Monday, September 20, 2010


Over $2.25 billion of S&P minis just traded in the last five minutes as the market ramped to daily highs. This could be a bit of capitulation on the part of some shorts -- and might even mark the high point on the day.

I do think the bullish commentary regarding the President's speech is overdone and hyperbolic.

I would conclude that there was nothing market-influencing in the CNBC/Obama town hall meeting.

Rather, today's rally was likely there result of more than $5 billion of permanent open-market operations/purchases.

NAHB Unchanged

The industry continues to be haunted by a shadow inventory of unsold homes.

The National Association of Home Builders Index was unchanged -- still depressed owing to the absence of job growth as the industry continues to be haunted by a shadow inventory of unsold homes.

Trust and confidence are lacking in today's economic, investment and political landscape.

Consider the following:

* A zero-interest-rate policy coupled with massive fiscal stimulation has led to a subpar economic recovery and a still-high unemployment rate.

* Record cash positions at large corporations and a moderate domestic economic expansion failed to revive capital spending.

* A multi-decade view that one's home is among the best investments extant has been replaced by an antipathy toward home ownership and a greater propensity to rent.

* As announced on Friday, confidence among U.S. consumers (the Thomson-Reuters/University of Michigan Index of Consumer Sentiment) unexpectedly dropped to a one-year low in September.

* P/E multiples have been eroding for several years despite low interest rates and quiescent inflation.

* An unprecedented popular Presidential candidate (Barack Obama) has gone from hero to goat in the approval ratings.

* An aversion to the wealthy, to large corporations and to any incumbent has been seen in the Democratic tsunami in 2008 and in the apparent conversion of the Republican Party into the Tea Party.

* Little-known Senatorial candidate (Christine O'Donnell upset a more experienced, more moderate and much more respected opponent (nine-term congressman and former governor Mike Castle) in the Delaware Republican primary.

* Individual investors invested nearly a half trillion dollars into fixed-income funds while withdrawing tens of billions of dollars out of domestic equity funds.

* Investors' preference for broad-based exchange-traded funds dominates the investment landscape as individual stock selection loses its appeal.

Trust and confidence can both be considered as dominant forces that are lacking in today's economic, investment and political landscape.

Their return is a necessary stimulant to improving domestic growth, a necessary catalyst for higher stock prices and a condition required to produce a balanced and productive executive and legislative agenda.

Confidence is contagious but so is lack of confidence. For now, it is lost and will likely take some more time to be regained.

In the fullness of time, trust will be regained as (a contagion in) confidence. Similar to other series, is ultimately mean-reverting. The lost decade of the U.S. stock market or, conversely, the three-decade love affair with home ownership and the more recent cycle of generous credit extension, however, are examples of how long cycles can swing to one side, so we just don't know when the reversion of confidence will occur.

Unlike many, I suspect it will take more than the clarity of midterm elections to revive trust.

In the meantime, with confidence low, we will likely be mired (to various degrees and for an unspecified amount of time) in an economic (and housing) malaise, characterized by substandard and inconsistent growth, indifference toward stocks and a disruptive and raucous political backdrop.

It is the absence/lack of any improvement in confidence and trust that is the single most impeding factor to recovery in the U.S. economy and in the U.S. stock market.

Merrill Lynch/Bank of America lowers Research In Motion's price target from $85 to $60.

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