(Complimentary excerpt of thewww.ingerletter.com Daily Briefing weekendposting.)
Gene Inger's DailyBriefing . . . for Monday April 28, 2008:
Good weekend!
Convolutedcomplexities . . . reasonably describesthe world and market situations; at least as of now. The bulls will point to a clearlyfirmer price behavior, and proximity to taking-out the multi-month S&P trading range,while bears will denote the strength primarily mostly resulting from the 'transnational'corporate earnings, which have little or nothing to do with better economic prospects forthe American people overall; and in fact could not find the Averages so high withoutinflationary factors contrary to what most would concur are detrimental factors tomaintain an expansive monetary policy. Of course the answer will generally be that 'growthresumes' or all is resolved; catch is that's a long way from the reality of the Nation orthe world today, like it or not.
Bulls will usuallyforget that if indeed a stronger Dollar helpsease commodity and Oil prices, that the samescenario has potential to damage the prospects for the very 'Ag' and energy-related stocksthat have led the recent advance. Concurrently, they tend to minimize what a suppresseddomestic sentiment says about consumer 'duress', or rumored (huge) proportional increasesin Americans tapping what's left of their 'home equity lines'; which (if so) can't befavorably interpreted as other than showing a need for borrowing simply for basicsustenance. (If it were otherwise, deductible credit line interest merely used as a way tofinance kids' educations, cars or the like; then these would be just statisticalanomalies, and not so eye-opening; especially since you'd be thinking average citizenswould be saving not scrounging for their last available debt.) If that's valid, I'm surePollyanna's would interpret it as a positive sign: as aggressive optimism returning; usingcredit to 'double down' on -speculation- as is implausible.)
At the same time,while we have (often singularly) argued for several months for firm Dollar policies tosignal common-sense instead of 'pushing on a string' Fed monetary policy; we alsorealize why they had to do the latter first; and then the former now, or soon, as may bethe case. This is what we said all along: the recovery building blocks were beingassembled; first they needed to buttress the system; then worry about the need to startaddressing what could not be facilitated in a chaotic vacuum (details are providedmembers). So, yes, we have indicated that there was a 'tentative w-bottom' technically atbest; that we remained suspicious of rallies beyond back to the top-end of the tradingrange (probing that now). In a perfect world I'd actually prefer (if it were very soon) tosee a post-Fed meeting 'breakout' next week, of 300 Dow points give or take, convincingeveryone everything is restored, and then tank stocks. Is it likely?
Why tankthereafter? Because not all banks are 'too big to fail'; because consumer's ability tofinance and become aggressive anytime soon has slim-to-no odds of being doable; becausethe cost of money (as argued for a year) is secondary to availability of funds; and thathas not appreciably changed for anybody, but the actual banks for that matter (and theyneeded to be 'stoked' first, which is what the cuts were about). And because outside the'transnational' stocks; there really isn't much fundamentally favorable to support risingprices; unlike the 'w bottom' pattern we identified as bullish in 2002; which saw a Nationand population that was not so excessively leveraged at the same time money was readilyavailable to borrowers with at least a hint of a live pulse. In this situation, notreadmill test is needed to recognize that money is tougher to get for all players; eventhose that might be administering the financial stress tests.
Pension issue areout there; regulatory hurdles (that in themselves compress multiple prospects) remain; anda tough-love stage is probably more ahead than behind, with respect to conjuring up growthin a society that's plenty-fatigued right now with regard to the 'stagflation' weunfortunately were more than right in foreseeing a year ago. So we have to (trading asnoted to members); think we saw shifting –shall I say seminal- era with pricesplateauing (economic forecast reserved for ingerletter.com members). It's a shame;partially reflecting the poorly thought-out policies we long warned about.
The downside ofglobalism is part of that (international societal discussion); tragedy is the handwritinghas long been on the wall; as we've warned about for years once the radicals substituted'free' trading as a mantra for unfettered unfair trading. Politicians more recentlysquandered our forecast 'reflation' of 2002-2006 via their insane 'pork', while manytalked-the-talk, but walked the spending walk, as if they had allegiances to exportingU.S. treasure and even technologies, more so than using smart common sense to structuretrade deals. Like I said for two years; free trade doesn't of course have to be dumbtrade; unfettered free trade that's unfair is merely to dupe citizens.
I remain upsetabout this because the 'global extremists' continue to accuse anyone who suggests usingtheir brain in negotiating trade deals as an isolationist or typically protectionist, whenin reality neither is the case. Mostly all Americans know we must trade (have throughoutour history; as Jefferson and Adams acknowledged early-on); but we must do so for thebetterment of Americans (it helps other countries too); not to the detriment of ourpeople; or you get a political backlash worse than anything in time. Now you havevisibility of solutions (Oil and currency forecast for our members).
In reality it sortof proves my main point on Oil; regarding what's producible 'now'; not with respect towhat is still 'discoverable' for use later. Yes, the foodchain of feeding alternativeenergy into the system will also take years; much of which is why I remain so bullish onthe term (broadly defined of course, but the timeframe is provided here). The interim ispartially why we think 'long & deep' not 'short & shallow' to describe thesituation. However; with so many rabbits pulled out of the hat; there is a looming newshortage of rabbits coming up, and while not long carrot futures; we suspect this for surehas the effect of delaying the 'reckoning' for the market; but not eliminating it all.
As a matter offact; remember my thinking about 2008 overall; with down early, then (hard to know inadvance; but close enough) a late winter/spring rally, with increased risk of downside; asis why we thought bears had decent odds of making hay in May.
However it's allcomplex. Not that we wouldn't go even higher; rather the contrary that we attempt justthat, but might not make it. Why? Because the overriding (reserved). On top of that youhave growing 'hints' we alluded to regarding war-risks, realization that lots of CDO's andCMO's are not resolved beyond near-term stabilization (still can't be offloaded); whilethere are reports that SEC regulations have been violated by a large portion of pensiontrades in certain transactions (regulatory issues).
