Monday, January 23, 2012

The Republican debate tonight in Tampa should be fascinating, especially after the South Carolina results on Saturday.

He's baaaaaaaaaaaaaaack! Joe Granville was on Bloomberg Television, calling for a 4,000-point drop imminent in the DJIA. Enough said.

The history of tech is littered with companies that failed to reinvent themselves and ultimately succumbed to the weight of legacy and rapidly obsolete businesses.

It is why both the shares of Research In Motion and Yahoo! should be avoided, from both Jim Cramer's and my perches.

Money managers are unhappy because 70% of them are lagging the S&P 500. Economists are unhappy because they do not know what to believe: this month's forecast of a strong economy or last month's forecast of a weak economy. Technicians are unhappy because the market refuses to correct and gets more and more extended. Foreigners are unhappy because due to their underinvested status in the U.S. they have missed a big double play: a big currency move plus a big stock market move. The public is unhappy because they just plain missed out on the party after being scared into cash. It almost seems ungrateful for so many to be unhappy about a market that has done so well. Unhappy people would prefer the market to correct to allow them to buy and feel happy, which is just the reason for a further rise? Frustrating the majority is the market's primary goal.

-- Bob Farrell, September 1989

"He who lives by the crystal ball soon learns to eat ground glass."

-- Edgar R. Fiedler, "The Three R's of Economic Forecasting -- Irrational, Irrelevant and Irreverent"

Deteriorating Presidential Prospects for Republicans

We have entered a new phase, the Republican primary as John Grisham novel. Secret offshore bank accounts, broken love, the testimony of anguished ex-wives: "He wanted an open marriage." A battered old veteran emerges from the background and, in his electoral death throes, provides secret information—"I'm for Newt"—that he hopes will upend a dirty, rotten establishment. A vest-wearing choir boy turns out to have been the unknown winner of that case back in Iowa. And all this against the backdrop of a mysterious firm that moves in and destroys communities—"When Mitt Romney came to town . . ."—while its CEO pays nothing in taxes.

If you are a Republican who hates a mess, or if you are a member of that real but elusive and hydra-headed thing, the GOP establishment, you are beside yourself with anxiety and unhappiness. You think: "They're losing this thing! They're going to limp out of South Carolina, they'll limp through Florida, they're killing each other and killing the party's chances. How will they look by the fall? What are independents going to think of the guy we finally put up? We all know politics ain't beanbag, but it's not supposed to be a clown-car Indy 500 with cars hitting the wall and guys in wigs littering the track!"

There's been a lot of damage. We lose sense of it in the day to day, but in the aggregate it's going to prove considerable....

The bleak thought: Mr. Obama this week blocked Keystone pipeline, a decision that means tens of thousands of jobs lost, new energy possibilities rejected. It is a decision so bad, so political, that it amounts to a scandal. But it just sort of eased through the news, blurrily. All the cameras were focused on the Republicans, who were distracted by their own dramas. They did not, together, in one voice, protest, as they should have. Keystone happened while they were busy looking like the Keystone Kops.

What's happening out there on the trail is a great story. But it's not a good story. And the past few days it didn't feel like a story that was going to end well.

-- Peggy Noonan, "The No-Obama Drama," The Wall Street Journal

Then there are the unpredictable twist and turns (and the investment implications) of political change -- think The Ides of March.

A week ago, Mitt Romney was wrapping up his likely nomination as the Republican presidential candidate.

No more.

The clear winner in South Carolina on Saturday night may not have been Newt Gingrich; it might have been President Obama.

Endorsements from established Republican leaders (Portman, DeMint, Graham, Pawlenty, Haley etc.) are no longer enough after Romney has only succeeded in winning one of the Party's first three state caucuses/primaries. Romney must now retool given the ascendancy of Gingrich's candidacy.

The prospects for regime change (and a new and market-friendly administration in 2013), which was one of my key market catalysts, has taken a turn for the worse, for now, with the newfound popularity of Republican presidential aspirant Newt Gingrich and the growing, heated and divisive conflicts between him and Mitt Romney. This emerging development has likely reduced the assurance of a Romney candidacy and what I had assumed to be a Republican November win. (The Republican Party is generally viewed as the more business- and market-friendly party.)

And Then There Is Europe

Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain.

-- John Mauldin, "Staring Into the Abyss," Investors' Insight (Jan. 21, 2012)

Over 2,150 years ago, the Roman poet Virgil once said, "I fear the Greeks, even when they bring gifts."

Virgil was ahead of his time!

The sovereign debt crisis saga continues.

While a potentially fatal affliction (and systemic risk) in Europe's ongoing saga has seemingly been taken off the table, morphing instead to a difficult condition that must be monitored closely, the heavy lifting of promised austerity and fiscal responsibility lies ahead, and with it, uneven progress, additional crises and uncertainty.

Some Positives but Future Economic Uncertainty

On the other hand, the market's price momentum is excellent, volatility is on the descent, as the major indices have not had a more-than-1% move on any day during the last 13 trading sessions (an important ingredient to improving investor confidence), and the high-frequency domestic economic statistics are showing continued improvement (albeit there was some deceleration in the rate of growth towards year-end). Regarding the latter point, we have to watch and be mindful that some of the recent improvement in economic growth reflects the consumer eating into his/her savings and 100% capital spending tax credits/benefits were in place -- they halved on Jan. 1, 2012 -- so it would not be surprising if some of the recent strength in fourth-quarter 2011 had been borrowed and pushed forward from early 2012. More squishy economic data in the first half will not likely be greeted well by investors, especially in the context of the recent market rise.