Monday, August 31, 2009

At A Standoff?

The US equity markets ended down on the day, with the DJIA down 0.5% and the S&P down 0.8% Monday. Industrials and energy stocks underperformed, while consumer stocks outperformed. European markets fell too, as the DJ Euro Stoxx 50 ended down 1.0% on Monday. Asian equities are likely to open down today, as Asian ADRs fell during North American trading Monday. Nikkei futures are pointing to a down open for Japan, and exporter stocks are likely to be hurt by the strong yen.

We cut losses today, and breadth improved in the last few minutes of trading, but there wasn't much energy at all today. It was really an uninteresting day with no real notable buying action to be found. There was a little speculative action in small-cap biotechnology, but all major sectors ended the day in the red. Oil and energy were the biggest laggards, while financials held up relatively well.

The bearish argument at this point is that buyers are pulling back and we are losing momentum. The bullish argument is that selling is mild and all we have going on is some healthy consolidation of gains in a market that needs a rest.

The price action is certainly less vigorous than what we see during earnings season, but we still haven't done any major technical damage. We have sold off on some good news and seen momentum cool, but have not seen a real breakdown or a change in character. That doesn't mean we shouldn't be a bit more cautious, but we haven't seen a change in trend yet. In fact, I wouldn't be at all surprised to see another spike back up in the next day or two to confound the bears who are pressing too hard.

Friday, August 28, 2009

Post Number 1000; Normally Would Be A Happy Occasion, But.............

Market's Hanging In There

Following good news from Intel and Dell, the market opened strongly but was hit with quick profit-taking. This was a bit of a change in character as this market has tended to react favorable to all news, good or bad. Finally around midday the dip-buyers showed up but they weren't overly energetic and only managed to recover about half of the pullback from the morning high.

The DJIA and S&P 500 lagged while the Nasdaq outperformed due to strength in semiconductors and technology stocks. Breadth was negative overall but not markedly so. It looked like lazy late summer action but under the surface there was some very aggressive trading in financials, particularly in the insurance sector. A lot of these have questionable fundamentals but market players didn't much care as the action was a good place to roll the dice for some quick gains.

The bears will be pointing at the lukewarm reaction to good news and the crazy speculative trading as a sign of a market top but the dip-buyers are still out there and haven't shown signs that they are going to disappear. They weren't too aggressive today but they let their presence be felt yet again.

Some folks think that they need to cheerlead this market, but one of the major positives is that there are quite a few skeptics. If everyone is in agreement about how wonderful things are then we'd really have to be nervous.

Like many others I'd really like to see this market pull back more (but not necessarily the stuff I own!), but I'm not seeing anything really dire yet. I think there is downside to come but it just isn't going to come as quickly or as easily as the bears would like. I suspect the bulls are going to remain quite stubborn for a while.

Thursday, August 27, 2009

Bear Trap Today

Talk of a market top led to a classic bear trap this morning. After some mixed economic data, the market opened weak and struggled to bounce as the dip-buyers hesitated for a while. It looked like we might have a downtrend day in store, and the bears were feeling fairly confident with the idea that the market was ready for the big reversal. However, at around midday the dip-buyers slowly started to inch in, and before you knew it, they were pushing us back into positive territory, and the squeeze was on.

I suspect that we had "weak" shorts piling in this morning, looking for the quick downside trade, and they were easily squeezed when we reversed back up. In theory, the idea of shorting this lofty market with lousy fundamentals sounds pretty good, but in practice there are just too many persistent buyers who are ready to jump in on minor pullbacks.

Market trends tend to be stubborn things, and this one particularly so. The market has done little wrong other than stay stronger for much longer than many folks thought possible. Unfortunately, a good shorting opportunity just isn't that easy.

Many are itching and scratching to embrace the dark side but I'm still looking for some negative price action to show me that the time is right. What we saw today supported the bulls yet again.

