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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
March 9, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata Financial
Last week, the Obama administration continued to turn a deaf ear to the
vigilantes on Wall Street and extended their campaign of redecorating the
upstairs bathroom (health care, tax hikes, union formation on card signing/no
secret ballot, etc.) while the house was burning (banks). The vigilantes responded
as expected – inflicting additional pain on stockholders, especially
the financials. For those who doubt this correlation, consider that the since
the market close of the day before Treasury Secretary Geithner’s
non-plan was announced on February 10, less than four weeks ago, the market
averages are down over 20%. If you attempt to counter with the argument that
the economic fundamentals are, instead, driving it, additionally consider
that Friday’s jobs report of 651,000 additional losses and 161,000
adjustments down in previous months had the effect of rallying the futures
after the announcement. Joining the vigilantes this week were our old friends
from last fall that destroyed the investment banks. Sensing weakness in the
financials, they piled on by rolling out their game plan of buying credit
default swaps (insurance against a bond default) pushing up its price,
selling the underlying stock short and waiting for a ratings downgrade to
start the cycle again and create a “negative feedback loop”.
You’ll remember that we “cured” this by outlawing shorts
and running out of investment banks. It’s not fair, but that’s
the way Wall Street works – looking for weakness and exploiting it.
There was some positive action to report. When rumors of China implementing a real stimulus plan were announced, the
markets rallied. When found to be false, a sell off ensued. More importantly,
in a sign that the beginning of the end is near, Congress leaked word late
last week that hearings would be held this week on adjustment of
mark-to-market rules for the banks, something Geithner has been dead set
against. Congress is starting to feel
the vigilante’s heat (constituent’s 401(k)s melting) and hope
springs eternal that giving the banks some breathing room on their balance
sheet along with final rules on how capital will be treated will move the
vigilantes to the sideline, marking a bottom. Losses in managed portfolios
were negligible as cash was king and gold behaved. The vigilantes are still
in control and caution must continue to be taken. Conclusion: The vigilantes
always win this battle as they hold the cards. When the administration
blinks, it should mark the bottom.
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