Thursday, September 30, 2010


Time to pick up TBT calls?

A Peek Behind the Curtain

I don't alter my investments or trades ahead of big economic news.

Another negative market influence is that banks are beginning to roll over again.

Was the Chicago PMI reading buoyed by the large weighting in automobile production vis-a-vis other geographies?

I am wondering since the Chicago PMI was surprisingly strong and other regional indices were not so, could that series have been buoyed by the large weighting in automobile production vis-a-vis other geographies?

Technically, the market is delivering a potentially toxic combination of low volume, weak breadth and a deteriorating financial sector. These are classical bearish signals.

Fundamentally, there is unjustified confidence on the part of market participants concerning the implementation and efficacy of QE 2. It is clear from the Wall Street Journal's Jon Hilsenrath and in three speeches over the past 24 hours by Fed Presidents of Atlanta, Minneapolis and Philadelphia that some in the Fed are hesitant to come out with guns a-blazin'. If QE 2 is ultimately implemented, unlike the "shock and awe" of QE 1, the new program will be characterized by shucks and aww. Meanwhile, a number of recent economic releases (especially in housing and confidence) suggest risk to the downside -- just as a number of Wall Street strategists have raised their year-end 2010 and 2011 S&P targets.

What about the ramifications of our currency's debasement? Short term, a lower U.S. dollar helps to grow our exports and reduce our imports, so our trade deficit narrows. But intermediate term, a further, steep dollar drop could be disastrous. Massive monetary intervention ultimately encourages uneconomic activity, creates inflation and a misallocation of resources.

Is it wise to short bonds? The contrarian in me says that the spread of domestic equity outflows and fixed-income inflows are a red flag and reminiscent of the flow experience in 1999-early 2000 that presaged a collapse in stock prices (particularly of a technology kind). In fact, the $240 billion of equity outflows and $635 billion of bond inflows is the widest gap in any 36-month period in history. Of course, bond yields continue to trade near their yearly lows as the Fed anchors short-term rates at zero, but this is a temporary condition, and the Fed's policy will change in the fullness of time.

Still In An Uptrend?

We finished the day with just some minor losses, but the intraday reversal after breaking through 1150 gave the action a very toppy feel. Breadth was close to flat, but volume picked up on the reversal, and that is a negative.

As you'd expect in an uptrending market, the dip-buyers jumped in and helped bounce us after we took out Wednesday's lows, but they didn't gain much traction in the afternoon, and we ended with a weak close.

There wasn't any panicky selling, but there was distribution, and we didn't come back with enough vigor to scare out the new bulls. The major indices are still in an uptrend, and the action today didn't do much to change things, but momentum is definitely slowing and the danger of a rollover is increasing.

Probably the most negative thing about the action today was that many of the key big-cap leaders like NFLX, AAPL, VMW, AMZN, etc. were relatively weak. That may just be some end-of-the-quarter profit realization, but if momentum in those sorts of names continues to cool, that will negative implications for the broader market.

The first couple days of a new quarter often have a positive bias as new money is added to retirement funds, but then we have a lull until earnings reports start to hit in a couple weeks. In the interim, we are going to be very focused on economic data and any hints they provide about the likelihood of Quantitative Easing II. That is still the primary market driver right now, and good economic news may actually be a market negative if it makes further quantitative easing unlikely.


Wednesday, September 29, 2010


Treasury to Sell Out Citi?

I'm hearing that the Treasury is considering a single common stock offering to sell its entire position in Citigroup.

Maybe sometime in the next week or so.

Even some members of the Federal Reserve believe that the second round of quantitative easing will have a muted impact, because rates are already low and excess reserves remain sizeable.

Whitney Axes Brokers

Meredith Whitney cuts 2010-2012 estimates on Goldman Sachs and Morgan Stanley.

She cut estimates on GS by $0.50 to $1.00 each year and MS by $0.15 to $0.60 each year this morning.

Liberty Mutual Group has postponed its Liberty Mutual Agency IPO.

Mr. Market continues to deliver the potentially toxic combination of low volume, poor breadth and weakening financial stocks.

QE 2 will have more impact than many fear:

* It will pull the U.S. dollar still lower, serving to improve our exports and slow down our imports. This will result in a better trade deficit.

* The yield curve should grow more flat. That flattening will likely encourage banks to lend.

* The consumer will benefit by a further drop in mortgage rates as debt service ratios improve. Refinancing activity will also increase; a pickup in consumer spending should follow.

* Even though housing will continue to be haunted by an unsold shadow inventory, lower mortgage rates raise the odds that the residential real estate markets stabilizes and, with less pressure on home prices, that consumer confidence might recover.

* Real interest rates will drop further, so risk assets should theoretically gain in price.

The cost of consumer banking is about to rise. From BAC:

At Bank of America, we want to provide you with up-to-date information on your accounts so that you can make informed banking decisions. Beginning in November 2010, we will be making changes to certain fees. Before these changes go into effect, we want to communicate them clearly and let you know that we are available to discuss any questions you have.

Some changes will take effect at the beginning of your statement cycle in November, while others will take effect in December and January. We have included specific dates on the enclosed chart indicating when changes are taking effect.

-- "Price Changes for Personal Checking and Savings Accounts," Bank of America mailing to customers this week

Financial regulation has cut into banking incomes, but be prepared for a barrage of increased fees from the banking industry in an attempt to regain profitability.

