Friday, July 17, 2009

This Past Week

As mentioned I have been busy with my quarterly letter and now I am battling some kind of cold. Unfortunately for me, when I am sick, it is usually not physical symptoms that plague me but my mind goes. I don't know how to describe it but I can't think crystal clear thoughts and to read something takes considerable effort (I corrected 7 typos in this paragraph by itself so be ready for more).

Starting with last Friday we closed at 879.13. The previous two days had been weak. Bounced off of 870 twice but no real bounce. I went to bed Sunday night with Asia selling off over 2% across the board. Dollar was rising as was the Yen and it seemed certain that the market would roll over come Monday morning. Then comes Meredith Whitney on Squawk Box on CNBC. She upgrades one stock, Goldman, which she called a "bearish call." The reason was because Goldman would be in position to benefit from the weakening economy with all the debt issuance that would be necessary. She then proceeds to say she thinks unemployment will go to 13%. The market bounces hard on this before selling off to an intraday low to 875.32 before starting to move up and never looking back. Like I said on Monday, the spark last March was Pandit saying Citigroup was going to be profitable. Meredith has that type of clout. From Monday's intrday low to the close today (so less than 5 trading days) the S&P 500 took a moonshot up 7.4%!! I am still not exactly sure on what. Yes Goldman's earnings were unbelievable as was Intel. Other than that there wasn't much to get excited about. IBM had good earnings numbers yes, but their revenue numbers once again came in light. So they were able to cut their way to profitability. I said last April that I thought the second quarter numbers for banks were going to be pretty good and I thought for sure this was already priced in. I was wrong. Bank of America CEO Ken Lewis said some one time gains really helped them this quarter and not to expect the same the rest of the year. Jamie Dimon said commerical real estate and consumer debt will cause big problems in the months to come. General Electrics numbers downright stunk and looking at some of their assumptions you have to wonder what mysterious planet they think they are living on (yes, over time I actually think GE is still a zero or will be diluted to death if the government doesn't let the equity go to zero). Google had worse growth year over year since becoming an IPO with very weak add spending.

And all this was worth 7.4%? Obviously the market was pricing in worse numbers even after this monstrous run up but I can't help but feel that the traders also just got caught up and on the wrong side of all of this and started the panic buying I referenced before.

Then you had CIT. It was going bankrupt, then it wasn't, then it was, then it wasn't, and now finally it seems like it will. This is being totally ignored by the market and while I don't think it is as big a deal as some people think, the question should be asked, if CIT was not an issue would the market be up 10% or still only 7.4%. If the answer is still only 7.4% then the market is completely ignoring something that shouldn't be completely ignored. I don't think it has a monstrous impact but it does have impact.

Next week is the biggest week for Q2 earnings with alot of tech heavyweights. If the story continues as it has been (not counting Intel), it will be better than expected earnings with lower than expected revenue. Not sure how long the market can rally on that. If we break 955 though there would be a very high possibility that we will go to 1000. If you rally up to 955 there and then fail, you will have traders start talking about a double top.

Anyway, interesting week.

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