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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
June 8, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata Financial
Last week, we learned of the death of the last
remaining survivor aboard the Titanic, Millvina Dean. Millvina survived the
Titanic’s sinking by being lowered into a lifeboat, covered in a
blanket. We can learn much from Millvina’s experience 97 years ago as
the market started taking on water last week exemplified by a series of
divergences that must be monitored. The first was the continued rise in the
market despite the stampede higher in interest rates, with the 10-year
Treasury trading north of 3.85% on Friday. Secondly, the S&P 500’s
rise above its 200-day moving average should have reduced anxiety and dropped
the VIX, our fear indicator, yet it traded higher all week, with VIX futures
trading even higher, signaling longer term concern. Finally, Friday’s
job report came in less bad (-345,000 vs. -525,000) and rallied the futures
and oil, only to reverse during the day, normally a harbinger of a change in
trend. Even the Titanic stayed afloat for a few hours after taking on water,
and it is impossible to time the top but it is time to prepare the life
boats. Here’s how: On days like Monday when prices spike, move stops up
against the spike, locking in gains yet giving them the opportunity to run
further. In addition, add positions that move inversely to market trends as a
hedge. Positive fundamentals continue to present as China’s PMI
data was impressive (now they
know how to run a stimulus program) and companies continued to raise capital
via secondary offerings with even an airline (Jet Blue) getting one done.
Credit conditions remained benign.
One event that brought a smile to this scribe’s face was the
SEC’s charge of civil fraud against Angelo Mozilio, previous CEO of
Countrywide Financial. Recall the “friends of Angelo” hotline
that was set up to provide “I’ll scratch your back, if
you’ll scratch mine” financing to people such as Senator Chris
Dodd of the Senate Banking Committee, responsible for monitoring Countrywide.
Perhaps influence peddling would have been more appropriate. One other item
of note for those who still insist deficits don’t matter. Latvia, one
of the eastern European “Tigers”, was unable to raise money to
fund their government this week as a small auction drew no takers. I hope our
current administration took note. Conclusion: Choppy waters and icebergs lie
ahead and planning is now required more than at any time in the last 3
months. I expect volatility to increase leading to nice gains both on the
upside and down (via the hedged positions). With bullishness continuing to
increase, the much-looked for correction approaches. Once past, we’ll
revert to our tried and true strategy but until then, a blanket and a
lifeboat will provide the comfort managed portfolios require.
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