That letter contained higher fees for ATM full statements, check imaging services, deposited items returned or cashed items returned and monthly maintenance fees and minimum balance requirements.

In other words, be careful what you wish for!

The cost of consumer banking is about to rise -- in certain cases, dramatically.

It seems the Fed is hesitant to come into the market, guns blazing.

For me, personally, it is not a foregone conclusion that more accommodation is required. I am not yet of a firm mind of what exactly the problem is, and for that reason I'm not yet committed to a particular course of action that might involve further accommodation. ... If in six months or 12 months the economy is operating at the low level it is today (and unemployment is 9.5% or higher), I will be comfortable with taking action.

-- Dennis Lockhart

Atlanta Fed President Dennis Lockhart gave his two bits on the possibility of another round of quantitative easing in a speech in Tennessee last night, and the message was that it remains unclear whether the economy, at the current time, is so weak as to justify further quantitative easing. Moreover, the benefit/effectiveness of more monetary stimulation is not certain to many economists and members of the Federal Reserve.

Other observations by the Atlanta Fed president include: economic growth will accelerate in 2011-12, deflationary risks are possible but not probable, policy (tax and regulatory) is negatively affecting business decisions, and the rise in the price of gold may not signal emerging inflationary pressures.

Lockhart's speech confirms the substance of Jon Hilsenrath's column in The Wall Street Journal from Tuesday.

My conclusion?

For now, no Fed shock and awe.......

Is The Market Cracking? Or Just Resting?

The indices haven't made much upward progress lately, but they sure continue to hold up very well. The bears are unable to generate much to the downside although the upside momentum does seem to be cooling. Key stocks such as PCLN, CRM and BUCY haven't been able to push to new highs and are now showing signs of rolling over.

I suspect some end-of-the-quarter window dressing is helping to hold us up, but that pretty much ends today as manipulation on the last day of the quarter is a little too blatant for most funds. The S&P 500 is still lingering right under that 1150 area and we are using up a lot of energy trying to push through. At some point market players will start thinking, "If we can't take them up, maybe I should take my gains now and not risk letting them slip away."

The ideal bearish scenario would be a break over 1150 that squeezes shorts and triggers buy stops and then fails. The trapped bulls would then hurry to the exits and give us a reversal. That is how I see a top possibly playing out, but we have to break that 1150 level before I'd give that theory more weight.

Overall, the technical condition of the major indices remains fine but, many individual stocks have been unable to make much progress lately. It isn't negative action but, if we don't push higher again soon, I'll be looking for the selling pressure to increase.

Tuesday, September 28, 2010


Is this why investors should steer clear and never chase takeover rumors?

According to Streetaccount, none of the nearly 80 deal rumors that circulated came through in 2010!

Run, don't walk, to read Bill Gross's 'Stan Druckenmiller Is Leaving.'

Confidence falls from 53.2 to 48.5. (Consensus was 52.1.)

Appaloosa's David Tepper had his due on "Squawk Box" on Friday.

Now John Paulson (hat tip to BTIG) has his due in a recent lecture at the University Club.

Here is what he said about the fixed-income markets:

Bonds -- The purchase of long-dated bonds, either Treasuries or corporates, should turn out to be a horrible trade. Rates are at record lows, and the economy is turning and should continue to churn higher. Paulson expects roughly 2% GDP growth for both 2011 and 2012. Quantitative easing should contribute to significant inflation over the next few years, with inflation possibly hitting low-double digits by 2012. This is bad for the 10- and 30-year and bad for the U.S. dollar. The U.S. dollar should fall and the yields on long-dated U.S. Treasuries should rise.

Economic/credit problems in Ireland are intensifying, and credit spreads are widening.

Monetary shock and awe might be replaced by monetary shucks and aww!

With a hat tip to John Mauldin, check out Ed Yardeni's excellent commentary on the subject, "Why QE Doesn't Work." (It's a subscriber-based newsletter.)

Bonds are down in the early going, likely reflecting the reaction to Hilsenrath's shucks-and-aww Wall Street Journal column.

Up And Down Today

It was yet another very impressive performance for the bulls. We had plenty of good reasons to sell off today, but the dip-buyers jumped in and refused to relent. Not only did we come all the way back from an ugly open, we kept on going and went out at the highs. At the end of the day breadth was almost 2-to-1 positive, and retailers and oils looked particularly strong.

What was particularly impressive was that we had this much strength despite struggles from AAPL, which has been the primary leader, and some very poor consumer sentiment data. There were no obvious positive other than continued speculation about when the Fed might roll out another round of qualitative easing.

The market looked a bit tired Monday after the very euphoric move on Friday. That lack of vigor looked like it was going to continue today, but the sellers just can't find any traction, and it looked like they ended up being squeezed once again.

At this point, "QE II" and the end of the quarter seem to be all that the bulls need to keep these indices aloft, but you have to wonder how much longer we can go without some consolidation kicking in.

long AAPL

Monday, September 27, 2010


Second Thoughts on QE II?

According to the WSJ, the Fed may enact a smaller-scale quantitative easing than many people expect.

Jon Hilsenrath, a Wall Street Journal reporter thought of as having a connection with the Fed, has just written a column that suggests the Federal Reserve will take baby steps and not conduct a "shock and awe" policy for QE II.

This is an important news item that all should read. A smaller-scale approach toward monetary stimulation could dull the market enthusiasm initiated by hedge-hogger David Tepper when he said the Federal Reserve might move more aggressively!

