrow and the economy will slow. Prices will need to drop in order for people to be able to afford goods and services. Econ 101 - supply and demand: Banks have the supply, but their isn't the same demand for the debt as there use to be. The household debt to income ratio is about 130%. This basically means that for every $100 earned, the average household has $130 in debt payments. This could be in the form of credit cards, mortgages, auto loans, student loans, etc. The consumer is beginning to deleverage (reduce debt) and is no longer willing to borrow money, which it cannot repay. Add to the fact that lending standards have tightened and you can see the strain that has been put on our credit based economy.

Now, you need to also factor in the massive job losses the U.S. The more jobs lost, the less money in the system. This slows the down the velocity of money, which is deflationary. Debt payments cannot be met, which will hurt the banks holding securitized assets even more. We are seeing record high credit card write downs now. People literally do not have the money to pay their bills. It's a scary situation. The banks have these massive reserves they are sitting on. I believe they are sitting on these because they see the economy getting worse and will need the money to keep there balance sheets in somewhat decent shape. Go back and look at the mortgage reset graph I posted last month and you'll see the other crisis which we will soon be facing. Money will be needed to offset these massive losses. This is, once again, deflationary.

The consumer makes up about 70% of GDP. Now that they aren't spending, businesses are slowing down. The government is trying to step in to replace where the consumer has fallen off, but they don't have the funds nor the brains to allocate the capital properly.

From a business standpoint, the PPI (producer price index) recently dropped to its lowest level since 1949, capacity utilization has fallen off the cliff, and industrial production has slowed down massively...all major signs of deflation.

So while most economists continue to be infatuated with inflation, I expect more deflation to be coming our way. I'm not sure if they just want to ignore the signals or just look at all the money the Fed has printed and associate inflation with that. There are many valid arguments made for both sides, but from where I sit, deflation is the major concern and will continue to be for the foreseeable future.

Without going into too much detail, this provides the premise from which I base my deflation bias upon. If you have a different point of view, feel free to share it and we can discuss the matter.

Update

Sorry, I haven't posted in a week. I was away for a few days and I've been having issues with my internet. Will have a post later today. Stay tuned.

What is the dollar?

This is an article from 2006 about the dollar. It is a quick read about what the dollar actually is and how it affects global markets and our daily lives. It is very simplistic, but understanding how the dollar fits into markets/economics is essential. Enjoy!

http://www.minyanville.com/articles/Dollar-Five+Things-Special+Edition/index/a/13266/from/ameritrade

Monday sell off

Today, we saw the first big sell off in month.  Equities have been trading in the 920-950 (S&P) range since May 29.  Multiple attempts to break through 950 have been shot down and today, the market briefly broke through 920, only to recapture the support level moments later.  This is like a heavyweight fight with the bulls and bears  battling to gain traction.  Neither have been victorious thus far and it looks like the fight will come down to the wire.  With mixed economic data the past couple of weeks, neither side has seen the catalyst that will send the market one way or the other.  

With options expiration this Friday, and quarter end only ten trading days away, volatility will be sure to pick up starting tomorrow with turnaround Tuesday.  Treasury rates have seen a steady decline since last Thursday's 30-yr auction.  The dollar has been seen some strength the past few sessions which has helped ease rates.  Last week's auction in the 30-yr saw 49% of indirect bidders.  This shows that FCB's (foreign central banks) may not be as reluctant as they pose to be, when it comes to buying long dated Treasuries.  

This brings to life a couple of questions.  It has been known that China has been stockpiling commodities.  Now that those commodities have risen in price, did China use some of their dollars to purchase Treasuries?  There have been reports that China has under-utilized many of the commodities they purchased.  Did they buy the commodities because they actually need them or because the value presented was too good to pass up?  Has the strength of the Chinese economy been a red herring for an economic green shoot?  Just a couple ideas to keep chew on.  

While each day in the capital markets is exciting, the past three weeks or so, has seen markets trading in a pretty tight range.  This has lulled some people to sleep, but the market has a way of making violent moves when people become complacent.  While all may seem calm on the surface, I think a pretty  big move about 950 or below 920 is in store for the next two trading weeks.  This is a good time to rebalance your portfolio and make sure you're hedged for movements in either direction.  Good luck!

