Friday, March 25, 2011

Charlie Sheen Hasn't Got Anything on the Stock Market

If you watch the news or read the newspapers, you must know that actor, Charlie Sheen, has supposedly gone nuts. Not that I really care. Hollywood is all about being nutty! But you can’t get away from it. It’s like the Stones sang in ‘Satisfaction’:
When I’m driving in my car
And the man comes on the radio
Telling me more and more
About some useless informaiton
Yeah, we can’t get no - satisfaction about anything these days. Poor Charlie is all over the ‘media’. You know how they like to write about things that are important. It seems that Charlie has gone crazy. I think he is crazy like a fox!
But as crazy as a Hollywood type can behave, the craziest, most bizarre behavior has nothing on the markets. Earthquakes, tsunamis, economic destruction, populous riots throughout the world, wars on every continent, US unemployment at 20% (front page of Investor’s Business Daily on 3/24/2011 - the real number), and yet nothing can bring forth a bear market in stocks. The Federal Reserve will not permit it.
Let’s look at a microcosm of insanity. 
March 8, 2011 - “Overall, we believe these orders represent a positive data point for not only Pulte but also the broader homebuilding sector, and supports our view that demand continues to stabilize and slightly improve entering the current spring selling season,” said J.P. Morgan analyst Michael Rehaut.
Now remember, Mr. Rehaut is an ‘analyst’. Remember also that he works for the bank that wants to rule the world - J.P. Morgan. Knowing what each of us knows about housing in our area, this guy is sounding a little ‘Charlie Sheen-ish’. 
 Read on my friends.
March 23, 2011 - According to even our ‘Alice in Wonderland’ government, new home sales for February, 2011, fell to the lowest level on record. In case you are wondering, record keeping started in 1963. February 2011 sales were down 28% from February 2010 sales. As you might recall, 2010 sales were the previous ‘worst on record’ figures. Some analysts blamed bad weather. Others blamed the bulging inventory of foreclosed homes. Still others blamed the banks for tighter credit standards. 
Now, I don’t know what kind of drugs the whole world is on, but there must be a conspiracy to keep me out of the loop. I am stuck in reality while the rest of the world is exploring giant mushrooms or talking animals. For instance (from the preceding paragraph), did we not have bad weather last February? Weren’t the bad home sales last year blamed on bad weather for the previous February? Secondly, the foreclosures aren’t going away. They are multiplying. Thirdly, Dallas Fed President Fisher said this past week that there was a tremendous amount of liquidity ‘sloshing around the system’. The Fed is pumping money into the system by the hundreds of billions per month. To blame low sales on tighter credit standards is to blame poor ice cream sales at an anorexia nervosa clinic on just having one flavor. The simple truth is everybody is broke! We ain’t got no money to buy a stinkin’ house! Society is broke. No mas pesos. Is it going to get better? The worst ten months of sales on record have been the past ten months! The answer is ‘NO’!!
Let’s get back to Charlie Sheen. While the goal of Hollywood is to draw attention, ol’ Charlie is teaching Madison Avenue a thing or two. Crazy behavior draws attention. But nothing could be crazier than the stock market. Given what I have just written on housing, let’s look at the housing ETF, ITB, shall we? Observe the past week of behavior from investors toward the housing ETF in Chart 1. We can see that the housing ETF rallied strongly on the news of the worst sales on record. Yeah - I said ‘rallied’. Yeah - I said ‘worst sales on record’. I know readers have to be as giddy as me. Rule Ben wants a rally and a rally he shall have!! Reality be damned!!!


Chart 1 - ITB Intraday 15-minute bars 03/21/2011 - 03/25/2011 
Chart courtesy StockCharts.com
Now observe Chart 2 below. It is a chart of this same ETF, the ITB, along with the Dow year-to-date. Yes, crazy is coming into view now. As we can see from these two charts, it is obvious that the performance of an ETF is no longer a function of fundamentals. While the Dow is incredibly up for the year, so too is the ITB! In addition, we all know that housing and home building are rather large parts of our economy. Yet, our illustrious government has put forth fourth quarter GDP ‘revisions’ to reflect an upwardly revised rate of 3.1%. 


Chart 2 - ITB red/black, DJIA in gold YTD
Chart courtesy StockCharts.com


What does this mean. First, it doesn’t matter what we buy. Ben Bernnake’s magical quantitative easing machine blows bubbles in everything. Second, maybe we should buy the biggest pieces of garbage we can find. Hey, I hear GM actually sold a Volt car last week. They are on track to sell a few hundred this year!!! Maybe we should invest our money with a buggy whip maker. I wonder who makes leisure suits? What difference does it make. Buy, buy, buy! That’s what Ben does. Reality is meaningless. Crazy is in! Charlie Sheen hasn’t got a thing on the stock market!
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

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