My guess is that most of the week into month-end will be similar to today.

We have had a quiet inside day after the Tepper fireworks on Friday.

I still see poor breadth and the continuing disturbing relative performance of the financials.

Both the Republican and Democrat parties were responsible for the credit crisis and for the economic malaise that followed. The Bush administration let AIG and C run roughshod over the system, but Clinton Treasury Secretary Larry Summers was, in many ways, an architect of the credit crisis -- Timothy Geithner and Bob Rubin were his accomplices -- as he endorsed and failed to speak out against the repeal of the Glass-Steagall Act, the Financial Services Modernization Act of 1999 and the Commodities Futures Modernization Act of 2000.

President Obama inherited a mess. Let's use a sports metaphor to describe his predicament upon inauguration in January 2009. Casey Stengel (voted the fourth best manager in Major League Baseball history by Sporting News) won seven World Series and 10 American League pennants in managing the New York Yankees during a 12-year period ending 1960. His locker room (led by Billy Martin, Mickey Mantle, Whitey Ford, etc.), similar to the economy in the last cycle (in its egregious behavior toward credit and in the proliferation of financial derivatives), was well-known to be quite raucous, featuring plenty of booze, extramarital affairs and late-night carousing. He left the New York Yankees to manage the New York Mets in 1962. Like the U.S. economy, the Mets were a mess and Stengel was only able to mount a record of 40 wins and 120 losses in 1962. In 2009-2010 President Obama's administration has faced a similar headwind!

I admire the independence of Credit Suisse's strategists -- Andrew Garthwaite, Credit Suisse's global strategist, is quite positive on equities, while Doug Cliggott (concerned with the trajectory of corporate profit and economic growth) is less so.

On Friday, Appaloosa's remarkably successful hedge hogger, David Tepper, discussed the inevitability of a bull market. Though not going "balls to the wall," Tepper opined that either the economy recovers on its own or QEII is instituted and serves to jump-start U.S. growth -- either way market participants should be paid off handsomely on their equity ownership.

Stocks galloped ahead on Friday, with, at least from my perch, surprising gusto, prompted, in part, by David Tepper's comments on CNBC as well as a better-than-expected durable goods report.

In other news, the situation over there (in Ireland) continues to worsen. Ireland's domestic economy has likely double-dipped in third quarter 2010, and the collapse of the ruling party now seems inevitable, as, over the weekend, South Tipperary TD Mattie McGrath has threatened to withdraw his support for the government over planned cutbacks in health service. This follows Friday's announcement that former Progressive Democrat Noel Grealish also withdrew his support for the current regime.

A Late Selloff

The excitement on Friday that drove the market to its highest close since May was nowhere to be found today. The action wasn't bad; it was just slow and lacking in energy. We stumbled around most of the day and then, when a late afternoon push fizzled, we sold off a little into the close. There was no sudden rush for the exits and buyers even managed to push a number of extended stocks higher.

Volume was light, breadth was slightly negative and there wasn't much leadership other than some familiar big-cap names. On the downside, banks were the most worrisome, but we also had relative weakness in chips and retail. The weak finish was definitely a negative as well.

It was an overall lackluster day, but it wasn't bad enough to change anything. We are still slightly extended, but we are holding above key support levels. There is nothing technically wrong with the market right now and, with the end of the quarter upon us, there is likely to be some pressure to continue to hold us steady for a few more days.

I'm wondering if Friday might turn out to be just a one-day wonder. Understandably, a lot of folks felt that the Friday buying frenzy was toppy and frothy, and the lack of any continuation of that mood today adds some weight to that view.

We'll see if we can regain the excitement that was in the air on Friday, but the lack of energy today has me a bit concerned, especially once we are past the window-dressing pressures.

Friday, September 24, 2010


The risk of being short over the weekend is greater than the risk of being long.

On the Expiration of Tax Cuts on Dividends

So what are we to expect from the sun setting of the preferential Bush tax cut dividend rates?

I think this could have some longer-term implications but in the near term it will be quite meaningless.

Under the BTC, qualified dividend income is taxed at a maximum of 15%. One the BTC expire, there will be no difference between qualified and ordinary income tax rates on dividend. The maximum ordinary rate will skyrocket up to 40%.

We must first exclude from the analysis all non-taxable stockholders and all indexed holders from this analysis. Then of course, we have to exclude pass-through investments such as master limited partnerships, which pay dividend-like distributions but are taxed as ordinary income for the most part.

Next, let's consider the current interest rate and dividend environment. The current yield to maturity on the five-year U.S. Treasury note is 1.35% and on the 10-year U.S. Treasury note it is 2.60%. The yield on the S&P 500 index is now about 1.90%. Except for a brief period during the 2008 market decline, the yield on the SPX has been below 3% since the early 1990s.

Of course, not all stocks pay exactly the SPX dividend yield. Many pay far less or even nothing. Only a few stocks distribute far significantly greater dividend yields, such as utilities, telecom and consumer staples. The owners of those stocks tend to be income-oriented, and I would find it difficult to believe that the elimination of the BTC will compel them to sell their stocks with the yield on Treasuries at or near all-time lows.

Thus, in the short term, I do not see risks to stocks as the BTC is eliminated. The long term is another story.

In the long term, shareholders will demand higher payouts to compensate for the increased tax burden. Furthermore, the historically low interest rates in the bond market will not be sustained. Rate spreads between stock and bonds are more likely to revert to more historic levels, which can average around 3%.

