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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
May 18, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, a dozen or so companies came out of
the shadows to take advantage of higher equity prices over the last two
months and raised cash as they issued stock and bonds to an amenable market.
Not 3 months ago, these capital raises would have been considered impossible,
but nothing helps bring out the animal spirits like a rise in the stock
market and a few secondaries that rise after issuance.
Mostly banks, but oil companies among others participated. Most surprising of
all was Ford (F) who, at last look, was in the business of selling
automobiles. The fact that they were losing money slower than their American
competitors allowed them to complete a secondary on an oversubscribed basis.
Apparently, these punters felt that they will benefit from the tribulations
of their competitors, General Motors (GM) and Chrysler. From this perch, just
the opposite is more likely. As GM and Chrysler, if it survives, restructure,
they will rejuvenate with lower cost structures (debt, union costs) than Ford
and a dealer network that will stop eating its own. My own rule on secondaries is one Groucho Marx
would approve of --- “I wouldn’t want to buy stock from a company
that wants to sell it to me (original: “I wouldn’t want to belong
to a club that would have me for a member”). And as night follows day,
most secondaries showed significant losses by the
end of the week. Another item of note was a proposal to allow the FHA
(Federal Housing Authority) to let new home buyers use the new $8,000 tax
credit as a down payment(in essence, no money down
on a $250,000 house). The default rates of this new program (about a year)
have been double-digits without this new thought. We, the taxpayers, are on
the hook explicitly when this loan goes south. Have we learned nothing from
this housing crisis? On the lighter side, the Obama Administration proposed
taxing sugared soda as a way to make us healthier and raise revenue. If
taxing sugared soda will reduce our propensity to consume it, perhaps
extending that logic to taxing income over $250,000 should get a second look.
We need to create (non-government) jobs and these are the only folks who are
going to do it. Another proof of the law of unintended consequences was the
news Friday that YRC, a trucking company, wants to apply for TARP funds.
Who’s next? In the credit markets, 10-year Treasuries rallied slightly
as the drop in equities ran some back into the safety trade. Getting back to
the stock market, the losses last week took us back to SPY88, about 1% above
last resistance, which now becomes support. I expect to bounce off this level
and possibly test it a few times. Should it hold, the rally will continue. A
breach of this level takes us down to SPY84. Conclusion: Credit markets
continue to heal and we can now look forward to a time of normalized earnings.
Volatility worked against the bulls last week, and will continue, but the
path of least resistance is up.
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