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Mix-Ansicht- The Rebound That Won't (zwar alles bekannt, aber naja....) - Tombstone, 16.01.2002, 21:28
The Rebound That Won't (zwar alles bekannt, aber naja....)
The Rebound That Won't
Seems that the much ballyhooed stock market rally, the one that was supposed to foreshadow the imminent recovery, has likely seen better days. While the press and assortedly coiffed CNBC darlings cooed on and on about it's amazing strength, those whose market experience extends anywhere BEYOND the last few years know it was just another classic"sucker's rally."
It was just last week that I was drawing attention to the fact that the S&P 500 finally managed to penetrate the 200-day moving day average. Oh what a difference a day makes. The whole session turned out to be a classic failure with the index failing to follow-through beyond the average and also failing to draw in any buying above the early December high. And all that happening just above 1175, a level that The Sovereign Strategist identified months ago as critical resistance, likely to give the market a hard time.
That spells trouble for the market, and likely the end of yet another textbook example of a bear market rally. Sharp and swift, based on nothing more than a dollop of short-covering, a pinch of hope and an unhealthy smattering of fantasy and wishful thinking. A little improvement in consumer sentiment, a few houses sold last month and voila! the recession is supposed to be over. And on top of that, all those companies with dismal profits are supposed to turn around and start making major bucks.
Where is that money supposed to come from, I wonder? The consumer is currently sitting on record levels of debt. And Uncle Green-spin keeps dangling out easier and easier"money" in hopes that the consumer will strain his bottom line still more.
Sheer genius. The stuff that all healthy expansions are made of: take a consumer up to his ears in debt, a highly overpriced stock market, insert easy money spigot and blow the whole teetering-on-the-verge-of-collapse-bloody-mess up with still more hot air.
All this spin-doctoring in the mainstream financial press about imminent recovery and a 2-quarter recession is utterly amazing. What, pray tell, is this recovery to be founded upon? Recoveries happen as a result of cleaning up the bottom line, working the excess out of the system and the subsequent pent-up demand. Where's the pent-up demand? Consumers haven't stopped buying much of anything. And they're more in debt than ever. I repeat: at record levels. Tell me how the heck we're going to create a healthy expansion under these conditions.
Are consumers to borrow still more money in order to do the"patriotic" thing and consume more? Are corporations supposed to borrow more money to expand capacity on the hope that the consumer is going to do the patriotic thing and consume more? Is all that debt supposed to increase our wealth? Is borrowing more money in order to buy more things we don't need supposed to make us richer? Is a recovery founded on broke people becoming still more broke the stuff of a sustained advance? Common sense says no.
I'm not psychic and I can't say with certainty that no recovery is in store for the short-term. Crazier things have happened. But even if a recovery does show up, we'd be denying any semblance of reason and intelligence to assume it could be anything of significance. I've said it before and I'll say it again: what goes up must come down, the bigger they are the harder they fall, the steeper the expansion, the deeper the trough. We ain't seen anything remotely resembling"deep".
Stuff to Watch Out For...
Earnings season is upon as once again. After 3 months of jolly good cheer and hopes that all will soon be fine, reality will be staring us in the face once again in the form of disappointing earnings. The Fed can pump huge amounts of liquidity into the system and create a mini stock market bubble, but the illusion is not likely to be sustained in the face of direct evidence that corporations still aren't doing particularly well. Forty-four percent of companies that offered early earnings estimates suggested that their numbers would disappoint.
In addition to our run-of-the-mill domestic concerns, there are a lot of variables out there unlikely to create the kind of"happy happy joy joy" confidence necessary to spark an advance or rebound of significance. This whole Enron debacle is only beginning to unfold and despite the magnitude of losses, have you noticed nobody seems to care too much? Maybe it really wasn't that important of an issue. Or maybe we just haven't heard the whole story.
Argentina, for all practical purposes, blew up, with their currency devalued by 41%. So far. Yet somehow the biggest default ever failed to spark much concern in these parts. Maybe it's because we saw it coming. Or maybe it's because folks haven't yet realized just how heavily invested some major U.S. financial firms were in Argentina.
Japan is still a bloody mess, and now there's increasing concern about a banking crisis. Officials there are set to lift some of the deposit guarantees in a couple of months. Ask yourself where this will go. Imagine if the U.S. government came out with an announcement today to the effect that your savings are no longer guaranteed. What would that do for"consumer confidence"?
It does all seem a bit strange, does it not? All these crises that are not crises. Is it all just being handled and contained? Or is it like that moment when Wiley Coyote, chasing the Road Runner, runs off the edge of the cliff and just hangs there, suspended in mid-air, before finally plunging to the bottom of the canyon?
I don't have any answers but it sure doesn't seem like optimal conditions for a major turn-around in economies or stock markets. You can count the supportive factors, the good news on the left-most region of your right hand. The negatives and potential negatives are piled a mile high.
Out here in the mountains we have a saying:"If your cow has been throwing up for the past three days, it's probably sick." OK we don't really have a saying like that but if we did, it would be appropriate to mention it right now because it would be relevant. Said another way, when 99% of the evidence suggests that conditions are still negative, it's unlikely that a major turn-around is in the works.
It's possible, but I wouldn't bet on it...
Mark M. Rostenko
Editor
The Sovereign Strategist
www.sovereignstrategist.com
January 16, 2002
Mark M. Rostenko, a veteran floor trader of Chicago's commodity exchanges, is the editor of The Sovereign Strategist investment newsletter. His views have been featured in Barron's, the Wall Street Journal, the Miami Herald and many other publications. The Sovereign Strategist has achieved an uncannily accurate track record in timing the market's turning points throughout 2001 (and into 2002), helping subscribers to profit from 40-500% on various investment vehicles in 2001.
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