When We Rally on Bad News

Didn't I mention yesterday something about this market's ability to rally on bad news these days?

That jobs report was clearly bad news. To be clear, I don't care that it was worse than some clueless economists polled by some news organization or not.  The point is that we lost 80,000 jobs as measured by our antiquated governmental measuring systems, and the magnitude of that along with all the data points we get elsewhere, simply confirms the hard economic times we're going through.

You really needed a jobs report for that?  No, and neither did the market and thus...

We rally on bad news.

And that's bullish.

Shocking Headline: Investment Banks Having Problems

Let's say we find out there's another $100 billion in losses at the US investment banks from the mortgage bubble coming unwound.  No, even better, let's say there's another quarter of a trillion of losses at than i-banks and other financial institutions in this country. And what would you think if you wake up tomorrow and find out that oil supplies are being disrupted and the world's economies are slipping along with the US.

Would you be surprised?  No, of course not.  And neither would the stock market at this point, it seems, no?

And what if it turns out the mortgage write-downs are nearly over.  Or more to the point, let's say there's some new development of peace and it turns out that the consumer picks up her spending again this summer and that the enterprises around the world start investing in new technologies and productivity and GDP numbers perk up.

I feel almost silly just writing that last graph...we'd all be shocked if things get better in a hurry for the economy and fundamentals.

And see, doesn't that say it all about why you've gotta stay bullish and long for the near-term...and, as I said on Happy Hour last night -- maybe even expect the stock markets to reach new highs into early summer...

Even the bad economic news about jobs and the rest of the ugly data from the last couple weeks along with the testimony on Capitol hill from the idiots who've created this mess for us have all resulted in a steadily climbing stock market from the recent lows.

When stocks flatline or bounce on bad news...you gotta ask yourself, what would they do on, yes I'm gonna throw it out there -- good news.  "Flip it", right?

Buy the fear and bad news, sell the euphoria and good news.

NYTimes Wall Street Reg Coverage: Preemptive Preemptiveness Preemptively

Speaking of being preemptive, how about the relentless attack by the NYTimes on the pending new "regulations" proposal for Wall Street and the banking industry from Paulson and the administration.

Don't get me wrong now, I'm all for bashing these proposal and all of the convoluted ways it will redistribute wealth from taxpayers to the government and its cronies on Wall Street (to be sure of course, any of these new regulation proposals from either fraternity party in Washington will will redistribute wealth from taxpayers to the government and its cronies on Wall Street just as the government always does "in the name of protecting you"), but the relentless front page attack on the NYTimes this weekend struck me for its very preemptiveness (ooh, nice word).

News Analysis

 

In Treasury Plan, a Reluctant Eye Over Wall Street

By NELSON D. SCHWARTZ and FLOYD NORRIS

 

The Bush administration is proposing the broadest overhaul of Wall Street regulation since the Great Depression. But the plan, to be unveiled on Monday, has its genesis in a yearlong effort to limit Washington’s role in the market.

Editorial

Toward New Rules for Wall Streete

...But early word from the Bush administration, which still has nine months to influence the debate and even start the nation down one path or another, is not altogether encouraging. On Monday, the administration is releasing a blueprint for regulatory reform, much of which was developed before the Bear mess, though it may still be important for further discussion...

Treasury’s Plan Would Give Fed Wide New Power

By EDMUND L. ANDREWS

Published: March 29, 2008

WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

Doug Mills/The New York Times

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.

Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis.

We'll hit on this subject and more when we discuss the proposals from Paulson and Washington on tonight's Happy Hour with Barron's Bob O'Brien.

PS. Ever notice how funny a word preemptive is if you sound it out phonetically? Pree-mptive, as in rhymes with tree-empty?

Introducing the New Happy Hour Segment: Slow Money

The financial discussion I have most often with people when they actually open up and talk about their lives is about how they’ve lost big money over the years in one sort of trading scheme or tip sheet or newsletter or TV show or another as they try to make the quick buck.

There ain’t no such thing as a quick buck. You gotta be patient and conservative…and if you are and you work hard and save along the way, you’re gonna do great financially relative to what you make. It’s all about the Slow Money.

