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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
December 14,
2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the war between bulls and bears
over S&P 500 1,100 continued to escalate. In this basically flat week, there
was a plethora of good fundamental news for the bulls including increased
retail sales, Federal Express’ (FDX) increase in guidance, increased
exports (leading to a better trade deficit number) and a consumer sentiment
number that came in better than expected. Bears pointed to the 9th
straight month of a contraction in consumer credit and the increase in
sovereign entities (Greece, Spain, Illinois and even the Brits were warned to
get it together) having their credit ratings challenged or downgraded. We’ve
yet to feel any effects from the contraction of credit as governments have
flooded our financial system with liquidity to “replace” the
demand that credit had supplied but it is clear that the ratings agencies are
not going to be blamed for being asleep at the switch this time. They are
warning us that providing liquidity has its limits and governments are
approaching that point rapidly. Even the bond vigilantes started to stir as
longer term Treasury auctions (10+ year paper) came at higher yields, signaling
that their patience has its limits also. Financials continued to trade down in
part to concerns that the Fed’s gravy train of low cost of funds was
going to disappear. Bernanke continued to tell us that he has no intention of
raising the short-term rates he can control and I believe him --- the last
thing he wants is to short circuit any type of recovery he can muster so we
can plan for the continued artificial stimuli of liquidity. Rumors of
Citigroup’s (C) and Wells Fargo’s (WFC) attempt to raise capital
to repay TARP (a la Bank of America) leaned on their shares as current owners
arbitrage their stock by selling it now and buying it back as the new,
cheaper equity is offered. In Washington, Democrats threw up another trial
balloon in their attempts to declare some sort of victory in the health care
saga. This week’s stab was to offer Medicare to the 55-64 year old
crowd by allowing them to buy in (premiums). The justification from the
supporters of this single-payer solution was that Medicare is a popular
program, so why not extend it. Lost in this proposal is that it does nothing
to solve the initial problem I thought we had of covering all Americans and
that Medicare is the most poorly funded program we have (2008 Trustees Report
revealed current unfunded liabilities at $70+ trillion dollars) and this will
obviously only add to it. Although Medicare is a popular program, I can only retort:
“When you rob Peter to pay Paul, you will get few objections from
Paul.” Game plan: Liquidity continues to provide support for this
market and I’ll continue to ride it. However, strategy must plan for
the possibility of a reversal. Stops are moving up more aggressively as they
follow the more sensitive 50-day moving average and will provide us more
protection when the music stops.
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