Wednesday, August 26, 2009

The Trend Still Appears To Be Up

For the third day in a row, the market action was lackluster. It wasn't particularly bad, but it was much less energetic than we have seen recently. The indices were just slightly in the red and so was breadth. We had some strength in biotechnology, retailers, homebuilders and chips, but the weak dollar plays, which include oil, gold, steel, coal and commodities, in general were the laggards.

Although Doug Kass made a big bearish call today, and there were plenty of other folks agreeing with his view, the market still hasn't done anything technically that would support an aggressively bearish posture.

We seem to be a bit extended and haven't consolidated much, but the trend is still up and the dip buyers are still lurking. This rally has been one of the most hated I've ever experienced as many bulls just never fully embraced it and the bears have been decimated. That leaves us with folks rooting again for the market to pull back and wanting to add some long exposure because they are tired of being left behind.

The market will eventually roll over, but it is going to be very stubborn about it, and for now, there isn't anything happening that is that negative. We just have some slow, lackluster trading and a lot of folks who are rooting for a pullback.

In other words, today the US equity markets ended virtually flat on the day, unable to hang on to post-data gains. Consumer stocks did well, but were offset by lower industrial stocks. European markets fell, and Asian equities are likely to open flat today, as Asian ADRs were unchanged during North American trading Wednesday. Nikkei futures are pointing to a down open for Japan, and exporters are likely to be hurt by the firmer yen. Brazil stocks outperformed, helped by reports that Moody's may upgrade it soon. That would put Brazil at investment grade from all three rating agencies. Bovespa should continue to outperform (up 91% in dollar terms YTD) due to strong fundamentals. Markets continue to fret about China, so mainland stocks may come under renewed pressure after having an up day Wednesday.

Tuesday, August 25, 2009


AAPL breaking 170 should result in further assault on the low 200s. Many catalysts are being lit, after the next quarter is complete. So what to do? Exchange the October calls for JAN 10 calls with a strike at about 200.......

Bulls Win Again

The bulls won again today. Did the action look tired? Momentum was lost after a good start. Market breadth was quite good, with about 3,400 advancers to 2,400 decliners, but given the magnitude of the positive consumer sentiment reading, housing news and the reappointment of Ben Bernanke, the action was relatively sedate. A few weeks ago, a trifecta like that would have generated a much stronger move.

The sedate response may be due in part to lower volume during one of the peak vacation weeks for Wall Street, but it is the price action that really matters, and it was less impressive for the second day in row.

There are still pockets of momentum to be found, but it is concentrated in secondary names and is less intense. The market action still is positive, but it is slowing down. The market may be due for a rest, and as we have seen many times recently, this market has been very quick to regain its vigor after a very brief rest. The big difference now is that the news flow is slowing and we are entering a seasonally weak time of the year. Whether that matters or not, we have yet to see, but there is some slowing, and we need to take note of it....

Wednesday, August 19, 2009


Not a good or a bad day; too much going on right now. Was down just a little bit today. Got out of C calls and into more AAPL calls.

long AAPL

Monday, August 17, 2009

Terrible, Ugly Day Today - In More Ways Than One....

And you know what I mean by that......think about it...We had ugly action today. Terrible. My stuff got slaughtered; C had relative strength though = options are decaying, obviously. No bounce-back today - none. Dents in the technical picture? Not sure.

long C

Friday, August 14, 2009

Not A Great Day - But Kept The Majority Of Big Gains From Yesterday...

The market pulled back some today; my stuff was down a bit. The great thing about market pullbacks like we had today is that they help to sort out the strong stocks from the pretenders. The best stocks will be quicker to find buying support, and it will be clearer what the real winners are in this market.

When everything is going up at once, it is very difficult to determine which stocks are the momentum plays without any real fundamentals to support them vs. those that have something of substance to back them up. It was an interesting close today; stocks melted up, basically. The dip buyers showed up. Traders are very used to these late-day rallies, so they gave it a go.

Thursday, August 13, 2009

A Good Day For Me; Bears Really Hating The Action Now...