Bureau of Econ Analysis: You Get What You Pay For

The multi-talented Mark Lieberman, senior economist at Fox Biz, just sent out this to all of us at the network:

GDP grew at a 0.6% quarterly rate anualized in 4Q '07, according to today's "final" report, the same growth rate as reported in the advance and preliminary estimates. According to the Bureau of Economic Analysis, this is the first time all three GDP reports have been the same since BEA began producing three estimates of each quarterly result in 1977.

So for the first time EVER in the 30 year history of the government keeping track of this stuff, they actually got it right when they initially and secondarily reported this stuff?    And people actually wonder why I think these government reports are such a waste of time and energy for investors and traders....not to mention the waste of money for taxpayers who foot the bill for the billions that it takes for these bureaucrats and their cronies to put together this worthless data.

It's why I always tell people to get their economic data from private research groups -- sorta like why most people prefer a private bathroom to a public one...you get what you pay for, no?   And to get trends and information about the economy, you gotta listen to company conference calls and read everything you can get your hands on...don't get me wrong, those executives on the conference calls lie all the time too, but this is one case where I'm willing to take the lesser of two evils (unlike when it comes to voting where I don't get the idea of condoning, much less trying to put in power any form of evil, even a lesser of two, btw).

Speaking of which, the Oracle call last night wasn't half bad, despite the trashing of the stock today.  Not a favorite name of mine, but not a bad play on tech into the summer either.  I'd prefer Adobe here though.

Pre-Emptive Strike: Worked so Great in Iraq, Our Government Tries It with the Economy

As Ben Stein so eloquently put it in this weekend's NYTimes, the fact is that by any standard definition of "recession" (typically defined as two consecutive quarters of negative growth) that we're not in one.  Yet, we've already thrown hundreds of billions of dollars of your tax money into the banking system through intraday liquidity injections, risk shifting of billions of losses from companies like Bear Stearns' balance sheets, and so many other outright bailouts from our Fed and the Republicans and Democrats in charge.

Recall also that this "recession" we're wasting so much of your money trying to stop from happening is indeed happening anyway.  Recall also that the last two recessions that we dealt with lasted a total of about eight months each.

And now we're hearing buzz that the governments and central banks of the developed world are thinking of colluding to manipulate the value of their currencies...because as Bloomberg states for some strange reason:

For the first time in 13 years, people who trade currencies say confidence in the markets to determine exchange rates is dwindling.

The crisis that may bring the so-called Group of Seven nations to coordinated intervention is the result of a sinking U.S. economy, the weakest dollar since 1971 and the biggest currency fluctuations this decade.

"Crisis"??!!  The economy and the markets have turned down a little bit, just as they always do over time.   What's with all the pre-emptive strikes around here?  They aren't working anyway!

Live from Willet’s Point, It’s Happy Hour Auto Show

They asked me to go to the NYC Auto Show. I think they meant that high-falutin, tax-dollar subsidized NYC Auto Show from the Javitz Center. Instead, I headed up to Willet's Point, where there are no sidewalks or sewers, for a kept-real Pimp-My-Ride Auto show from the streets. As I ask in the video, I wonder just how much these people's lives could be improved with that $286 million of taxpayer money that's going into the pockets of Bear Stearns shareholders even though the shares are otherwise worthless.

The ultimate car at this auto show...Buick Sable? Rock on indeed.

Booms Turn To Busts

Well, it's certainly not quite the boom time it was from 2002-2007, now is it?   That's a large part of why I kept my mom 20% in cash when she was on the show this week looking at her 403b.

Fed-Ex, a great tell for the consumer and other trends in this digital age: "Our fourth quarter earnings outlook has been impacted by higher than anticipated fuel prices and a weak U.S. economy," said CFO Alan Graf, in a prepared statement. "Looking ahead to our fiscal 2009, we are expecting a continuation of fourth-quarter trends, which would result in limited earnings growth next year. We are scrutinizing all expenses and investments to realign them with the current environment."

Border's, a book retailer that you just know would have been taken private for 2x sales in some "great bargain" for private equity this time last year:  "We believe that consummation of the transactions under the commitment will make us fully funded for 2008, where absent these measures, liquidity issues may otherwise have arisen in the next few months," Borders CEO George Jones said in a statement."

