Monday, October 12, 2009

Stock Market Review - 10/10/2009

Sellers Remorse

You may be familiar with the term 'buyers remorse'. This is when a buyer suffers anxiety and remorse after a purchase. Maybe they bought the wrong item. Maybe they paid too much. Either way, the buyer is sorry they handed over their cash. In the stock market, we are seeing sellers remorse. This has occurred every time investors have looked through the microscope of reality and pulled money from the stock market. We all know the drill. Real estate is bad and getting worse. Unemployment is horrible and getting worse. We have allowed manufacturing jobs to relocate abroad. We have a new administration focused on 'spreading the wealth around a bit' through higher taxation. The central bank is focused on ruining the currency to save their big banker friends while they watch small banks drown and vanish. But each bout of reality based selling has been met with an exuberant stock rally fueled by the Federal Reserve. Either they bailed somebody out or they injected trillions or they exchanged trillions for toxic assets. The bottom line is that selling stocks has become a losing strategy.

Fundamentals are a complete waste of time. Yes, the stock market indices have risen smartly since the Fed through in the kitchen sink on March 9. But so too has the home builder index and none of them have made a dime in the last year. The point is selling is for losers. All we have to do is buy stocks and wait for the Fed to blow the wind in our sails. Up, up, up we go. Bubbles are delicious and they are the specialty of the Fed. The chart below is a one-week look at the Dow in candlesticks and the 10-year US Treasury yield in green. The bars are 60-minute bars. Obviously the rally in the Dow is still in play. Look at Friday. Each hour was a positive hour. There was hardly a seller to be found at the exchange. Tuesday, Wednesday, and Thursday found the Treasury issuing tens of billions of bonds to pay our country's debt. Of course, this required the attention of the so-called primary dealers to acquire this paper as is their duty. The market staggered a bit for those three days but as soon as the manipulation of the bond market ended, they went back to manipulating the stock market. Isn't it odd that the bond yield fell each day debt issuance? Isn't it odd that the yields went up on Friday when there was no issuance? If there was really demand for the debt as our government would have us believe, wouldn't owners of such debt hold on to it? No, the bond world is not real and it is now driven by derivatives, market manipulators, and a Fed determined to keep interest rates at record lows. Mortgage rates continue to fall and fixed rates are now below 5%. I suspect they will continue to fall as the Fed subsidizes housing. They already do to a large degree with Fannie and Freddie but also with the $8,000 housing kick back for new buyers. The government has ventured into the car business by subsidizing new purchases in the 'clunker' program. Now it appears they are subsidizing the stock market as well. Absent any sellers, the sky is the limit.

Dow in candlestick, TNX in green - 5 day hourly ending 10/10/09
Chart courtesy

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