When this occurs, demand will return to fixed-income securities, to the detriment of dividend-paying stocks. Growth stocks will pick up some of the slack in equity demand. Boards of directors will be weighing the benefits of increasing dividends vs. increasing share buybacks. I am going to speculate that both shareholders and boards will gravitate toward desiring increased share buybacks vs. increasing dividends. Unfortunately, too many corporate boards tend to borrow money to repurchase stock, and as interest rates increase, this could prove to be a mistake. Thus, I see some longer-term problems as the BTC on dividends expire.

There is still much too much negativity and disbelief in the stock rally.

The bond market is pulling back. For the first time in a while, bonds and stocks are trading inversely -- and that's the way it should be. I expect to see this rise in bond rates continue.

There is still much too much negativity and disbelief in the stock rally. Remember, at some point, rips won't be made to be sold -- just as we learned in 2001 and 2008 that dips were not made to be bought.

Some Perspective on Capital Gains Rates

Let's look dispassionately at what the expiration of the Bush-era tax cuts will really mean for investors.

We'll begin with the long-term capital gains tax.

Are we making too much of the expiration of the so-called Bush tax cuts, or as I shall refer to them, the BTC? Let me state without equivocation that I was in favor of those tax cuts when they were enacted and believe that they should be extended. The real questions are:

* What will be the implications of the BTC expiration in the near term?
* What will be the implications of the BTC expiration in the long term?

We have to also consider three different taxes:

* the long-term capital gains rate;
* the preferential dividend rate; and
* the estate tax (the so-called death tax).

Rather than be emotional, political or irrational, let's analyze the situations from a practical point of view for investors. Let's look at them one at a time.

Long-Term Capital Gains

1.) Let's understand that the preferential capital gains tax rate really only applies to asset held more than one year. Furthermore, the current rate on these long-term capital gains will go from 15% to 20%. Is that enough to spur selling before the end of the year? I think not. Here is the reasoning. If you have long-term status on an investment position that you intend to continue to hold, why turn back the clock on your holding period?

Say you bought 100 shares of stock more than a year ago at $100 and it is now $150. You would pay 15% tax on $5,000, or $750, to lock in the 15% rates. However, you believe the stock will go to $200. So, you repurchase the stock after you sold it to lock in the lower tax rate. Now, you could only buy 95 shares because you had to withhold some proceeds to pay the taxes. So you now own 95 shares at a cost basis of $150 a share. The stock goes to $200, as you expected, in six months. You could pay capital gains at the highest marginal tax rate of nearly 40% -- that would be $1,900 in taxes. Your original $10,000 investment after taxes would now be worth $17,100. If, however, you did not sell the stock at $150 to capture the 15% tax rate, and held it instead to $200, then you would pay taxes at a 20% rate and thus have $18,000 in your pocket. As such, terminal price targets and time horizons are far more important in determining whether you lock in 15% this year rather than waiting, opting for a 20% rate in the future.

2.) We have to exclude from the analysis all stock sales that would not be subject to tax. This would include, for example all pension plans, retirement accounts, charitable and educational endowments, and non-U.S. holders, all of whom are not subject to U.S. capital gains taxes. Then we have to figure that of those stockholders who are left, many are still toting capital loss carry forwards from the early 2000s when the tech bubble burst and from the 2008 financial meltdown. Then we need to exclude all taxable accounts that are passively managed or indexed to the S&P 500, Nasdaq, etc. We can count out hedge funds, as they could care less about long-term holding periods or capital gains rates -- hedge fund managers are paid performance fees (rightly or wrongly) on gross pretax returns.

What we are left with is a very small amount of stock that would even be eligible to take advantage of the 15% BTC. Factor in my analysis in the section above, and I conclude that in the near term, the expiration of the 15% BTC is not a market factor or game-changer come the end of this year.

3.) Looking to the long term, will a 20% long-term rate in the future deter investors from creating capital or investing in stocks? No, it will not. However, should the long-term rate be increased from 20% to, say, 40% by eliminating the benefit of long-term carrying periods, then we would be in trouble. But thankfully, that is not on the table -- it would be political suicide.

Next Week, A Battle

After three negative days in a row this week, the market was probably oversold enough for some sort of recovery, but almost everyone was surprised at how strong a bounce we had today. We had slightly better-than-expected durable goods data, and new home sales were okay, but it seemed to be primarily a bullish hedge-fund manager on CNBC that really stirred up a buying frenzy.

Maybe I shouldn't use the word 'frenzy', as volume was surprisingly tepid for such a big day, but breadth was solid, at over four-to-one positive, the point gains were substantial, and there was strength across the board in all major sectors.

The Nasdaq 100 continues to lead, as big-cap technology stocks are being chased straight up on top of an already tremendous move.

I heard a number of traders calling this toppy action, and while I can understand their arguments, it doesn't pay to fight this sort of momentum. A lot of folks are writing this off as a Fed-induced liquidity rally, but with performance anxiety high and end-of-the-quarter pressures next week, it is likely to be tough going for the bears.

The one thing we can say for certain about the action today is that it caught a lot of folks by surprise, and many are going to feel frustrated about that this weekend. Will that make them buyers on Monday morning? We have had big gap-up opens the last two Mondays, so it is going to be very interesting to see if the pattern holds this coming week, especially as we are now a bit extended once again.

Thursday, September 23, 2010


I am encouraged that we have the productive capacity to care for ourselves.

