Thursday, December 15, 2011

The Morning Call Is the worse case already priced in?


The only economic news we received yesterday was weekly mortgage applications to which no one paid any attention because they were too busy focusing on the EU and the myriad reasons for anticipating a disaster scenario: the lack of workability of the ‘new’ EU solvency plan, the falling euro, the slowing in the EU economies, rising euro rates, falling euro bourses, the gargantuan funding needs in 2012 and a leadership that is AWOL.

As long as none of this changes, the negative psychology will likely continue.


More important, the longer nothing changes, the more the disaster scenario gets priced into stocks. I say this because it is surprising to me that we are hearing all this doom and gloom and stocks are nowhere near their October 2011 lows (10725, 1101). That, of course, doesn’t mean that prices won’t get there or lower; but the current psychology/pin action reinforces my conviction that those October lows will hold.

Our own political side show grinds on with time running short if Reid and Obama are serious that (1) they won’t present a continuing resolution [government funding] unless the payroll tax is extended and (2) they won’t agree to the house payroll tax extension bill because it includes approves the Keystone pipeline.

As pathetic as this is, it is in our Models. So I am not really concerned from an investment point of view whether they ultimately come up with some horses**t compromise or they just stand around and jerk each other off.

Bottom line: global events seem to be geared to drive stock prices down; and while that is happening, it is not as acute as I would have expected. That is not an all clear signal to go on a stock buying spree; but at the moment, it argues for being circumspect about the flow on bad news.

The bond market is suggesting that fear is at an extreme (medium):
http://scottgrannis.blogspot.com/2011/12/bond-yields-are-out-of-whack.html

Another euro crisis is only a matter of time (medium):
http://www.telegraph.co.uk/news/worldnews/europe/eu/8953775/Forget-David-Camerons-veto-another-eurozone-crisis-is-only-weeks-away.html

Up date on Market valuation (medium):
http://advisorperspectives.com/commentaries/dshort_121411.php