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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
May 11, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, one uncertainty on Wall Street was
replaced with another. With the release (and leak) of the bank
“stress-test”, it is now certain that the Feds think all banks
will survive (with a little more capital for some) even the “worst case
scenario”. Doing a brief review of the test, it seems the bar for the
bank was to stay above the 4% capital level, implying that we are going to
allow up to 25 to 1 leverage (100%/4%) for these banks. This is progress?
Evidently Mr. Market thought so as the financials had the rally of a lifetime
last week, lifting the averages basically all by themselves. The new
uncertainty is whether the Feds can keep a lid on long term Treasury rates.
The 10-year yield increased to 3.30% (from 3.10% last week, target 3%) and
there is supply galore coming. This is important as mortgage rates tend to be
set off this rate (that’s why Bernanke is trying to buy ‘em --- to keep the rate low to try
to stimulate housing). I’ll continue to monitor this, but typically
this is not important until Mr. Market decides it is (and he always does, at
some point). More concern in the short term should be that the market’s
leaders coming out of March’s low, tech and retail, turned over last
week, a sign that the rally is getting narrower and weaker. Unfortunately, it
is just as hard to call a top as it is to call a bottom, but the yellow
caution flags are out short-term for financials, tech and retail. Oil stocks
have re-emerged as oil prices have ticked higher and are showing up on my
radar screen and this is where managed accounts will probably be
over-weighted going forward (stops still tight). The employment reports of last
week (both ADP and Friday’s government) showed a slowing of job losses,
also giving some solace that things are not getting worse. The half empty
view is that approx. 70k jobs created were government jobs for the 2010
census and that March’s number was revised to the downside about the
same. Conclusion: The market has told us that things are going to be better
down the road, but bifurcation is now the rule. I expect a significant
pullback in the financials as the reality of dilution and focus on earnings
return. Oil, commodities and economically sensitive stocks appear to want to
assume leadership and lead us higher. It is now more important than ever to
be in the right place. I’m on it.
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