Saturday, November 7, 2009

Going According To Plan

So far, everything has gone according to our plan that we've had for the last 6 months. If you've had a chance to catch our Taking the Market Temperature and Lunch @ the Market Segments (listen to all the posts here:, then you know we have called this market almost step by step. We were a little thrown off when the DOW jumped above 10,000 on the 2nd day of earnings and then failed twice at 10,000. Our goal was the 2nd week of November for the DOW to find itself above 10,000...and on Monday, we should open there. Defending it may have become a tougher job than we first thought though.

Unemployment has not been a surprise. I know Meredith Whitney was on Squawk Box months ago and said 12-13% was not out of the question. We'll take 12%, but I don't know that we'll get all the way to 13%. Honestly, it's a relief that we've printed over 10% unemployment. Lets face it, everyone has thought we were there at 10% for a long time now...we were just all waiting to see the number printed. I think the fact that the market not only held it's gains in the face of that number, but we actually finished in the green...means that it really was already priced in.

We have heard MASSIVE amounts of Bullishness from CEOs like Cisco. People have called a bottom in their industries. The banks and tech have pulled back, leaving more room to run above 10,000 in the DOW. Frankly, owning Wells Fargo, JP Morgan Chase, and Goldman Sachs here makes a ton more sense than owning them at much higher levels before earnings season. We have heard over and over that normalized earnings are a joke for the banks, that real estate is horrible, no good, and very bad. I hate to point out...but the bank reserves are massive and the bank failures we're seeing now need to happen to weed out unhealthy banks. Tell me what happens to bank stocks when they start talking about net interest margins and loan growth (normalized earnings)? They are going to soar. You just wait until Jamie Dimon puts his dividend back and Wells Fargo and Bank of America return the TARP (which they will, probably in a move that will surprise everyone but those with insider information; which you will probably see play out in options). Honestly, does any one have the Vegas Line on Bank of America or Citigroup going under? For gosh sakes, AIG is profitable and look at The Hartford and Travelers...they are soaring. Don't confuse my realistic attitude with outright exuberance or that I'm sounding the all clear or that things are great. But all the negativity is a bit much. As I think about it though, all the negativity is why we've been able to keep this rally alive. As the Bears finally realize that the world will not end, and that people can make money in stocks because truly great companies will find a way to be profitable. We need someone to sell my stock to after we make all that money.

That may be the moral of my story. The terrible companies, the really bad ones that no one should own...most of them already trade at that price and you should be able to pick them out because they're low single digit stocks, or worse, less than a single dollar.

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