Still, the challenge of redeploying the unemployed is a far more difficult than many realize.

Paul Volcker, chairman of the president's Economic Recovery Advisory Board, is speaking today, and will likely attract some attention after recent comments that he considers the world economy to be in a depression at the moment.

Reuters reported his comments:

We live in an amazing world. Everybody has big budget deficits and big easy money, but somehow the world as a whole cannot fully employ itself. It is a serious question. We are no longer just talking about a single country having a big depression, but the entire world. If the world as a whole cannot employ everyone who is ready and able to work, it raises some big questions.

Ironically, although we can't employ everybody at the moment, we can support them. I am not at all discounting the economic pain, but I am encouraged that we have the productive capacity to care for ourselves, even with 15%-20% of our workforce being un- or underemployed. Making the unemployed productive again will drive real growth. Contrast this with parts of Africa, where they really can't feed themselves.

Having said that, the challenge of redeploying the unemployed is far more difficult than the public debate would suggest. I offered my own view on the problem last spring. My key point was (and is) that our economic model for the last 30-40 years was flawed, in that we used consumer credit, rather than wages, to give workers the ability to buy what they produced. The credit game is over, so absent paying more, aggregate demand will cease to grow.

There are longer-term issues as well, such as how to retrain now-obsolete workers with new skill sets, and how to fund the start-up businesses that are the only source of job creation in our economy. But that's more that can be addressed in one post.

Claims Benign

The claims number was essentially unchanged and within the range of expectations.

U.S. interest rates imply that confidence is high in the nation's ability to repay its debt. Is this justified? Morgan Stanley issued a great piece on sovereign debt, where the firm noted that the metric of government debt compared to government revenue (not GDP) is far less flattering to the U.S. In fact, Greece is in a better position than we are!

Of course, the Greeks can't print their way out of it like we can. Conversely, if printing is our main relief valve, that implies inflation down the road, which is inconsistent with rates where they are now. To my eye, U.S. government bond investors seem oddly complacent.

For borrowers, the current environment is a bonanza. Watching the headlines after the close last night, corporate issuance was robust.

Look at the roll:

1. "Windstream prices private offering of $500 million of its 7.75% senior notes due 2020"
2. "American Financial announces the pricing of $132 million of senior notes"
3. "Titan International prices and increases size of senior secured notes offering"
4. "Gannett announces pricing of $500 million of senior notes"
5. "Liberty Property Trust prices $350 million of 4.75% senior notes due 2020"
6. "Microsoft prices debt offering"

Headlines source:

Microsoft was especially notable, as the debt is funding the modest increase in its dividend. (A cash flow machine such as Microsoft should be levered far more highly, but being a tech company, an aversion to debt is in its genes.) Microsoft is only paying 0.875% for three-year money; the most expensive note was 4.5% for 30 years.

Bloomberg recently reported that "the top 10 lowest-yielding U.S. corporate new issues in history have been sold in the last 14 months".

Economists always caution that fiscal and monetary policies take quite a bit of time to be felt. Policy action often requires 18 to 24 months to impact its target. For instance, the Fed first slashed interest rates in the fall of 2007, and 18 months later, the stock market bottomed, right on cue.

We may be reaching the end of the lag period for the aggressive rate cutting over the last two years. The headlines above are but one small indication that the Fed's "pushing on a string" is finally getting traction. I am looking for a veritable flood of new bond issuance in the next two quarters, as companies succumb to the irresistible lure of very cheap money. Of course, what they do with it is an open question.

The market implications are inflationary. Deflation is the issue du jour, but we need to keep the lag effect in mind. Commodity inflation is in full force, with various basic necessities such as grains, cotton and coffee surging to all-time highs. Gold may be signaling that by next spring inflation may be back on our minds.

Inflation does not mean a poor market. In fact, companies with pricing power will do fine as inflation revives. But the specter of renewed inflation should catalyze investors to examine the names they hold now, and shift their holdings into names that can price at will.

Today We Got The Expected Selling

We breached the 1,130 level of the S&P 500. That was the big breakout level on Monday, but now we'll start hearing some chatter about a failed breakout.

The next major level of technical support is the 200-day simple moving average around 1,116. Many will be very concerned if that falls; it may kill the uptrend we've been in since the end of August.

To a great degree, the market has been held up by a few big-cap names lately such as AAPL and AMZN on the Nasdaq and WMT and CAT on the DJIA. When those names softened this afternoon, we went down in a hurry.

This is the third negative day in a row for the major indices, which means we are starting to test the boundary between a healthy correction and a rollover. I'm still not too worried here, but if another bounce attempt is sold and we take out today's lows, then it will really start to look like we have a change in market character hitting.

One of the other things I don't like is that the news flow is starting to take on a negative edge. The weekly claims numbers and housing starts numbers were roughly in line, but a couple weeks ago, when sentiment was quite poor, we were jumping much more vigorously on just OK economic news.

long AAPL

Wednesday, September 22, 2010


The financial sector looks like there have been several very large sellers in the market for a week or so now.

I wouldn't be surprised if we saw a large hedge fund disgorging itself from the group in the quarter (Paulson?)

Mr. Market is wearing out the bears!

The advantage remains in the bulls' court.

SEC Commissioner Mary Schapiro will consider regulating high-frequency trading.

Even though I don't own it at the moment, one of my favorite stocks for 2010, ASPS, reported an important alliance this morning.