There is nothing new to be said about the market action today. We just keep on doing the same thing we've done for many weeks now -- chug steadily higher without any significant pullbacks. We had a slight hitch in our giddyup in the early going as there was some concern about a weak retail sales number but it is going to take more than that to dissuade buyers. There are just too many who are trying to find a way to add long exposure in this persistently strong market and even a minor pullback is enough to draw them in.

There are folks like Doug Kass who have a very negative view of this market based on fundamental considerations, but at the moment the market isn't listening to any arguments about why it shouldn't be going up. Doug has some very valid points, but until the market beast shows some signs of caring I'm not much interested in the short side.

One of the main reasons this market has had such a relentless and steep run is that so many folks are struggling to reconcile their personal views on the economy with what the market is doing. Few folks I know are as optimistic as this market seems to be and that is what has kept so many from embracing this rally.

They slowly capitulate and start buying a little out of frustration from not being in for this rise and that is what keeps things going day after day. It is a game of musical chairs in some ways, but as long as the music is still playing and folks are finding chairs ,they still are happy to buy. At some point it will stop but trying to guess when is impossible.

Other than being a bit extended, there just isn't anything much wrong with the price action in this market. You can argue all you want about why the market is wrong to be so strong, but it isn't going to make you any money....

Wednesday, August 12, 2009

Lots Of Stuff Happening After-Hours; My Thoughts On Banks, Houses, Etc.

As a free-market capitalist, it's hard to watch investors, Bill Gross included, bully the Fed into keeping the intervention going to support securities prices. But that's the world we live in.

Assets drop, Fed intervenes, assets recover, Fed does nothing.

Greenspan first, now Bernanke. Asymmetrical intervention. It's what caused the debt/risk bubble in the first place. The Fed is giving banks/brokers/investors a license to speculate with leverage. That's what caused the crisis in the first place.

"The Fed can't do anything to rile the financial markets" is the refrain. Decent recovery, world-record junk rally. Employment lagging indicator. No matter. Can't remove QE till we get back to 15,000 on Dow, 6% junk, and home prices up double digits.

This "stupid Fed tricks" mentality created the mother of all leverage problems. It got us the bubble, it will cause the meltdown in the dollar and T-bonds.

The Fed needs to start implementing the vaunted "exit strategy."

On housing, Robert Toll just said the U.S. should do Cash For Clunkers for houses. What a disaster that would be!!!!!!!!!

I feel like I just gave birth to a pineapple.

On banks - Bank shorts are plentiful and I believe that WFC could get squeezed higher...I also have to believe that at a certain point Buffett becomes a buyer again and am amazed that he hasn't bought any yet....I really like the banks here, from Citigroup to BAC and Wells and back again!

More on BAC - The Paulson buy I think really moves the stock. I also liked the buying in Citigroup today....This group has recharged. BAC should have been up more today....

long C; BAC

Bears Probably Missed Their Chance (For Now, At Least)

After a little weakness the last two days the bears were hoping that maybe the market was starting to crack a little, but they forget how the market loves to run up on FOMC announcement day and soon found themselves in the short squeeze vice yet again. The bulls probably would have been doing some dip-buying anyway, but the FOMC can do no wrong these days and the bears just don't have the conviction to stand in the way of the news even if it is totally unsurprising.

We finished the day on a down note with a pretty severe whipsaw into the close, but it still was a good day for the bulls with better than 2 to 1 positive breadth. However, even the bulls are growing awfully weary of this market's inability to consolidate more, but the frustration is so great over being underinvested that no one is allow things to slip very much. The more we fail to pull back, the more frustration and the more aggressive the buyers are in trying to find some long exposure.

It is a tremendously challenging market right now with the bears obviously totally inept, but many bulls are struggling also as they are finding it extremely difficult to jump into a market that refuses to rest.

It isn't the market's job to make us comfortable and right now it is doing a fine job of keeping everyone, except the buy and holders, on edge. All we can do is just keep plugging away. The one thing we can be sure of is that conditions will eventually change.

Tuesday, August 11, 2009

Bad Day Today - Will The Fed Meeting Results Tomorrow Change Anything?