CIT, a company I've cited numerous times on Happy Hour as being in big trouble:

CIT
8.76
-2.88 (-24.74%)
Delayed:   9:42AM ET

How To Trade This Market: Near-, Short-, Intermediate and Long-term (Yes, all that in under 800 words!)

I keep hearing people confusing yesterday's stock market rally with an "all clear" signal for this financial crisis. While I do think the free market forces combined with this trillion dollar bail out for Wall Street have put us on a path for strong growth during the 2nd and 3rd quarter of this year, I'm far from thinking we're through with the ramifications of the real estate bubble popping. Hell, maybe all of Wall Street's still a bubble...those brokerage and bank stocks are still up a bunch from a few years ago and Goldman's earnings have gone from $6 to $25 a share since 2002. That's gotta be bubblicious if not out right bubbled.

Anyway, the way I see the set up here right now is this:

1. Very near term, I'd be neutral. I was pounding the table here on these pages on Monday and Tuesday that you had to be long and strong into the Fed meeting. That trade's over, and always remember that a trade is a trade is a trade. Take the trade and move on.

2. Short-term, say, the next few weeks will get everybody panicked as earnings in light and warnings come in heavy. See Sony Ericsson's warning for example today. Let that panic settle back in again and then start scaling into the long side again.

3. Intermediate term you gotta be bullish for the next few months, especially since everybody explains to you that you should be bearish for the next few months since earnings will supposedly be bad...that's most likely a headfake, as everybody will be looking backwards at the last quarter's reports, which will indeed be bad. Recall that back late last year, when stocks were 20-50% higher, that EVERYBODY promised those same earnings reports would be great. They were looking backwards back then too. Looking forward rather than backward, we see a tsunami of stimulus and asset inflators hitting in the next few weeks and months. They won't change the long term, but they'll inflate things for a while.

4 . For the long term, we've still got binary outcome possibilities. With all the bubble inflating and deflating going on in this country for the last couple decades, we're most likely headed into yet more bubble territory for the next few years (see my repeated predictions for an Echo Techo Bubble in 2008 and beyond) or we're headed for the depression that the politicians and all their meddling cause even as they and most of the mainstream media continually try to explain that all this meddling prevents such depressions.

Government policies cause depressions and bubbles. Natural market forces allow for steady growth in nuanced boom and bust cycles.

Fading Ben’s Darth Fader’s Fade

Luke: You know, I think that R2 unit we bought may have been stolen.
Uncle Owen: What makes you think that?
Luke: Well, I stumbled across a recording while I was cleaning him. He says that he belongs to someone named Obi-Wan Kenobi. I thought he might have meant old Ben. Do you know what he's talking about?
Uncle Owen: Uh-uh.
Luke: I wonder if he's related to Ben.
Uncle Owen: That wizard is just a crazy old man. Now, tomorrow I want you to take that R2 unit to Anchorhead and have it's memory erased. That'll be the end of it. It belongs to us now.
Luke: But what if this Obi-Wan comes looking for him?
Uncle Owen: He won't. I don't think he exists anymore. He died about the same time as your father.
Luke: He knew my father?
Uncle Owen: I told you to forget it.

I like to joke with traders who overthink/overgame the market (as all traders do at times, btw) that they're trying to fade the fader's fade.

The idea of being a contrarian trader is to always "fade" consensus, which means betting against consensus. But if you start overthinking the market then you'll think that the other wannabe faders are the consensus and so you then you start trying to fade the fader's fade. I suppose if you fade the faders fading the fader's fade you'll probably end up on the original side of the trade you meant to be on as a contrarian, but this post is gonna need to be faded if I ramble on much more...

Point is that everybody's been telling me that everybody's expecting a full 75bps or 100bps cut from the Fed at 2:15pm today...and that if it's anything less that the market will tank. I was adamant yesterday on these pages, last night on Happy Hour and again today even with the market already up 2% this morning, that I'd rather fade that fader's fade and stick with the long side for the near term (meaning days in this case) and for the intermediate term too (meaning the next couple, few months in this case).

The dark side always beckons most strongly at the bottom, if I end on my own Star Wars-esque quote here.