Earlier today, Herb Greenberg talked about the potential for an ETF collapse on CNBC.

TIPS Rate at 1.88%

That's up 25 basis points in the last few weeks!

The Fed might be concerned with inflation, but the implied inflation rate in the TIPS is 1.88% now.

The Federal Housing Finance Agency says that July home prices fell by 0.5%.

The path to the obvious will be filled with potholes.

Too many observers are glibly pointing to the following inevitabilities after yesterday's FOMC announcement:

1. the U.S. dollar will weaken;
2. bonds, gold, commodities and equities will rise; and
3. the Fed will be on hold in perpetuity.

Something tells me that the path to the obvious will be filled with potholes.

We saw a disappointing drop in new-mortgage applications this morning.

New mortgages reversed a four-week uptrend.

Also, refi, a key to consumer spending, is slowing, with the third week of declines in a row.

Eric Schmidt: Yes, we see your searches, but we forget them after a while.
Steve Colbert: And I'm supposed to believe you?
Eric Schmidt: Yes.

-- "The Colbert Report"

Got The Expected Selling, But It Wasn't Too Bad

We had a mild bout of profit-taking today, but the market has been so strong lately, it was about the worst day in over three weeks. It is the first time that this month that the S&P 500 and Nasdaq have had two negative days in a row. We were due for some sort of pullback, but overall the bears didn't manage to do too much damage.

The action under the surface was worse than indicated by the major market indices. We had only minor losses in the indices, but breadth was solidly negative, and some of the recent momentum plays took some hits. Probably the biggest negative was that technology and banking led to the downside.

Volume picked up on the Nasdaq, and that gives us a technical distribution day there, but AAPL prevented any really pullback. Also, the S&P 500 held above 1130, which is the key technical level that everyone is watching there.

It was obviously a weak day, but in the bigger scheme of things, it looks like nothing more than just some healthy consolidation. The damage under the surface is a bit worrisome, but it is still the bull's game to lose at this point.

We'll see how things shake out tomorrow. The bears won't hesitate for long if they are going to finally do something. The action today didn't advance their cause much at all.

long AAPL

Tuesday, September 21, 2010


Replacement for Summers?

I'm hearing that Mark Zandi may be the replacement for Obama's economic team.

The market moved randomly after the expected FOMC news.

The fact that a possibility of further quantitative easing was mentioned should be of no surprise.

Negative trends (jobs and home-pricing) are driving more people to rent, rather than buy, homes.

Despite a multi-decade improvement in affordability and the lowest interest rates we've seen in a generation, the combination of the trend towards temporary workers and the shock of the home-price drop of 2008-09 has served to increase the need and preference for renting over ownership.

This might help to explain the large ramp in multi-family housing starts in August.

The single-family residential starts number was the worst August reading in 50 years.

According to real estate maven Mark Hanson, the August single-family residential starts release was the worst starts number in 50 years of Augusts and the eighteenth worst starts month ever!

After their announcements, Microsoft and Cisco saw brief moves higher but no follow-through.

Trennert (Strategas) said on CNBC that the rash of dividend initiations/increases is just what Mr. Market ordered.

Look at the price action of MSFT and CSCO since their announcements, though. There was a brief move higher but no follow-through.

A contagion in confidence will limit the effect of monetary policy.

The prevailing bullish view from thoughtful money managers I pay attention to is that the Fed will do whatever is necessary to promote domestic economic growth and that stocks, in the fullness of time, will respond to this policy.

In other words, there is an inevitability of a bull market because growth will come at any cost.

It is my view that there is a limitation on monetary policy, as a contagion in confidence has dulled its effect and will likely be with us for some time to come.

It follows that economic growth will be uneven and inconsistent in the years ahead as the last cycle's sources of growth (specifically residential and nonresidential investment) are not readily replaced by other drivers of growth.

Away from the demand factors, the demise of the shadow-banking and securitization markets importantly limit the supply of capital and credit, and there are the headwinds of our fiscal imbalances (local, state and federal) and the policies of populism (costly regulation and higher marginal tax rates).

The market debate today is not whether there will be a double-dip. (There will not be.) The market debate today should be what does one pay for a shallow and lumpy economic recovery?

It sure seems like 13x on 2011 S&P profits is the maximum investors will pay!

Yesterday's market ramp possibly had everything to do with an outright coupon purchase of $5.2 billion in the Fed's Permanent Open Market Operations.

From my perch, the strength of the stock market on Monday had little to do with the President's CNBC town hall meeting.

Remember, on Aug. 10, 2010, the FOMC-instituted POMO directed the Open Market Trading Desk at the Federal Reserve Bank of New York "to keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities."

Monday's Fed operations coincided with renewed fears in Europe of needs to tap stabilization funds and an increase in Portugal and Ireland spreads. (Last night's Irish Treasury auction went well - selling $500 million Euros of debt at 4.775) and should ease some of the aforementioned concerns).

Getting back to the President's CNBC gig, there seemed nothing new in substance and delivery. BTIG's Mike O'Rourke put it succinctly in his commentary last night:

The bottom line is that the President did not budge on any of his current policies or plans. When it comes to the most highly watched policy measure, the extension of the Bush tax cuts, the President unequivocally held his ground. There were times when the President advocated that he is "pro-business," but it was rhetoric similar to what the President has espoused in the past. There were feeble attempts by commentators to spin some of the boilerplate rhetoric as a "pivot" or a "tack" to the middle. Some interpreted the market not selling off as an endorsement, but since the President did not say anything substantively new, let's not confuse coincidence with causation. Maybe consolation was provided to those in the audience as they voiced their concerns to the President directly, but as far as the business community he was theoretically targeting, the effort definitely missed the mark.

