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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
June 15, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the dollar and its effect on
interest rates were the story. With each tick down of the dollar, interest
rates rose and the stock market retreated. Oil, priced in dollars, started
its attempt to become the de facto international currency of choice for
investors who wish to avoid the devaluing dollar. Early on, the dollar was
negatively affected by the BRIC (Brazil, Russia, India, China)
countries announcing their intention to invest more of their savings in IMF
debt (as opposed to ours). Adding insult to injury was a lack-luster 10-year
Treasury auction Thursday, with yields peaking at 4% and driving the markets
down a few percent within minutes of the announcement. The dollar and stock prices
then rallied for most of remaining sessions, allowing the market averages to
essentially finish flat, with the 10-year Treasury closing the week at 3.78% yield
on word from Japan that they haven’t given up buying our debt --- yet. Unfortunately,
this game of attempting to sell our debt to foreigners will continue until
the cows come home because we must finance the massive spending plans put in
place by our solons in Washington. The negative feedback loop of higher rates
bringing fear of yet higher rates (and lower bond prices) is just starting to
take hold and has not affected stock prices --- yet. It has only slowed down
the real estate market as reports of higher mortgage rates will tend to do. The
S&P 500 did trade down off the 950 resistance area a few times, but
subsequent rallies left our hedged positions and tight stops providing little
help. They will, however, be much appreciated when the inevitable correction
occurs and this strategy will continue in managed accounts. Entertainment
from Washington this week started with the trial balloon sent up Friday to
raise revenue by taxing employees for their use of corporate-provided cell
phones. While its prospect drove the cell phone makers (RIMM, Apple) down, its
revenue raising ability is suspect at best. More interesting were the details of Obama’s
health care proposal starting to leak out. Apparently, the plan is to tax
employer provided benefits to pay for the additional cost of providing health
care to all. Not so bad except that union employees would be exempt
(surprise!). And I thought Chris Dodd (last week) was the only one open to
“If you’ll scratch (elect me) my back, I’ll scratch (not
tax you) yours”. PAYGO (pay as you go) rules were also proposed by the
administration to attempt to bring budget discipline back starting after the ink
has not yet dried on the largest spending increases and deficits in our history.
It’s no stretch to go on a diet after you’ve been at the
all-you-can-eat buffet, so no points awarded here. Conclusion: The stock
market appears to have entered a phase of reacting to changes in interest
rates and how it will affect recovery and future earnings as the Armageddon
meltdown scenario is now a distant memory. I look for choppy markets to
continue in the near term and will continue the strategy laid out last week
of moving stops up when long and hedged positions spike. After the correction
comes, I’ll sell the hedges (where the profits will be), and revert
back to basics.
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