My main positions of AAPL, BAC and C got hit hard today - C's expire in August, so that obviously needs to be watched carefully. The bears gained a little more traction today but the bulls came back late day and managed to close off the lows despite a last minute dip. Breadth improved off very poor levels early in the day but was still solidly negative, with about 1,500 gainers to 4,300 decliners. Biotechnology stocks showed some relative strength, but otherwise all major sectors were negative with banks being a particular sore spot.

The big question now is whether this pause in the market develops into something more severe are is this just the sort of profit-taking and consolidation that will wash out some profit-takers and let more secure dip-buyers jump in.

I continue to believe that the market is not going to crack too easily. We have a bit of a rollover pattern developing particularly in the Nasdaq but we have yet to test any really significant support. The market has been so strong it can afford a fair amount of weakness.

Eventually a more significant downside scenario may develop, but in the near term it is going to be a very hard-fought battle and I look for the bulls to make a few upside forays that are going to squeeze the bears yet again. Don't get too comfortable with this market either way as both sides have some potent ammunition.

Monday, August 10, 2009

Why Can't I Seem To Pull The Trigger On C When I Should?

I was down a bit today; mostly because I did not sell my August 4 C Calls when I had the chance....Why am I being so stupid in this regard? Will I wise up this week? Next?

Anyway, although we ended with some red on the screens today, the selling was quite mild. I keep hearing how we are due for a pullback but we aren't seeing much of one yet. Given the move this market has made, it doesn't take any brilliant market analysis to say we need a rest. Even the bulls want a pullback at this point so they can add some longs at better prices.

Even with the red in the indices there continues to be some aggressive trading. China-related names were particularly active today. Also health care and biotechnology names performed quite well. Oil bounced but gold, steel, homebuilders and retailers pulled back.

I'd like to offer some new insight here but the conditions remain the same. We have had a big powerful run that has made us (seemingly) extended and in need of a rest, but too many people want to buy weakness and that gives us very strong support.

The market is not going to suddenly fall apart. It will need to weaken over a period of time and then maybe all those dip buyers will stop being so anxious to jump in.

For now everyone is talking about pullbacks but no one is actually selling. The bulls still rule....

Friday, August 7, 2009

Trapped Bears - But I Also Got Caught Today

The bears found themselves trapped this morning after they over-anticipated a "sell the news" reaction to a very strong jobs report. We did slip slightly in the early minutes of trading but once again there were plenty of buyers who were ready, willing and able to buy the very slight pullback.

I was trading well today until I got too aggressive with C. They faded that one heavy in the last hour; I kept buying August 4 calls anticipating a bounce that never came. Once the indices made a new high for the day, the squeeze was on and the rampage of selling and short-covering commenced. Things cooled off in the afternoon and lots of folks hit the exits early, but there was no mistaking that the bulls are still very firmly in control of this market.

Despite this euphoric action, it continues to be a very difficult market for many. There still is a large contingent of folks who have a very hard time reconciling this extremely strong market with their personal feeling about the pace of an economic recovery. The market is acting like it is clear sailing ahead, and the jobs data supports that rosy view, but many folks have some serious doubts about the pace of a recovery.

In addition it has been an almost parabolic move since the Meredith Whitney upgrade of GS and the strong report from INTC to kick off earnings season. We have had a few days of flat action but then it is straight back up again.

The only way to get into this market is to pay up and chase and that is not the favored methodology of many. If you have any level of idle cash, it has been exhausting trying to find ways to put it to work as things run away.

For such a strong market, I hear an awful lot of complaints and that is what is helping to keep it going. This market won't let anyone catch up with it and that is wearing out many who keep looking and hoping for some rest. They aren't getting it so they capitulate and pay up for something -- which keeps the whole process going.

As I've often written, strong markets will always go higher than you think is reasonable. That certainly seems to be the case with this one.


in my opinion, a continuing bullish development is the cooling in the buying of (imo) worthless junk like siri, fnm and fre. just like to see $$ going to the stuff worth buying....