-- Mike O'Rourke, BTIG

Fed Day

The DJIA managed to keep its winning streak going by a slight margin, but it was a very mixed day for the market with 2,100 gainers to 3,500 decliners. There continued to be some big-cap momentum that helped to hold the indices up, but a fair amount of profit-taking occurred in some of the highfliers.

The main news today was the Fed, and the Fed is all about quantitative easing. Everyone knows that it's not a particularly good thing that the economy is still so weak that the Fed may need to provide "additional accommodative action," but as we've seen over the past 18 months, the liquidity provided by the Fed can keep this market running for a very long time. The bears are understandably a little worried about jumping in front of $2 trillion in new buying power.

The biggest problem for the market right now is that we are extended, and it isn't as if the inclination for the Fed to give us QE II was unknown. We have been pricing that in for the past three weeks with a big run. We still don't know when the Fed might make a move which does give the bears a little room to try to push us back down in the near term.

The key technical level remains 1130. We are still above that, but we are due for a day of selling soon. With the Fed out of the way and talk that the economy is still so poor that we need to print dollars endlessly, it will be a good opportunity for the bears to show us if they have any firepower.

Monday, September 20, 2010

I've Written It Before - And I'll Write It Again Now - AAPL Is Very Cheap Right Here At $280+.....

One day we will find out who didn't believe in AAPL. One day we will figure out who leaned on it last week, shot it down -- perhaps someone who owned the 280 calls and could short it aggressively? One day we will realize that there were people who simply didn't get the story or, more importantly, refused to use the Rule of 10.

The Rule of 10? Apple is a $28.20 stock. If the earnings estimates are too low and the company has a host of new products that it can roll out with high price points, then you can bet it could trade to $32.50. Why not? That's not much at all; a little more than 10%.

It is only unfathomable when you take a great retail stock like Apple and keep it at these prices, especially when you realize how much money was lost when GOOG dropped from $700 to the $400s.

Apple, in the end, is a retail store filled with Apple goodies. People shop there, they like the products, they want to own the stocks. But the stock is "expensive" in the sense that it is a high dollar amount.

Divide it by 10, and you know you have one of the cheapest stocks in the market.

You have to do the phantom math, and you know why, when we hear about the new-iPad sales and the iPhone China news, we are going to go to $32 if not, perhaps, $35.....

long AAPL


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.

Alot Of Liquidity Coming Into The Market

The action today was a particularly good example of how emotion can take hold of the market. We started off with another Monday morning gap up and, after a brief attempt by the bears to short the move, it was off to the races.

The bears were focused on the choppy, fairly narrow, action last week and, more importantly the inability of the S&P 500 to take out the resistance at the August highs. Since we were a bit overbought and seasonality is negative, it seemed like a good spot for the market to pull back.

Unfortunately for the bulls, the buyers didn't care too much about logic today. CNBC helped to stir things up with its non-stop promotion of a town-hall meeting featuring President Obama. At best, the biggest news from that event was that the president didn't say anything particularly critical about Wall Street for a change. For some folks, that was enough reason to buy, especially since the market was running away without them anyway.

Another faction of folks where pointing to big, open-market action by the Fed today. With the possibility "quantitative easing" being mentioned in the Federal Open Market Committee's statement tomorrow, the old adage about not fighting the Fed was definitely in play.

Whatever the cause might have been, the end result was some good-old-fashioned momentum. It was downright frothy, especially in the final hour of trading, but volume was disappointing with less than 2 billion shares traded. Low volume hasn't mattered in this market for a while, so I'm not going to be too critical of it.

Last week, we had a big gain on Monday and then the market didn't do much for the rest of the week. We are now above the 1130 resistance, so the technicians will be watching that level.

This market action is very similar to some of the other moves we had back in March and April of this year (as well as in October and November of 2009). Those V-ish moves were driven by a flood of liquidity, and the focus on the FOMC statement tomorrow is going to bring that issue to the forefront again.

Friday, September 17, 2010


Very weak confidence number today.

Buy TBT.

RIMM - Software revenue missed estimates, net new adds are slowing, and there are signs of a cumbersome inventory build-up.

Yes, device shipments improved, owing to the Torch launch that contributed to a greater-than-expected build-up in channel inventory, but there was little improvement in other metrics.

Indeed, weaker-than-expected software revenue, a slowing of net new adds (as the company's non-consumer business succumbs to competition) and signs of too large of an inventory build-up represent cautionary factors in the quarters ahead.

Sometime in the next few months, rising owners' equivalent rent will beget a surprise to the upside in the CPI.

I believe there will be a surprise to the upside in the CPI sometime in the next few months.

That is because the single largest component of the CPI is owners' equivalent rent.

Since May, rents have been steadily rising, and based on the earnings reports and conference calls at most apartment REITs, this trend in strengthening rents has accelerated recently.

Few are focusing on this.

The Technical Analysts Wanted This Kind Of Day/Week; And We Got It

It was a very choppy week for the market, but a generally positive one. After the gap-up open on Monday morning, the indices didn't make much, if any, additional progress but the market was overbought and five days of consolidation is what we need if we are going to make a good attempt at taking out the June and August highs -- the major technical hurdle to the upside.

