Thanksgiving week, a time for reflection…celebration… and speculation. Especially speculation. Markets are almost always in a good mood, as institutional investors rest and the daytrader class take the market over especially later in the week. I expect web traffic to fall off a cliff as only I, and the retail investor bother to show up so maybe I’ll post party pictures of Nouriel Roubini to keep things fun. I read late last week that this is not just a gut feel but also backed by statistics; Thanksgiving week is up nearly 70% of the time since 1950, and the 2 day period surrounding Thursday (Wed + Fri) is up over 80% of the time. Those are Goldman Sachs (GS) odds! But even more important than the market is what happens in individual stocks … the most speculative of fare generally does well this week…. in this current era that means solar stocks, dry bulk shippers, Chinese small cap names, biotech names who don’t have a chance to make a profit until 2027, and perhaps even the big 3 – Fannie, Freddie, and AIG (AIG). This is the week completely nonsense type of stocks surge 18% in a session followed by 14% the next day. Party on Garth.
Last week provided very little opportunity in the markets or individual stocks as stock indexes were in a tight range except for the now traditional beating of the dollar on Monday which allowed a surge of buying… the majority of the rest of the week was marked by an oversold bounce in the dollar which meant of course the inverse trade had to be placed on all risk assets. One small divergence was in precious metals which actually held up well despite the bounce in the dollar – that is extremely bullish. While the Russell 2000 broke back below the 50 day moving average, the larger indexes all simply drifted down to support levels – so nothing extreme at all in the selling. After a first half of the month which only saw 1 day in the red, this was a healthy move to correct some of the excess.
As we closed the week, I had remarked how Mondays had been magical (to the bulls anyhow) the past 2 months as one event or another (Chinese economic report, G20 meeting, Asian meeting) served to pummel the dollar and by annoying correlation drive up anything in the world. 7 out of 8 Mondays up, and those have been some serious rallies. Lucky us… Fed President James Bullard says the Fed asset purchase programs – already extended once from Dec 31st to March 31st, 2010 now should “not be retired” (wink wink). Yippee! Snap that dollar’s neck, and let us party.
Federal Reserve Bank of St. Louis President James Bullard said the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds.
“If the economy came in very weak, let’s say, in 2010, weaker than expected, we would have the option of doing further quantitative easing” through additional asset purchases, Bullard said.
Huh? What? Weakening economy? Here I’ve been drinking Kool Aid (not really) for 8 months as I hear Fed official after official promise us green shoots and recoveries? Aha, I understand… don’t want to upset markets or cause anyone to believe the tsunami of liquidity won’t be behind us, always and forever… it’s a speculators world and the LAST thing we want is fixed income seniors to believe they will actually earn a dime on their Certificates of Deposit. Thanks for the reassurance James! So mark up another “Happy Monday!” …
As for economic data, we’re jam packed this week. but none of the data matters anymore… all that any silicon computer chip (or human) wants to know is how the dollar reacts to said dollar.
- Monday – Existing home sales, far more important than new home sales as this is >90% of the housing market.
- Tuesday – revised GDP, I would assume it gets revised down because “by chance” almost every economic report we’ve seen the past year has been “better than expected” and then when no one pays attention, revised down 30 to 60 days later. Shhh, just a secret between you and I…. don’t tell the lemmings.
- Tuesday – Case-Shiller home prices…. a non event at this point to me, but hopefully it hurts the dollar.
- Tuesday – Consumer confidence … this rarely used to mean much but nowadays these CC reports seem to have an impact. Whatever the case on Tuesday you can ignore it because by Friday we’ll be hearing great stories of how confidence is rampant as seen by the “Running of the Shoppers” in malls throughout Americana.
- Wednesday – a HUGE day…. durable goods, personal income & outlays, weekly jobless claims, and the less important new home sales. Again, let us cross our fingers and hope our currency gets crushed by whatever news is released, as a weak currency is the key to American prosperity. (sarcasm)
- Friday – no economic data,…. but if we are lucky DryShips (DRYS) will be up 50% on the week by the end of the session.
So in summary, rejoice and give thanks. Mondays are days to use the weekend to behead the dollar, leading to rallies, and our probability of happy times Wed & Fri are in excess of 80%. Even better, my favorite CNBC moment of each year comes Friday when reporters are stationed at parking lots and malls across America and by the “traffic” they observe they can tell us how spirited and wonderful the shopping season is going! Much like home sales always surge in spring and summer we’ll be told great tales of how “the post Thanksgiving crowd is out there in droves!” We’ll act shocked, surprised and that data point will clearly mean it’s going to be a bumper Christmas season. Watch for it, it is almost laughable once you learn the pattern!
For the portfolio, we were stopped out of our last major short position last week; just another in a series of fruitless attempts to stand in front of the freight train called Ben Bernanke’s B52 bombing of dollars. For now “cash” will be our hedge so we’re long and loving life. In anticipation of the Monday massacre of the dollar (thanks again Mr Bullard) we took off our short term index bearish hedges Friday and replaced them with some call options. We’ll be selling them into the euphoria of destruction of American living standards this week. Let us be thankful.