No Posts Yesterday - Was Out - But Here's Something On Banks; C

People, I think, are still fearing that TARP's a big loser; a sinkhole. But the government is getting big payments with bank warrant buybacks. Maybe the reason people struggle with TARP still is WFC, C and BAC. Until they pay their money back, I think people fear that this program will still be a huge loser. AIG is different and more bullish after this morning that some of that lost money will come back.

I don't know about Wells Fargo. It is scorned, no one believes in them (judging by the multiple), it has some brokered mortgages but not many, and it has a great fee business. I think the money will come back after the first quarter of 2010. Same with Bank of America, which is I think is coining money. I think Ken Lewis will pay back TARP when the last quarter of the year is reported and then he'll turn over the reins to Brian Moynihan, the new head of consumer banking.

But it is Citigroup that's the repository of the big government win. The government's up $5 billion right now, and Citigroup could be the big profit that the government gets that wipes out any losses to TARP -- very, very meaningful.

When that stock is free to trade on Sept. 10, the government can start dribbling, with the huge amount of trading, and it wouldn't be a problem. If I were the government I would be a scale seller.

I just can't stress how important it is that the government's now in the black on its holdings.

And I also have to tell you that with this employment number, those who are modeling extreme stress tests and can make a case that the downside can actually be taken off the table.

Citigroup's being put away by big-time managers. They view it as a F at $4 or a BAC at $3. I believe there are many managers trying to get 5% positions in the thing.......

Wednesday, August 5, 2009

A New Position: FORD

Forward Industries Inc (NASDAQ:FORD) is a new position for me. It's trading at a discount to net cash and liquidation value, but there’s no obvious catalyst in the stock at this stage. Management appears to be considering a “strategic transaction” of some kind, although this might include an “acquisition or some other combination.” At its recent $1.60 or so, FORD has a market capitalization of about $12 million. I estimate the liquidation value to be around 60% higher at $19M, or $2.60 per share. Trinad Management did have an activist position in the stock, but has been selling recently and only one stockholder owns more than 5% of the stock. I'm attracted to it because it looks cheap, and I think the elements are in place for a catalyst to emerge, so I bought some.

About FORD

FORD designs, markets, and distributes “custom-designed, soft-sided carrying cases and other carry solutions products made from leather, nylon, vinyl, and other synthetic fabrics.” The cases and other products protect “portable electronic devices such as medical devices and cellular phones.” It sells directly to original-equipment-manufacturers in Europe, the “APAC Region,” and the Americas and to retailers and distributors in the United States, Canada, and Europe. It has been in operation since 1961.

The value proposition

FORD has been confronted with blustery headwinds over the last four years. FORD management write in the most recent 10Q (for the year ended March 31, 2009) that “deteriorating economic conditions, rising unemployment, tight credit markets, and heightened uncertainty in financial markets” has “adversely impacted discretionary consumer spending, including spending on the types of electronic devices that are accessorized by [FORD's] products. [FORD's management] expect this challenging business environment to continue in the foreseeable future.” Revenues are down from $50M+ in 2005 to less than $20M this year. The drop in net income has been even more precipitous, from a profit of $12M in 2005 to a loss of $1.1M in the most recent quarter, bringing the loss for the last 12 months to around $1.9M. Despite this, FORD still had around $19M of cash and equivalents at the end of March (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

FORD balance sheet adjustments

I’ve made the following adjustments to the balance sheet estimates:

* Cash burn: I’ve got no real idea about FORD’s prospects. Its cash burn over the last 6 months has been around $0.8M. That was made up of a net loss of $1.3M, reduced by $0.6M for non-cash items, and changes in working capital items of $0.1M. Accounts payable decreased $0.6M, which had the effect of contributing to the net cash used by operating activities. If I assume, as management has, that the company will face a similarly tough operating environment over the next 12 months, I estimate cash burn of around $2M.
* Off-balance sheet arrangements: According to FORD’s most recent 10Q, it has no off-balance sheet arrangements.
* Contractual obligations: FORD’s contractual obligations are minimal, totalling $0.6M.