The Federal Reserve...coming under fire

The heat is getting turned up on the Federal Reserve.  Congressman Ron Paul initiated a Bill, HR 1207, to audit the Fed.  It has been gaining momentum and has 207 co-sponsors, but 218 is needed in order for it to move to the Senate.  If this Bill somehow gets passed, the Fed will be exposed.  One can only wonder what the consequences of a failed central bank would be like.  I'm not saying this is going to happen, but questions are being raised and investors need to be aware of it.  This is a video I posted a month ago today; dealing with the Inspector General.  

There is much debate over the Federal Reserve's activity in the Vegas like marriage of BOA and Merrill Lynch this past December.  Then Secretary, Hank Paulson, and Ben Bernanke, are said to have strong armed BOA CEO Ken Lewis, into the deal.  After BOA discovered how much junk was on the balance sheets at Merrill, they didn't want in.  Now, the House Oversight Committee has subpoenaed the Fed.  I just read an article saying that BOA has e-mail evidence.  

  "WASHINGTON -- Internal Bank of America documents and e-mails among federal banking regulators show that federal officials leaned on the bank to seal the acquisition of Merrill Lynch in December or else face a management upheaval if the company wanted government assistance." - Miami Herald 

Lewis was put in a jam and could have lost his job if he didn't seal the $50 billion deal.  I'm all set with that choice.  Anyway, the cracks are starting to be revealed in the Fed's model, both fundamentally and socially.  This may have some pretty serious consequences.  If they were to be shut down, then the economy would flourish, but that's a whole other subject.  All in all, it's just another thing money managers need to keep in mind for their portfolios.

Finally, I found this video on another blog I read and found it interesting.  Most of the stuff on CNBC during the day is garbage, but James Grant is a brilliant economist.  He talks about the Fed throughout his interview, but it's very interesting to hear his thoughts on inflation and why he believes the velocity of money (how fast money moves around the economy) has little to do with inflation; it's the actual amount of money in the economy, that's going to cause inflation.  It's another lens to look through, which can only help.  

The market rallied pretty good from about 2:30 on today, but finished down.  Tomorrow will be volatile as well with the 30-yr auction.  Will Benny B start ramping up the presses again?  Only time will tell but at this moment futures are up a bit now, Asian stocks are in the red, the dollar is down and oil is up to $71.89.  It'll be interesting so get ready.  

10-Yr Auction & a couple randoms

There's certainly a lot of news to talk about today, but I just wanted to post the results of today's important bond auction.

Estimates: Yield - 3.94% Bid-to-cover - 2.36 Indirect bidderss - 26%
Actual: Yield (high yield) - 3.99% Bid-to-cover 2.62 Indirect bidders - 34.2%

While the bid-to-cover and indirect bidders were stronger than expected, we saw a 5 basis point TAIL on the 10-yr notes, which is not a good sign.

With all the controversey surrounding the Fed, (which I'll talk about later) will Bernanke fire up the printing presses?

Yields on the 30-yr, which has is an auction for $11 billion tomorrow, are up over 3% today.

The market gapped up today, with futures touching the almighty 951 resistance level. After the opening bell we quickly saw the market recede. It's going to take more than strong futures and wobbily optimism to push the market through major resistance.

The market didn't like what it saw from the auction, as it is down almost 1.5%, with about two hours left in the trading day. Oil busted through resistance at the $70 level, in the face of the dollar index up 0.75%. REIT's are taking one on the chin today down 3.75%, with it's ETF counterpart, SRS, up over 7.5%.

Look for continued volatility through tomorrow until the 30-yr auction results are released. It's a good idea to stay hedged at this point (complete understatement) with equities being whipped around so much. I'll a blog on the pressure building at the Fed a bit later. Good luck!

Quiet Monday

After a nice weekend, it's back to the markets on this Monday. It was a rather quiet day on the news front. In fact, this whole week is going to be relatively quiet as far as "important" economic/fundamental/corporate data releases. Since this market doesn't trade based on fundamentals anymore, it will serve as a great chance to look into the market from a technical standpoint. This is important to follow because you will get a better feel for which way the market wants to move without any major news. We are at a crosscurrent with a number of different factors. Some people believe we are basing (trading above a support level) while others believe we are churning (trading below a resistance level). I will ride the fence on this one because I feel that this market is being whipped around mostly by big time institutions and hedge funds. Combine that with the relatively light volume that we've seen the past few weeks, and it makes for one volatile ride.

