Bear market Rally - Part II

Happy death Anniversary, Bear Stearns! 

A not-so-surprising rally over the last week, S&P up about 12% and everyone on CNBC crappping about equity markets bottoming. The bullish case is pretty easy to make. Commodity prices picking up, lower credit spreads, Fed and Treasury funded programs, banks returning to profitability ( for the first two months), global stimulus packages, TALF & TARP policy initiatives .. Yet, it is not all good as it sounds. 

FUnadentals are still bad, job losses have not yet subsided, House prices have not stabilized yet, consumer confidence still low, bad balance sheets at banks, banks not issuing credit, Manufacturing and productivity at an all time low .. 

Well, my take,, it is easy to get carried away by the bull market action, but the fact is there is a thin line between a bounce and a recovery. Typical bear market is interlaced with 2-3 bear market rallies, and the typical upside in a bear market rally is about 20%.. ( well, i agree, stats lose their relevance in a recession, but no wrong in finding a reason in numbers). And this rally, though is strong ( 4 consecutive up-days), does not have enough fundmental support to morph into a next BULL MARKET. 20% upside from the bottom of S&P would give a close of 811. I would not as much surprised if S&P breaches 800 level, and Dow 8000. Enjoy while it lasts. BTW, I am short the market.. and I kick mymself hard for selling my stake in GE and C minutes before Friday close. 

On sunday, OPEC decided not to cut production. It indeed is surprising when it seemed that the primary goal of the cratel was to puch the price target to abouve $75. Not that the cartel became philanthropic overnight, it is that the world economy is in such a fragile state that any increase in the oil price would do more harm to them and the world than good. 

The American International Group on Sunday released the names of financial institutions that benefited last fall when the Federal Reserve saved it from collapse with an $85 billion rescue loan and then three subsequent bailouts.

$38.8B US Banks

$50.2B Foreign Banks

$12.0B Municipal Bonds

$84.0B Unaccounted for.. (may be bonuses to those very assholes who are responsible for the badbets!!).. And then the bullish guys owe the 'anticipated-bull-market' to the initiatives from Fed and Treasury.. 

AA is the latest addition to the comapnies that cut the dividend. In a measure to cut costs, AA today reduced its dividend to 3 cents to 17 cents per q. This would save about $400 Mn per year. What is surprising is that AA is issuing common stock and preferred at these levels. The problem with Aluminium is that the prices have been down very very sharply, and accoring to the management of AA,  they are expected to drop by another 25% in the first Q. When the prices were on the rise, Chinese factories have incresed their Al production, and now the collective Chinese production is three times that of US. And a big dent in the consumer spending, and Capital expenditure spending continue to hurt every Al producer. Is it a BUY at these levels. May be yes, May be No, or May be I dont know. The post market action ( down 20%) was more of the fear of dilution. If the Al producers start cutting the production to stabilize the prices any near term, owing Call options (2010 exp) is not a bad idea.

Mac and iPod sales continue to be lousy in Feb...

The latest National Association of Home Builders’ survey shows that confidence is unchanged from last month.  This is the second month in a row that the level has remained at 9 for new single-family homes. THis might be percieved as a half-empty-glass case. The number has been at such a low level (50 is the pivot point.. above 50 - expansion and below 50 - comtraction) that it cannot get any worse than this. 

Today, me Harish invited Ranga and Sharmila over for dinner.. and it was amazingly fun.. Three hours of continuos laughter. :) :) .. 

Song: Tainted Love - Marlyn Manson. 

Mood: "Excited"