After making the adjustments above, I estimate FORD’s liquidation value at around $19M or $2.60 per share.

Possible catalysts

FORD’s President and Acting Chairman, Mr. Doug Sabra, said in the letter to FORD shareholders accompanying the notice of annual shareholders’ meeting, that in 2008 “management began to implement operational and strategic initiatives in order to put [FORD]’s business on a stronger, more sustainable footing. … This past August we retained an outside consultant to assist us in vetting possible partners for a strategic transaction.” It seems that the “strategic transaction” might include a “possible acquisition or other combination that makes sense in the context of [FORD's] existing business, without jeopardizing the strong financial position that we have worked so hard to build.” FORD’s focus on a “strategic transaction” is a positive, in our view, although our vast preference is for a sale of the company, buyback, special dividend or return of capital over an acquisition.

Any transaction will require the consent of FORD’s board. While it has a free float of around 92%, the company’s so-called “Anti-takeover Provisions” authorize the board to issue up to 4M shares of “blank check” preferred stock. From the 10Q:

The Board of Directors has the authority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights.


At its recent $1.60 or so, FORD is trading at a huge discount to its $2.60 per share liquidation value and $2.16 per share net cash value. While there’s no obvious catalyst in the stock at this stage, management’s consideration of a “strategic transaction” is a positive. The risk to this position is management spending the cash on an acquisition. I think a far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, I'm attracted to FORD because it looks cheap at such a discount to net cash.

long FORD

The Market Tried To Pull Back, But........

The market did a pretty lousy job of pulling back. It looked like we were finally going to see a decent pullback this morning, but persistent strength in "junk" financials like FNM and AIG and some not-so-junky ones too, like BAC and JPM, squeezed the bears once again and kept any negativity from building.

It was a messy day of action with technology, oil and biotech weak but financials, REITs, base metals and some commodity names leading. Volume was heavy, especially on the NYSE, but breadth was negative with about 2,400 gainers to 3,350 decliners, which shows that it was fairly narrow strength today.

So overall, today was little more than a very minor blip in the furious uptrend. There were some pullbacks, but the strength in financials negated most of it. We now have the CSCO report, which is producing a few upticks but no big response after hours. However, it is guidance that counts, and that is yet to come.

There is intense focus on the jobs report that is due out on Friday morning, so we should see some positioning in front of that. Expectations seem to be quite high, so we have the potential for some big swings. Right now it is the financials that are driving things, and that is going to keep the bears unsettled...

long BAC

Tuesday, August 4, 2009

Housing Is Strengthening; Remember The Economics Of Homeownership

The positive real estate numbers don't surprise me one bit. I believe it is important to keep in mind that in this country, homeownership is a widespread goal, especially when you have children. Now it's a goal that has once again become achievable, given the decline in house prices, the decline in mortgage rates and, yes, the government tax credits.

In many areas around the country you can actually get a pretty decent three-bedroom, 2,000-square-foot house for, oh, about $400,000 let's say. Probably has a big lot. A major city is probably 20 miles away, and most of the jobs are in the suburbs anyway.

Let's take a look at the economics of ownership:

$400,000 with 20% down yields a mortgage of $320,000. A 30-year fixed mortgage would cost a qualified buyer about 5.3%. That yields a payment of $1,777. Add (for example) $375/month for property taxes, about $100/month for insurance, and your payment is about $2,250 a month. After taxes, that's under $1,600 per month.

Truly affordable, and you are no longer paying rent, which is probably not much less anyway.

More Strength

After a relentless climb higher over the last couple weeks, we finally have a day when the indices do nothing - although they still ended a little higher. That is probably a slight relief to the bears, but they sure aren't making any money on the short side with this sort of action. Even with the indices doing nothing, we still had positive breadth and some strong action in REITs, casinos, builders and banks.

Many think the market's too strong to short and too extended to buy (although I still like AAPL and BAC here), and today didn't change things much. We had a little consolidation, but it hardly qualifies as profit-taking. We are still sitting way up on the high wire, but the market isn't exhibiting any worry about a possible fall. The major anxiety continues to be over gaining some long exposure at a reasonable price.