As bearish as I've been, I feel like the market wants to move higher. We have quarter end approaching and a lot of money managers are underinvested because they weren't fully confident the rally would last this long. It can take the big institutions/mutual funds, some time to build large positions. If continued strength is shown, those late to the game, may try to pile on, wash out the short sellers, who in return have to cover their positions and therefore send the market higher. The reason, I believe, many of the major players have been underweight is because they don't fully trust that we have seen the lows, nor is this a sustainable rally. Also something to keep on your radar is that there is some type of tax loophole for mutual funds, where they catch a tax break after holding onto securities for 90 days or more. We are right around that 90 period now. I think you get the idea (mut's may be getting ready to dump those shares they've held on to for 90+ days)

Sure, the market has been on a tear since the March 6 lows, but not much has fundamentally improved in that time. Some people may combat that with the fact the initial claims figure came in at almost 180k less than estimated and therefore the economy is improving. Sure that's great, but look into the details of that jobs report and you'll see that the euphoria may be short lived. Workers average hourly work week declined by 0.1%, which doesn't seem like much, but equates to roughly 225k jobs....which the actual claims number doesn't represent. There was also an adjustment made to the death/birth rate that is used, which made numbers a bit rosier than what's really going on.

Today was the Apple WWDC, which, from what I read, was a success. Apple announced a new version of its iPhone, the 3G S. It is going to be up to 4 times faster, have a longer battery life, have video capability, and come in a 32g version. The new phone is going to work on a different OS which will allow a more user friendly experience and now enable a copy and paste capability. More importantly, Apple has cut the price on its smaller versions of the iPhone and marked down a number of other products as well. They are really sucking up market share in the smart phone niche and will continue to do so with cutting edge products and price cuts. Typically you'd see the "sell the news" reaction from the market, but the stock only dropped 0.57%. This could warrant analyst estimates to be revised upward and give this stock some more room to move. Steve Jobs health is still in question, but the stock has shown significant strength during his hiatus. Love the company, their products and this is a stock you want to hold in your long term portfolio, but not at current prices.

Lastly, I'd like to make a few comments on Treasuries. Friday, we saw the 3-month, 6-month and 2-year yields jump 23.08%, 18.54% and 16.96%, respectively. Scary, to see such a selloff after successful recent short-term auctions. Today, we saw the 10-year trend towards 4% after jumping 6 basis points to 3.88%. The long end of the yield curve will be tested this week with supply looming on Wednesday and Thursday. The 10-year, $19 billion, auction results will be released Wednesday at 1p.m. and the 30-year, $11 billion, results released Thursday at 1p.m. As I've written about before, if the yields on the 10-yr get out of control (4% or higher creates problems), then you can kiss the housing recovery goodbye. The Fed's housing assumptions were based on the fact they could just keep printing money to buy Treasuries to cap rates at low levels. I think we all know now how that worked for them. Mortgage rates have moved from about 4.85% in mid March to 5.75% (depending on what broker you deal with) today. I saw something last week (don't have the info on hand for accurate figures) that said the banking industry made $6.9 billion in profit during the first month of the second quarter. $4.5 billion came from mortgage related activities. Now that rates have risen all that "activity" has slowed in kind. What's that tell you? Bank earnings, or should we say, lack there of, may be lower than estimated. How about all the jobs/rehires in the mortgage industry.... poof.... evaporated.... just as quickly as they were hired. The benefits of re-fi's and low mortgage rates to help the consumer?.... maybe some other time. And don't forget the other elephant in the room.... housing prices. Prices will remain in their downward spiral as mortgage rates rise and people have to sell their houses for less, because buyers cannot afford these mortgages on homes with high prices.

All this, yet the market continues to rise huh? We are living through truly historical times, so take this as an opportunity to look at what's going on around you and try and learn from it. Good luck out there!

Everything is connected

This is a nice little graph I borrowed from Don Luskin, which was in the Wall St. Journal.  The graph does not necessarily convey my thoughts, but rather serves as a learning tool to show how everything in the economy is connected.  Enjoy!

At least someone gets it...

This is a quote from Ron Paul, congressman from Texas. He sums up the issue very well.

