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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
October 26, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, earnings reports continued to blow
away estimates without much exception yet the market averages were down
slightly. It appeared to be a classic case of buy on the rumor (the run up of
the previous few months) and sell on the news (the actual reports) as, with
few exceptions (Amazon [AMZN], Apple [AAPL], Microsoft [MSFT]), selling
greeted even some of the most impressive earnings beats remembered. Looking
deeper into most of these reports revealed that cost-cutting (losing
employees) accounted for most of the bottom line rise and company’s
propensity to hire should remain low as the political environment continues
to remain unstable concerning the ultimate cost of hiring an individual. Government
policies continued to have an effect in an expanding number of other areas.
First, its liquidity injections continued to show its imprint on markets as
the dollar continued its slow, steady slide against most currencies. The
limits of these government liquidity injections were exposed as the Brits,
which first attempted to stem its economy’s decline by debasing its
currency, reported a negative GDP number where a positive one was expected,
driving down the value of the pound even against the weakening dollar. Special
Master (witch-hunter in charge) Ken Feinberg, came down from the mountain and
set ridiculous limits on pay for top executives of companies that still owe
us TARP money (and suggested expanding it to others). Let’s review. Our
goal is to be repaid the money borrowed and that can only happen if they make
profits. Capping salary will only lead the profit-producing execs moving to
firms that have no salary caps, denying the best talent to the companies that
we are trying to help. Look no further than Citigroup’s removal of
Andrew Hall a few weeks back. They gave up $200+ million in annual earnings
to avoid paying him $100 million and then gave away our asset (1/3 anyway) at
a fire-sale price. One potential good thought from government was the trial
balloon floated that would require TBTF (too big to fail) banks to have
“contingent capital” on their balance sheets. My guess is that
this capital would initially be some sort of debt instrument that would
convert into common stock, contingent on the bank’s requirement for
more capital (if they screw up again) --- a good thought as stockholders
would be diluted should a problem arise as opposed to a government injection.
The government’s $8,000 tax credit for first-time homeowners continued
to skew behavior. First, 70% of housing sales in September were for $250,000
or less (those who benefited the most). Second, stories of fraud appeared as
children as young as four years old were found to be fraudulently applying
for the tax credit. For those of you who think additional regulation can
solve our ills, I give you this case where, post-financial crisis, people’s ability to find ways around government
rules trumps government’s ability to defeat the law of unintended
consequences. Conclusion: The cat is out of the bag on company earnings and a
new catalyst is needed to drive prices higher. I’m looking for true
job-creating policies (Reagan-style), which will come to the fore as
unemployment continues to increase and we get closer to the November, 2010
elections. A continued trading market is anticipated in the short-term and
“steady as she goes” is the mantra.
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