I'm being a wild contrarian here, but I think a rather aggressive push upward is possible here. We have few, if any, signs of weakness and lots of underlying support.

Another Stupid WSJ Article Today...

The WSJ ran a story today stating how excess saving will slow the recovery. Sorry, but that's stupid. All anyone complained about as consumers became overburdened with debt in the last 10 years was the urgent need to replenish savings. And that's exactly what consumers are doing today.

Complaining about re-stocking savings is like saying you'll lose a footrace because you're wasting too much energy breathing. What is the alternative?

From the story:

The stock market is clearly pricing in an end to recession. What remains to be seen is the strength of the recovery, and savings accounts could have a lot to do with that.

The Bureau of Economic Analysis is due Tuesday morning to report June personal-income and personal-spending data, which will include the latest figures on personal saving.

Economists, on average, think income fell 1.2%, reversing May's 1.4% spurt, which was driven mainly by a one-time stimulus windfall for Social Security recipients. Economists think spending rose 0.3%, thanks mostly to more-expensive gasoline. Inflation-adjusted spending was likely flat.

If this expected combination of falling incomes and higher spending comes true, then the percentage of consumers' disposable income socked away into savings will likely fall after surging to 6.9% in May.

But the long-term path for savings is inevitably higher.

The higher savings rate, whether measured in gross dollars -- roughly $787 billion, percentages -- 7% gross, or as a percentage of disposable income, will accelerate, not slow, the economic recovery.

Consumers are reloading their spending weapons. Americans are not like the Japanese, who truly do hoard savings for the long term. Americans like to spend. But they need money to do so, now that they have completely drawn down home-equity lines, credit card lines and other ready sources of cash.

Higher savings means that the recovery that (I think) is upon us will be more durable as consumers use their cash to finance purchases that were previously paid with credit. With yesterday's monthly car sales report, we saw auto sales jump to an annual rate of 11.2 million units. GM, among the most troubled of car companies, says it can turn a profit at a 10-million-unit sales rate. This is great news for the economy.

Indeed, a rebound in auto production, after an earlier-than-usual summer furlough, will boost third-quarter GDP noticeably.

As economist Ed Yardeni noted yesterday, if the economy just holds steady in the third quarter, through the miracle of GDP arithmetic, third-quarter growth can reach 4.6%! That would surprise a lot of people.

As the "Cash for Clunkers" program clearly illustrated, there is pent-up demand for cars. Housing starts, despite recent improvements, are running at one-third the rate of household formation. That is a historic and unsustainable gap.

I believe the economy is entering a phase where the recovery will be stronger than expected and become more self-sustaining. There are headwinds, no doubt, that still plague the financial community and the economy overall.

But I wish those who complained about depleted consumer savings would find a silver lining, rather than a black cloud, in the fact that consumer balance sheets are improving as they should and as they have at the end of every prior recession.

Monday, August 3, 2009

Another Good Day

Writing about this market is quite a repetitive task lately. Once again we stayed strong almost all day with just a couple minor dips. The bears tried to fade the open but that didn't last long and they couldn't manage to pull off a weak finish like they did on Thursday and Friday. Breadth was impressive with the NYSE producing 2,500 gainers to only 550 decliners. All major sectors were in the green.

In the 16 trading days since the Meredith Whitney upgrade of Goldman Sachs, the Nasdaq has had about 14 days just like that. It has just been relentlessly bullish, which is great if you have been positioned bullish but not so easy if you have had any doubts at all about the spectacular ascent of the market. There are always some folks who are bullish no matter what, especially in the media, and they are loving this market but the legions who want some sort of rest are growing.

This steady rise has created a market that is too strong to short but possibly too extended to buy, and that makes for lots of frustration and plenty of underlying support. If you want to play you have to be willing to chase and the folks who have done best have stuck with it and not taken gains too soon. That can only work for so long and carries some pretty substantial risk, but it is what it is.