The onlyimplication (for now) of the regulatory aspects, are that we likely already are in (thoughnobody really emphasizes that) a 'compressed multiple' era; where with all the likelyincreases in oversight (known and yet-to-be-legislated) history tells us that it isusually only seen in an era (timing reserved for members) where lower multiples do tend toprevail. To us consider eventual bullish aspects there (yup). (Rest reserved.)
Daily action . . .even has folks disdaining the import oftechnical analysis here. Not at all say we; the reality is to combine the factors for anunderstanding of what's afoot in the marketplace. That comprehension supports our argumentthat what's going on isn't bullish per se; but upward consolidation in a rangeboundtechnical structure; as Gov'mint has done what they can to buttress systemic risk; buthasn't meaningfully redressed the 'stagflaton' dislocations; financial pressures stressingthe majority of Americans; nor the inability of pensions or other entities to offload riskfor anything other than marginal levels of debt reductions. Combining these realities is aprimary reason not to vilify fundamentalists or technicians; but interrelate the factors;arriving at a probability pattern outlined (balance reserved for our members).
It also reinforcesthe prospects of transnational big-cap stocks failing to discount what is likely going onhere in the Second Quarter fundamentally; which should be evident as we migrate furtherthrough it, reflected by technical characteristics. Hence we very vehemently dispute thosewho think either technicals don't matter, or that everything is mathematicallypreordained, and we don't need to know the facts. Technicals tend to reflect the facts,but sometimes can be distorted by short-covering; by engineered or other reasons forbreakouts or breakdowns; and that's why it helps to have a sort of 'context' by which onegrasps what's going on. Otherwise one buys highs and sells lows; which often can beavoided by having confidence in underlying real conditions.
The markets aretelling us that our 'forecast' (here; a year ago) 'stagflation' was 'right on', and thattechnicals actually reflected it later; first in Financials; then sidestepped it a bitbecause of the commodity and energy bubble (part of the stagflation projection of course);so now the next fundamental expectation would be the back-side of heavy storms (reasonsdetailed in this section), but also consumer duress.
To believe a morebullish follow-through than we've discussed would require a belief in a drastically lower'price platform' for everything commodity-oriented, and quickly. If it occurs later, itcould be in the midst of a worst-case alternative (that we're not at all counting-on andgenuinely pray does not occur), as would be borderline Depression. In such a situation,historically; prices ramp first, and then collapse during a deflation. Then it takes yearsfor everything to stabilize, sort matters out and cobble a recovery.
The jury is out onhow damaging the long-term will be. But the jury is not out on story tellers out theretelling us about the 'imagined recession' and all that. They are wrong, at least in ourview; and particularly if we can get a pop before the flop; that sets-up a difficult time,not only for markets, but for a societal order in many parts of the world.
Special note to new members:
Inflection zonetrepidations and thoughts about thetechnical majority, as unwilling to be bothered by fundamental facts, that we think meritinclusion for understanding where things are; while fundamental guys are optimisticbecause they now believe that if the Fed is 'comfortable enough' at this point not tolower interest rates further, that must somehow mean the worst is behind. We explored thecomplexities in the past week, and think you might want to review these. Available viaarchives below.
MarketCast (intraday analysis & embedded Daily Briefingaudio-video). . . remarks forecast substantive irregular volatile rallies ahead oflast week's Expiration; and the series of oscillating moves which likely continue into theFOMC's meeting. Reminding everyone 'at risk' markets return as recent oversolds areincreasingly eliminated (etc.) Friday's action reflected many of our concerns (including asuspicion they'd shoot for S&P 1400). The latest accompanying In any event we're retaining a macro (forward-roll adjusted) Next week, via nightly comments, especially after the FOMC meeting; we'll addresslonger-term risk or upside potential as may be defined by virtue of Fed deliberations. Bits & Bytes . . . provide investors ideas in afew stocks, often special-situations, but also covers an assortment of technology issues(needed for assessment of general factors in tech overall, or as compelling developmentscall for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.comthinks might merit further reflection. (Individual stock comments generally are providedin the video overviews only; once in awhile I'll have some thoughts here, wheresomething's particularly emphasized or of technical nature necessitating some discussion.Increasingly most all is via video.) --
In summary . . events continue reminding us of risksAllied fighting forces face, given continued attacks on free peoples, by elementsincluding organized terrorist forces in various countries. A world addressing terrorthreats continues, as domestic issues absorb us more while as we also focus on MiddleEast and World War III avoidance.
Issues continue including oil, terror; China(includinglatest Pentagon hack spying; a type of action that if we were financially sober wouldprovoke warranted redressing), Pakistan; certainly allthe Middle East, Europe; funny money NY economics. Noted for ayear: includes international dependencies, as outcroppings of a radical extremistglobalism which is neither pro-American nor conservative; even as true conservativessupport fair trading; constrained spending, and not squandering our US crown jewels.
Sixteen months ago I called this an 'accident waiting tohappen'; commenting that is affirmed historically as all long-duration periods of freemoney (Gilded Age mentality) do not create permanent liquidity; but give that
Since early 2007 we noted economic conditions more similar to postthe GildedAge ending in 1929, the panic of 1907 (hence our call for the start to be the'panic of 2007' last year at the end of that Gilded Age, and it's NOT coming back (what iscoming is a continuing discussion and not necessarily simply bearish going well-forwardeither). It is not a structure entirely resolved by rate cuts, stimulus, 'miracles',arrogance of a few who think they have influence; although all of course have short-runresponses.
Enjoy the weekend!
Gene
Gene Inger,
Publisher
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