Tuesday, March 5, 2013

Stock Market Note on March 5, 2013

I owe it to my followers to write once in a while, even though it hurts to be on the wrong side of the market.

It is very obvious that bears like me are back in their caves. We are hiding from the wrath of bulls, who have once again driven their horns into our hungry bellies, just as we came out of hibernation craving for a sell-off. We were not able to knock the market off its feet, and produced only a whimper of a pullback, which was promptly erased by central planners around the world. But you will hear how it is all about the improving U.S. economic numbers now, and not Bernanke's infinite QE, because miraculously our economy turned around and will grow at robust 2.2% instead of the measly 1.9% predicted earlier (pardon my sarcasm).
And to be fair, I do recognize the better-than-expected numbers, as I am not blind nor ignorant to the data spewed on unsuspecting public, which has no idea that real earnings growth is actually decelerating rapidly, and will probably even shrink in 2013. Buy! Buy! Buy! We are going to the new high! CNBC is airing the special tonight: "Dow is at record high", or something like that, in which the talking heads will tell us how we are in the beginning stages of a new secular bull market. It is not my intention to argue with their thesis now, but merely to state the fact that we are climbing higher on the basis of dividend increases, cost-cutting, increased share buybacks, and other financial shenanigans of the S&P 500 companies, whose revenues are not growing at the rate suggesting the expansion which is now fully priced into their respective stocks. Fed is pumping $85B into the markets monthly, in the heroic act of life support. It is my intention to follow the price lower when it breaks down, well before the negative news flow begins to trickle in, and before most of the traders realize how false the whole premise of the bulls' thesis was.

I am not complaining about today's developments, but I look at them with scepticism. I am a student of the market and the price, which is always right. I stepped aside, but plan to reshort again soon. I am not convinced that this is the super bull scenario, which I described at the end of last year, due to two reasons: my expectation of lower corporate profits, as Q1 earnings guidance was lackluster, and the absence of widely-expected rotation trade, as bond fund flows are still positive. If that's the case, the market is ripe for a major sell-off to shake out the "chasing" bulls. It will come, but probably at a time when most traders expect it the least. It is becoming increasingly impossible to short, as the bears are pushed out of the market with new liquidity coming from every corner of the world. I was humbled by the market which is right at the moment. My silence has been deafening. I have been quiet (out of respect for those who bought the dip, yet again) as my flawed market analysis led me to be on the wrong side.

1 comment:

  1. Hang in there.

    The problem remains the Fed. Until the QE -POMO program ends..the underlying pressure is higher.

    That doesn't mean we can't get minor waves lower...5, 7, maybe even 10%, but the POMO is devastastingly powerful.

    At the current rate of increase, we'll close the year @ sp'2000 or so.

    I'm sure we'll see 10% wave lower in the coming few months..but unless POMO stops...

    you can bet we'll go right back up...and close the year in the 1700/1800s..even if the economy remains at stall speed.

    Its shameful..and a lie.

    This nonsense will end.

    I just hope you can wait....for the Fed to pull the QE program.