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Goldata Financial
Investing with the accent on rísk
STOCK MARKET COMMENTARY
February 8, 2010
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, Mr. Market’s focus turned
squarely on Europe, specifically the PIIGS (Portugal, Ireland, Italy, Greece
and Spain.) Monday and Tuesday produced rallies here as credit worries about
Greek bonds lessened after word of the EU (European Union) blessing
Greece’s austerity plan to return to fiscal responsibility by 2012. By
Wednesday, reality returned as the thought of any Greek citizen having to
sacrifice any government spending program for the sake of austerity led to
threats of nationwide strikes (that’s what they do there to intimidate
their government and keep the gravy train running.) As a result, our markets
turned south and gasoline was added to the fire Thursday with
Portugal’s failed auction of government securities (only €300
million, when €500 million was requested) and the premium for insuring
the government bonds of Portugal and Spain (our old friends from fall, 2008
the credit default swaps [CDS]) hit new highs. Major selling ensued through
Thursday and most of Friday, but word late in the day that the EU was
fashioning a rescue plan turned the Euro higher (dollar lower), forcing the
shorts to cover and the markets to turn up and actually finish positive for
the day. The Chinese moved to the background, but the story continued as
before – we’re still on plan to withdraw liquidity. President
Obama revealed his budget for fiscal 2011 and it was not pretty. To put it in
perspective, this budget borrows one out of every three dollars spent, an
even more telling statistic than the $1.3 trillion to $1.6 trillion deficit numbers
that we have become numb hearing about and can’t even fathom its relevance.
When will it end? We’ve seen the previews from Europe this week as the
market would not fund Portugal fully and required Lithuania to pay up for
their new debt offering. I’m not talking about next week, but
it’s clear that only an emergency as an excuse will get this government
to stop spending money that is not ours. The good news is that job creation
is now the focus and, ultimately, proper policy will be put in place to
entice capital to accomplish this goal. Self-inflicted shame was brought upon
Republican Senators who had sponsored a bill for creation of a bipartisan tax
commission to address our bulging deficit. When politics finally required Dems to come on board, Republicans abandoned ship. A
disgusting display of politics! My solution – don’t even give
them a chance to abuse their responsibility by keeping as much spending
local. If you must spend, require all citizens (not taxpayers) to pay
incrementally for each program – then we’ll find out which
programs are really desirable. It’s easy to spend money when it is not
yours. Game plan: Volatility continues to ratchet up as sovereign governments
have become the banks of fall, 2008. As little net positive movement is
expected short-term, rallies will continue to be sold. 50-day moving averages
continue down and are now only 18% of our investable universe so a protracted
downturn from here, a distinct possibility, will not have harsh consequence
to managed portfolios. Reentry at lower levels should produce some nice
outperformance. The ability of governments to fund their deficits is a new
concern and Mr. Market and I must have an answer to this issue before
proceeding positively.
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