One Stop Market

In the next couple of days you (everybody else) are going to want to be looking for a market bottom that may end up being a fairly extreme bottom to which the market may not return to for years. This being the case, you want to watch out for selling short here because huge upturns will not be unlikely. You may as well just look for stocks to buy rather than act on a spotted “sell-short” opportunity.

The pressue is definitely upward in general and prices will push that way through this week as long as nothing else goes wrong and as long as another bank or two don’t suddenly reveal that they are completely and utterly hopeless and bankrupt. We’ll see what Congress ends up doing but it will only help the sentiment from here. They’re not going to leave the American taxpayer and the international investor high and dry at such a time as this, you can bet on that. My guess is they will end up auctioning off debts to whoever wants them and they will buy some as well to regain some liquidity and not let the financial sector and then the US economy collapse in on itself. It wouldn’t be what we economists like to call, “a good idea.”

Without speaking too soon, this is your chance to get some really great deals on some really great companies like any surviving financial firm, the airlines, oil companies, anything in the S&P 500, and pretty much anything else that’s come down way, way too far in the last couple of weeks. Now is the time my friends, but don’t get too comfortable because the market never just rises without objection.

But not really.  The House of Reps will end up doing something drastic to help the US economy and the growing list of failing banks at some point in the near future.  At this point nobody knows the specifics, the time table, the dollar amount, who’s in control, and so on — but something will be done.  A hasty $700 billion plan was rejected mostly because the only reason to be hasty is to save Wall Street which Congress clearly is not holding up as a priority and rightly so.  Quite frankly, I’m glad the House of Reps didn’t just run alongside Bernanke and Paulson at the drop of a dollar and hope that they had the best interest of the public in mind.  I don’t get rich off of Wall Street like so many of those hots shots do so I frankly don’t care what happens to the stock market, though I do care what happens to my local bank as I’m sure you do. 

However, I will reiterate my last stock recommendation on (RIMM): only buy it if it breaks $72 or if some agreement is reached within Congress to pass a some type of saving-the-US-economy bill.  Either way, you should always wait for an indicator before jumping into a stock and even more so considering the current market sentiment which can be articulated by a saying that may go something like ”what the freak?!” 

As always, we’ll see what happens — but remember the Congress is there for the best interest of the American public.  I’m sure many would argue that and bring in points where corruption and greed take over, but if I were you I’d be much more weary of corruption and greed on Wall Street than on Pennsylvania Avenue.  President salary: $400K   Average investment banker salary: $15 million.  Who are you trusting more?   

For those of you hoping to catch up on this whole economic situation or if you’ve been asleep for the past year or two or if you haven’t cared about the US economy until you heard both McCain and Obama say absolutely nothing about the current situation in the debate and the fact that even the experts’ only real idea is “hey, maybe we should throw a ridiculous amount of money at this thing and hope it goes away”…whichever slot you fall into, here’s a very slim and understandable summary:

I guy (maybe you) goes to his local bank and gets a loan to buy his house at an interest rate of 6% and he leaves happy that he got such a good rate and is not thinking about whether or not he can pay the loan back, that’s what the bank is for — they are supposed to be the ones deciding that. Well, the guy behind the desk who gave him the loan gets paid when he gives people loans so the more and bigger loans he gives, the better off he is and the more he gets paid. Already seems like a slippery situation. Let’s make it even more slippery…the bank then sells the loan to someone else who will take it for 5% and then they sell it to someone else who will take 4%. Now you have three financial institutions who are utterly relying on this one random guy to come through with his payments. If he fails to pay, all three businesses default the loan and the house the random guy buys is foreclosed. If they’re lucky, they sell it quickly for half it’s real value and recover something but mostly they just lose and losing is not what businesses (especially banks) are supposed to do in a healthy economy.

Now multiply that by a really big number of random guys who come into banks to get home loans and you find yourself in a sitation which we are currently head over heels.

But have no fear, $700 billion is about to come flying in from over the hills and as a result we should be set for the next 5-10 years for the most part. If we haven’t hit the bottom and started rebounding by then…well maybe our silent presidential candidates would have been silent for good reason.

Somehow the US economy found its way into a debate clearly marked beforehand as a debate on foreign policy and I don’t know if either of the candidates got the memo on that one.  Both avoided the subject and the only thing an observant onlooker can conclude about such an action from an established and intentional politicial is that neither of them had any idea what to do or say or think about the current situation in which the US economy sits, with nobody to talk to and nobody to understand it’s unique, depressed, and potentially crippling feelings.  The problem is, being the natural economic psychologist that I am not, the market just wants to fall and fall and fall and then fall apart and no one has been able to talk it out of that disturbing behavior.  Not Bernanke, not Buffet, not Bush — any other big economic figures who have last names beginning with a “B” who want to give it a shot? 