"We have to come to the realization that there is a sea change in what’s happening. This is an end of an era and that we can’t re-inflate the bubble, just as we devised a new system of Bretton Woods in ‘44 which was doomed to fail. It failed in ‘71 and then we came up with the dollar reserve standard which was a paper standard; it was doomed to fail and we have to recognize that it has failed. And if we think we can re-inflate the bubble by artificially creating credit out of thin air and calling it capital; believe me, we don’t have a prayer of solving these problems. We have a total misunderstanding of what credit is vs. capital. Capital can’t come from the thin air creation by the Federal Reserve System; capital has to come from savings. We have to work hard, produce, live within our means and what is left over is called capital. This whole idea that we can re-capitalize markets by merely turning on the printing presses and increasing credit is a total fallacy; so the sooner we wake up to realize that a new system has to be devised, the better.

Right now I think the Central Bankers of the world realize exactly what I’m talking about and they’re planning, but they’re planning another system that goes one step further to internationalize regulations, internationalize the printing press. Give up on the dollar standard, but we have to be very much aware that that system will be no more viable. We have to have a system which encourages people to work and to save. What do we do now? We’re telling consumers to spend and continue the old process; it won’t work."

When will real economic growth return?

A robust economy cannot be based 71% consumer driven. Consumers are in debt up to their ears. Businesses are contracting and jobs are being destroyed because the debt bubble has burst and the ripples have spread through out the proverbial pond. House prices are falling because a large portion of the population cannot pay the mortgage schemes on their overpriced homes. The economy cannot begin to recover until housing bottoms, which is still at least a year away. Our finance based economy has been riding on the back of the consumer since 2001, when money was cheap and it was patriotic to spend. The main problem everywhere you look is too much debt. Why? People and businesses haven't saved because the thought was that the economy would continue to grow hence more profits, and the ability to take on more debt. This

logic is flawed.

The government has tried to solve this problem of too much debt, by adding even more debt. Rather than letting business slow down and let the free market work its way through this debt destruction period, our "leaders" have tried to reflate the debt bubble. This debt has been paid for, unknowingly, by the taxpayers. We go deeper into debt so that future generations will be so deep in debt, taxes will be through the roof and no one will remember what economic growth meant. Consumers have started to learn this. The savings rate has risen to its highest rate since April 1995. Unfortunately, the government doesn't understand that debt needs to be destroyed, not created.

Weak businesses will stay alive instead of failing. More money will be spent on unproductive projects such as strip malls, condos, hotels and garages. Those "investments" have short-term gain but no long-term producibility. This is going on now with Federal bailout money given to some states. We need to produce more goods and services that can be sold for profit rather than produce clothes, cars, televisions, which have no economic return. This is the only way jobs will be created for the long run

More unproductive government programs will be set up, which suck up more taxpayer money. This creates more bureaucracy. This gives politicians, with their individual agenda's, more power. We cannot continue to bailout companies due to political affiliations. By doing this we are setting up a privatization of profits and socialization of losses policy. This will crush any economy.

Until money is invested in productive assets, then this mirage of a healthy economy will continue to contract. The people are realizing they have to save rather than spend, don't you think our "leaders" should do the same? Real economic growth could be three years away, but we are taking the wrong path. The longer and deeper we go into debt, and do not invest in productive assets, real economic growth is, sadly, not even on the radar.

Jekyll & Hyde

I'd like to make a few responses to my "Dangerous Waters" waters post on May 27th.  This is to show you that, no I'm not a perma-bear, I do actually want the U.S. to do well, I don't only post my thoughts when the happenings of the markets coincide with my ideas and that I look at things through multiple lenses and formulate my ideas in practical way, given the information that I have.

Without further ado...

-Corporate spreads are more important than Treasury spreads

-Rising yields could be a sign of economic recovery

-The dollars decline could be a result of investors leaving the flight to quality trade and moving back into risky assets

-Investors are putting money into foreign currencies because they show the most potential for future growth, not necessarily current stability

-Rising yields will impact growth if they get out of hand

-China needs to stop running their mouths about U.S. Treasuries.  The reason China has such a large surplus is because the U.S. buys all their "stuff".  If we don't buy from them then their surplus will shrink and they will not have the money to reinvest into Treasuries.  If the U.S. doesn't spend their money on China's "stuff" then that money will stay in the U.S. and could be used to fund our own Treasury purchases.  

-I think that too many people are automatically anointing China the new leader of the global economy.  There are many moving parts to the world we live in today and if China wants to try and make a point by not buying our Treasuries, then we simply won't buy from them and they will suffer as well.  This is why people should be worried about protectionism developing.  We are all in this together so let's function as one, or at least the best we can, and the standard of living for the entire world will rise, which should essentially be the end goal.  

