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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
August 3, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata Financial
Last week, we marked time as the averages traded flat to down most of the
week with Thursday’s leap higher being the exception. There was plenty
to knock the market down all week including a disappointing 2-year Treasury
auction early on that temporarily frightened the market. The bears made a
meager attempt to recapture ground gained the previous two weeks, but were
repelled by the incessant buying that appeared on every dip. Q2 earnings
continued to sing the same song --- beat on the bottom line (earnings) and
miss on the top (revenues). Mr. Market has interpreted this to mean that
downside surprises will be minimal as we go forward and, if and when revenue
increases, the bottom line will follow. Unfortunately for the bulls, it
appears that external stimulus is now the main peg of the economic stool
supporting this thesis as three events this week show. First, we woke up
Wednesday to rumor that China was considering discontinuing its stimulus
program leading to a significantly weak open (down 5% in China). This story
was quickly dismissed and our market ended
with only minor losses. Second was word that housing sales and prices
are starting to stabilize with the help of lower prices, lower interest rates
and tax subsidies from Uncle Sam ($8,000 tax credit) and California
($10,000). Third, Uncle’s “cash for clunkers” program
has enticed some car buyers to trade in their old gas-consuming cars for a
newer, more fuel-efficient model, generating an increase in new car sales.
While each of these artificial spoonfuls of sugar will pump up demand in the
short term, the question beckons: “Is this stimulus creating long-term
economic and job growth?” This pundit concludes “No” as
each of these programs is just pulling demand forward and not creating the
environment for long-term growth. Once these programs end, the natural
buyer’s demand that was pulled forward will disappear, having had their
demand satiated earlier. This is not say that depression is near
– only that de-leveraging will continue (borrowing money will continue
to be challenging), recovery will be tepid and resultant earnings growth
muted. Therefore, I continue to believe that a trading mentality of selling
the rips upward and adding synthetic short positions in lieu of cash as the
winning strategy over the short-term.
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