03 September 2009

The Gray Lady and I See Eye to Eye

The Gray Lady sums up my market point-of-view just about perfectly.

First, the bear-market-rally is overdone, with corporate insiders selling their shares:

“The people who know are getting out early,” said Art Cashin, the director of floor operations at UBS, who said his “gut feeling” about the markets prompted him to sell some stocks last week. “This rally’s a little long in the tooth.”

On Friday, the research firm TrimTabs reported that insider selling had grown to $6.1 billion in the month of August through last Thursday, its highest levels since May 2008 — when the Dow Jones industrial average was floating above 12,000, compared with just over 9,500 at Friday’s close.

The ratio of insider selling to insider buying also soared in August, to about 30 to one, its highest levels since the firm started keeping numbers in 2004.


Second, trash stocks, i.e. financials, led this horseshit rally:

Analysts say that financial stocks are looking even frothier as trading in a handful of big banks has come to dominate the action on Wall Street. The KBW Bank Index, which tracks two dozen national and regional lenders, has surged more than 150 percent since early March.

Shares of the troubled insurance giant American International Group have quadrupled. And Citigroup, Bank of America and Wells Fargo, while still down sharply from their record highs, have been some of the rally’s biggest winners.


Third, the overwhelmingly bullish sentiment in the market offers up a contrarian indicator. Other technicals, like the Elliot Wave folks, are also questioning the rally:

Just before stocks turned around in early March, only 2 percent of investors were optimistic, according to the Daily Sentiment Index, which measures the mood of small traders and is run by Jake Bernstein, an independent market analyst. Now, the index shows that about 89 percent are feeling bullish. Investors were equally cheery when the Dow hit its record high in October 2007.

Robert Prechter, president of Elliott Wave International, a technical analysis firm in Gainesville, Ga., cut his negative outlook on stocks in late February. “Now,” he wrote in an e-mail message, “we are firmly back on the bear side.” Investors might be embracing greed once again, but Mr. Prechter said he doubted the stock indexes could replicate the remarkable gains of the past five months.


And fourth, Doug Kass is calling the top:

The hedge fund manager Doug Kass, who declared in March that stocks had skidded to a “generational bottom,” said last week the rally had run its course.

Like other investors who expect the markets to falter, Mr. Kass said he believed the economy was not heading toward a quick or easy recovery. Companies have made themselves look profitable by slashing costs, but he said they are not going to rake in more money in the months ahead as long as weakened consumers stay in hiding.

“I think we’ve seen the high for the year,” he said. “There’s a time to hold ’em and a time to fold ’em. And I think we’re at that point.”


Then there's Paul Tudor Jones, whom Bloomberg reported is calling bullshit on Goldman Sachs' call that the market and economy are in recovery mode:

Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery.

Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.

“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

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