interesting > from ensisman200 on the yahoo TZA board
Market Philosophy- Part One
It's amazing that bad economic number after bad economic number (wholesale inventories, initial/continuing claims, new and existing home sales, consumer sentiment, weaker than expected durable, industrial production, no returned growth in the service sector, etc., etc.) would find the Russell 2000 at a new 52 week; in fact the IWM is now trading just 21% below its all time high!
Is the US economy that strong and have things changed so little? With the collapse of the housing market, the private debt (consumer credit, home equity loans, etc.) bubble, discretionary spending bubble, the auto industry, etc. etc. very few intelligent people that would answer yes.
So why the amazing strength, particularly in the Russell 2000? Is it valuations? There are very few analysts that will say by any historic measure that stocks are cheap. Some will say that we have only partially recovered from the fall to 666 on the S&P and have room to grow. This logic is so ignorant on so many levels; I do not even know where to start. Is it the wall of liquidity? Well yes, but not from the mutual funds as they really are fully invested and the in-flows are non-existent.
The main reason is the US government/Federal Reserve/Treasury and really, world governments cannot afford for the US stock market to decline, at least not much from these levels. It is the only bubble left that has not collapsed (but almost did) and consumer sentiment and spending are directly correlated with the stock market. And if anyone has not noticed the global stock markets have never been more correlated to the US stock market; even on an intra-day basis!
I am not talking about some grand conspiracy theory. There is no doubt at all that the investment houses (GS, MS, etc) which are now banks as well as the monster banks (JPM, BofA, Citi, Wells Fargo) are all borrowing from the Fed (our money) at near zero percent and buying Treasury bills/bonds as well as stock indexes through their proprietary trading operations. Even though the money supply has ballooned to all time highs, none of it is working its way in to the economy (consumer credit has plunged to record lows 14 months in a row). So now you know where the money is going.
And of course you all know that these firms collude with their hedge fund buddies and all get on one side of the trade; particularly when they have the full blessing of the Fed and Treasury and of course the billions of tax payers’ money borrowed from the Fed at near zero.
And I think everyone on this board would agree that if the stock market fell back to last years low the US (and global) economy would tank
Part Two
And when bank reform is threatened by the Obama administration, the first thing that happens is the power players (GS, MS, JPN, etc.) take the market down 8% to teach Obama who really controls the markets/economy. This is why any meaningful bank reform will simply not happen, or if it does the markets will tank.
So where does this leave us? Abbey Cohen of Goldman just this week suggested that because volatility has come out of the stock market that NOW is the time that retail investors need to get back in to equities. But you could tell she was uncomfortable in saying what her bosses were telling her to say. Take a look at the video on CNBC. She looks like the cat that ate the canary. She knows she is giving bad advice.
All the big players in the market were positioned to clean up on last quarter’s earnings because the comparisons were going to be so brilliantly easy to cream. When it did not happen, GS, JPM, MS and their “trading huddle” buddies had to wait, they hung on waiting for earnings to end.
This is where we are today, but unfortunately none of these guys have made much money, the market is barely up for the year. And believe me; everyone is long, just like the Fed wants. They are not giving this free money away for nothing!
I have taken a bath on my TZA investment, but fortunately it is only 15% of my portfolio. I bought TZA to protect my other stock holdings (and my house; read the Aftershock). Intellectually, I know this balancing act and puppet show will come to an end but it is abundantly clear to me that the powers believe that the longer they can keep a stable and higher equity market, the softer the potential impact a large decline will have on the rest of the US and global economy.
In hindsight I wished I joined the band wagon but intellectually, I believe we are creating yet another bubble and I could not go completely naked long in my portfolio. Sooner or later Goldman and the others will not be able to resist; greed will take over and they will pop the stock market; free money, the unemployed, the US economy be damned. That’s when bank reform will happen but by then they will be more solvent than most countries; actually they are now.
When will this happen? Usually it is when people like Abbey Cohen start saying that now is the time for the retail investor to get back in.
