Wednesday, August 10, 2011

This Week's US Equity Markets Performance

I suppose I could have written a post yesterday to bemoan Monday's sharp selloff in the major equity indices. But then I'd have missed being able to add to this post yesterday's partial recovery, and today's resumption of Monday's panicked selloff.

Where to start?

First, the most recent S&P closing high was 1345.02 on Friday, July 22. It remained above 1290 for the next trading week ended July 29, then headed downward with gathering speed last week. After the so-called debt debacle. But before the S&P downgrade.

But right after the weekend after that Friday's government's release of the recent, appalling GDP growth numbers on the 29th.

Then, throughout last week, Europe's sovereign debt crisis continued to build, finally encompassing Italy, Spain and France by the middle of this week.

Then, yesterday, you had the Fed's uncharacteristic and deeply troubling announcement that henceforth, for another two years, rates will be held at current, effectively 0% levels. First equities plunged at the admission by Bernanke of a probable continuation of the recession, followed by bottom-fishing and short-term joy at more cheap market funding, courtesy of Helicopter Ben.

Then, today, sober realizations set in that, from a global perspective, everything basically sucks, except for risky timing plays.

Ben has essentially trumpeted a cheap dollar policy, which is bound to fuel price rises, as well as technically-defined inflation. Meanwhile, the US economy continues, will continue to struggle.

By waiting until now, Wednesday afternoon, to write this, I've also enjoyed hearing a lot of stupid remarks from so-called pundits.

For example, former Goldman bank analyst, now, many years later, with Sandler O'Neill, Bob Albertson, on Bloomberg Midday with Tom Keene.

Frankly, Keene is typically smarter in his choice of guests. Albertson's really gone off his game lately, along with Tom Brown. This afternoon, Albertson evidently believed he is now an accredited macroeconomist, as he solemnly held forth on the need for an infrastructure bank to re-employ millions of idled Americans.

Well, Bob, I'll let you in on a little secret. Congress has been funding road building for decades! It never ends. And, by the way, Bob, unless you want us to build infrastructure the way Hitler built the Autobahn- with former white collar men using picks and shovels- modern infrastructure construction actually requires a fair amount of capital equipment and skilled workers to operate same.

Where do you think all that new capacity is hiding? Didn't we just have it all busy on the Great One's "shovel ready"stimulus projects?

At least Albertson came to his senses long enough to rail against more borrowing and taxing an increasingly unemployed private sector.

Meanwhile, yesterday morning, presidential economics advisor Gene Sperling's first concerns amidst Monday's market plunge was that the federal government has to, again, extend unemployment benefits "to help job creation." He actually said that- I'm not making it up.

Meredith Whitney, as usual a font of sensibility and good insights, shook her head while lamenting that sentiment this morning on CNBC.

A little later, on David Faber's noontime program, Ron Insana, a CNBC Contributing Idiot and former full-time empty suit on the markets, weighed in by solemnly decrying federal spending cuts just when the economy needs a boost.

Really? Ron, have you bothered to notice that about half of every dollar of that precious Keynesian federal spending you so cherish is borrowed? Then repaid from higher taxes with interest? What, precisely, is wrong with letting consumers keep their money and choose to spend or invest as they like? You know, the sort of behavior that drives genuine economic recoveries and expansions, instead of government-pumped flashes in the pan, like what we've seen for the past three years?

He also derided 'animal spirits,' declaring that there was just no way the US economy can recover by relying solely on private sector growth or savings. Nope. Gotta be federal borrowing from China to spend on unionized labor projects or transfer payments to the idle or retired..

As for my equity portfolios, they've done extremely well. While I've read of some horrendous losses among fabled fund managers like Brucke Berkowitz and Bill Miller, my portfolios fell less or about as much as the index on Monday, rebounded more yesterday, and are falling less today, maintaining a total rough 10% point premium above the S&P. From what I read, quite a few fund managers loaded up on large US financial equities in the past year or so.

I can honestly say, from my many posts on those sorts of firms, "I told you (not to do) so."

Honestly, what are managers like that thinking? Going after financials on some subjective trailing P/E basis or some other similar nonsense? Serves them right to take double-digit percentage losses this month for being so foolish.

My signals do not yet show that it's time to go short if you are a long-term equity investor. Yes, it's a rough few weeks. Yes, there's a growing sense of global economic trouble, over-leveraging, slowing growth and sovereign debt problems. Even a probably continuation of a recession that never truly ended in the US by all measures.

But that doesn't mean it's yet time to sell well-selected equities.

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