 The issue is that nobody knows what to say.  When it comes down to it we have no idea where we are at in the temporary market valley…are we at the bottom, near the bottom, have we already hit the bottom?  Obama nor McCain knows nor does really anybody which clearly creates some uncertainty in the stock market, at the mall, at the new car dealership.  And that’s really at the heart of the problem: the sentiment that goes along with all this bad economic news hitting the wires 24/7 without so much as a hint of anything positive even in the near future besides this ridiculous bailout plan which, they all seem to be saying, will have worked in about 10 years.  But we won’t know until then.  We won’t know that we’ve come out of an economic valley until we have come out of it and that won’t happen for a year or so no matter how much money they throw at distressed banks and distressed loans.  Might as well make it a billion hundred billion dollars, the American taxpayer will be the one paying it back in taxes anyway. 

Am I a cynic?  No, my wife always says I’m an optimist but it’s important to understand that as much yelling at the economy as we’re doing, it’s doing exactly what it should: in an given day, week, month, year, decade, and century an individual stock will rise and fall and so will a country’s economy.  There is no straight up growth without ups and downs. 

It’s also important not to panic…who needs money anyway?

Market participants are like patients in a doctor’s office waiting for the lab results on whether or not the US Economy and the Stock Market is going to fall apart at the seams in the next couple months or years. The background gossip is that of course Congress is going to approve the $700 billion bailout and famous investor Buffet has already jumped head over heels into Goldmann Sachs under the absolute certainty of its near future approval. But the markets on the whole are not convinced and, as a result, are simply going on like normal reacting to daily economic data and earnings reports from companies like RIMM (Research In Motion) as if the whole market isn’t about to be swept off its feet.

Speaking of RIMM and being swept off your feet, this investor favorite dropped about 30 points or around 30% today because of earnings reports that were below economist estimates. Listen up for a lesson in investing: RIMM missed earnings estimates by 1 penny (86 cents actual vs. 87 cents estimate). The company is solid, the earnings are great, it’s been weathering the market turmoil without too much difficulty, it has a product that is at the top of its market — unmatched by even the iPhone and it drops almost 30% in one day from the 90’s to the upper 60’s.

This isn’t a New England weather forcast for late summer, this is a rock solid company that’s not going anywhere but up from it’s current price of 71 and change. Give it two weeks and it will be back in the 90’s again. Quarterly earnings release time is a great time to grow your portfolio because it is such a short-sighted time in the market. All anyone cares about is if a company hits or surpasses the estimate. Of course, with the economy the way it is most of the huge companies like RIMM are going to miss their estimates. Now, after everyone freaks out for a day or two you can choose to be the smart one and buy into a hugely deflated stock right before it regains most of its losses.

Don’t miss this one. Easy opportunities like this don’t come often.

Conservative advice: BUY (RIMM) at 72 and hold until it reaches the 90 (or hold indefinitely).

Aggressive advice: re-finance your house and empty your 401K to BUY as much (RIMM) as you possibly can.

We’ll see what happens.

Yesterday there was a slight response to a reknowned investors move to invest $5 billion in a big name financial stock by the name of Goldmann Sachs. As is usual with news reports that affect the market, there was a blip and a sudden rise in index prices and then it all came back down within a half hour.

But as I look at the very positive future values of today’s session at only 8AM I can’t help but remember Buffet’s strategy. As an educated trader, you can’t get good at trading and investing without studying, at some point along the line, Warren Buffet’s strategies and approach to the market. He’s NOT a trader and when he goes in, he goes in big because he thinks he’s going to make a lot of money because he thinks his newly acquired stock is going to rise. If I were you, I wouldn’t bet against him — it’s not worth the risk of being a bear now — it’s BULL time!

Come on markets, let’s pull together and start to rebound because the US economy isn’t dead yet and Buffet’s on our side as of yesterday. As always with the market…we’ll see what happens.

Yesterday the market held its breath in anticipation of the reaction Congress would have to the proposed bailout by chairman of the Fed, Bernanke backed by the US Treasury of using $700 billion to literally take over a few big name banks in hopes of “saving” the US economy. Apparently, market participants were not happy with the reaction and prices fell for the second day in a row since last Friday when news hit the wires that the whole bailout thing could turn the market and “selling short” became virtually illegal in the financial sector.

Today, the bears will push hard against a sea of uncertain market participants and we all know what happens with uncertainty — prices collapse under pressure. It looks like, apart from a positive news or earnings report of some kind, another day to sell short something, anything really. Just pick one. As long as it’s not in the energy sector you’ll probably be fine though that sector could easily shave off about 4 points per stock today depending on the market at large and the weekly oil inventory report today at 10:30AM est.

In short, take a short position at some point today in any sector where it’s not illegal. Stay legal.

The market rose early this morning in high expectation as the Senate is expected to approve the proposal to throw $700 billion into a few big name banks to, in effect, financially save them from destroying the US economy altogether while their failed mortgages and investments slowly smolder over the next couple months or years.

In essence, the markets rose appropriately since it is obvious the Senate simply has to approve the proposal or they are quite clearly approving the decline of the US economy. One of the main reasons there is a Senate in the first place is to maintain the US economy and keep it relatively safe from huge, market impacting times such as these in which we currently walk.

As this article is written, the Senate meets. We’ll see what they end up agreeing on — perhaps they may postpone a final decision. Either way, the market is still holding its breath…waiting.