A breath of fresh air from a practical bear.  I might as well savor the moment, for it will not last long.  

Random Babbling

-Solid day for the equity markets after booking more than a 2.5% gain.  This was led by major gains in the capital goods, consumer cyclicals, conglomerates and energy sectors.  Strength in these sectors would tend to be a leading indicator in the strengthening of the overall economy, which is a positive.  Banks were sluggish for the better park of the day with BKX index down 0.53%.  Goldman, which is usually a major tell for banks, keeps bumping into resistance around $145 and it seems to be putting a drag on the entire sector by the multiple attempts to break through resistance, but ultimately failing.  Recovery will not be sustainable until the banks are back on their feet.  They still hold hundreds of billions, if not over a trillion dollars in "toxic assets".  I firmly believe that banks are not out of the water yet.  They have merely gained a momentary pulse from all the drugs and medicine which are being force fed to them while on life support.  

-GM, now better known as Government Motors, finally filed for chapter 11 and the market reacted positively to this.  Conventional wisdom would say that if one of the largest industrial companies in the history of a country files for bankruptcy, stocks would go down, but that is not the case in today's market.  You have to look at it like the market is actually a breathing a sigh of relief to have this overdue filing actually begin to materialize.  Anyone with half a brain, knew this company's demise was hanging in the ballots for quite some time.  The important thing to follow with this bankruptcy is going to be all the counter-party risk exposure that investors will have.  I'd also like to note that it is non-sensical to truly believe that the bankruptcy case for one of the largest industrial companies in the world will be handled in a 60-90 day period.  As I said about the Chrysler bankruptcy...if that happens, the government has strong armed someone in the judiciary branch.

-My two cents as far as GM goes.....I believe that the unions ultimately brought this company down.  Sure the products may have been subpar, sure it's not the best idea to offer 0% financing to people who can't afford a moped, sure Hummers aren't going to sell when gas is $4/gallon, but to have your profit margins literally squeezed to almost nothing, due to the brazen negotiations by the UAW, is sickening to me.  There is no need for the employees of the company to have more pull than the actual management of the company itself.  Every time I see that Gettlefinger character on t.v., I get very upset to say the least.  The guy is a damn fool, and I know people will argue he's just doing what he supposed to for the union members, but to demolish a company so that you can have over the top healthcare and pension benefits, doesn't sound like great leadership from the head of the UAW to me.  

-Dollar keeps getting slapped around.  The strength in currencies has tended to follow natural resource rich countries like Brazil, Australia and Canada.  Since basic materials and agriculture are going to lead the globe out of this recession (depression), we are seeing strength in these currencies.  

-Treasury rates resumed their rise today after a hefty fall on Friday.  The 2/10 spread is 272 which is just 3 bps away from the all time high that we saw on Thursday.  This took place as Geithner was in China trying to persuade them to believe that China's holdings of Treasuries are "safe", the U.S. is going to cut its deficit and the Obama administration believes in a strong dollar.  The crowd simply simply laughed at him.  No, that was not a joke either.  Also, a former China central bank advisor is having a tough time believing what Geithner is preaching, asking him to provide arithmetic to show proof of how the U.S. is going to follow through on those pledges.  

-As I've said before, its imperative to separate your thoughts on capital markets from thoughts on the economy.  Once you focus on just the markets it's then important to break down your thoughts into time frames.  Short term, we have quarter end performance anxiety starting to enter the market.  Many mutual funds or hedge funds that were either underinvested or short the market are playing catch up right now.  Buying begets buying.  No portfolio manager wants to be the guy to send out 2Q statements showing paltry gains because he thought the market was going to turn or that the fundamentals didn't show a reason for the market rising.  The market obviously isn't being driven by fundamentals at this point.  It's more technicals (use as an indicator rather than a catalyst) and psychology.  Look for market strength through the end of June and into early July.  Why?  June marks the end of quarter two.  Then we have independence day, July 4th, soon after.  The most American holiday, which is why I think this may serve as an ironic inflection point for the market to head back south, seeing as there is little to no free market (capitalistic independence) left in this country.  I'd like to borrow the theory of my professor over at Minyanville, that 2009 will ultimately play out in a W shape.  The hard part is to figure out when we reach that first peak before the downside pressure becomes too strong.  

-Good luck tomorrow and let's try and stay positive through these tough times.