If you are looking for negatives, the worst aspect of the action this week is that breadth was poor and the strength in the indices was primarily the result of a small group of big-caps, primarily AAPL. It was a narrow market, and there wasn't any clear leadership or major pockets of leadership like we had the week before.

Technically, the major indices look fine. They are holding important support at the 200-day simple moving average and have consolidated gains quite nicely this week. It sets up a very interesting battle for next week. The bulls have the edge, but some of the weakness under the surface and the narrow leadership is supportive of the bears. Economic data are going to be of particular importance, and with sentiment becoming more positive recently, the chances of disappointment are higher.

A Useless Rant On The Economy - But It'll Make Me Feel Better

Obama's not really a socialist, he's an anti-colonialist - read the current Forbes magazine cover story if you're not sure what that entails. I'm sure most $250,000+ income households don't feel like fat cats, or one of the 1-3% privileged Americans that President Obama classifies them as. All this administration wants to do is spend their money!

But honestly, it's not about them, or me. It's about the economy. Since Obama & Co came to power, the administration has made one note-worthy accomplishment (besides the great health-care debacle): stunting growth in the private sector. During the past two years, we have seen significant growth in the size and scope of the federal government, and forecasts say it will get much worse with an 83% increase in spending over the next decade. They continue to wastefully spend, and fail to recognize that the Keynesian economic policies have done little to improve the economic condition of the United States. These are the same economic policies that have brought the United States less growth and higher levels of unemployment in the past! It is imperative that we do not continue along this growth-impairing path, and a good first step would be to extend the Bush tax cuts for all.

The president continues to criticize and punish those who create jobs and growth in this country. The massive impending tax increase will significantly hinder small business’ ability to create jobs. A common misconception is that because the tax hikes are only applicable to 2-3% of the population, the effect on growth and employment will be minimal. However, economists estimate that this 2-3% is responsible for a quarter of the nation’s consumer spending and is comprised of a third of the nation’s small business owners. It is very simple. If you cut small business profitability, you reduce their ability to hire. This is exactly what the current administration is planning on doing. Even thirty one house democrats wrote House Speaker Nancy Pelosi saying that raising taxes in the middle of a recession would be a mistake! The Bush Tax cuts did not put America in this long, drawn out recession. It was policies like those created by the CRA that encouraged everyone to be a home "owner". The government functioned as an enabler for Americans to live beyond their means.

I’m just a trader, but the choice seems pretty obvious- extend the Bush tax cuts for everybody in order to promote job growth.

Thursday, September 16, 2010


The S&P closes at its high, on news from Research In Motion and Oracle.

The narrow advance continued throughout the afternoon, serving to shake out the bears!

There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

-- Lawrence Livingston, from Edwin Lefèvre's Reminiscences of a Stock Operator

What to do now?

Maybe nothing.

No QE Next Week?

Well-regarded macro strategist Medley Advisors is out saying no quantitative easing next week.

Bonds are certificates of confiscation.

Bonds are certificates of confiscation.


Emerging trends in New Jersey and around the country will serve as a brake or governor to economic growth.

The indigestion/fiscal imbalances at our state and local governments have been a recurring theme (and nontraditional headwind).

I try to differentiate my commentary by solid logic of argument and analysis. I attempt to avoid reporting the obvious; I presume anyone reading out there is sophisticated and already knows which groups are working and which are not.

AAPL Had A Nice Day

For the third day in a row, the indices came back from a gap-down open and closed fairly well. However it was the second deceptive day in a row with the major indices covering up some weakness under the surface.

The Nasdaq, for example, had 968 advancing stocks to 1629 decliners (and that isn't too impressive), but AAPL, which has a weighting of 20% in the Nasdaq 100, more than made up for the weakness in hundreds of smaller stocks. The NYSE had a similar situation, while the Russell 2000 was the laggard today due to the relative weakness in the bulk of smaller stocks.

It certainly wasn't a bad day, especially since we opened weak and closed strong once again, but it wasn't quite as positive as it looked. The main positive is that we are simply consolidating recent gains and we aren't seeing any aggressive selling. We are holding key support very nicely and doing exactly what is needed to set up a move through the August highs.

I'm a little concerned that momentum has been cooling and we have some sloppy action in many smaller stocks. We still have this major technical resistance around 1130 (where the market failed in both June and August), but we aren't rolling over either, and that makes it tough to be very bearish. It is still the bulls' game to lose here. As long as the S&P 500 holds 1115, it will be in very good shape. If we slip below that level, we'll have to reassess. But with names like AAPL and AMZN holding us up, that creates a little added confidence and keeps the bulls from taking profits.

long AAPL

Wednesday, September 15, 2010


We have a very strange market, being led by consumer staples.

Downbeat Comments From Schlumberger

In the slides just released prior to the Barclays lunch keynote, the company made the following representations (most of which were negative):

* U.S. land continues to improve, Canada saw a good rebound, and Middle East/Asia is still strong.

* 2011 synergies were raised by $50 million from the SII transaction, which should be breakeven by late 2011 and additive to earnings in the following year.

* Europe/Africa/CIS won't record sequential third-quarter growth despite Russia, North Sea strength.

* In the Gulf of Mexico, the continuing effect of the U.S. moratorium has led to a dramatic reduction in activity and revenue, due to its high market share in the deepwater.

Numerous takeover chatter is ruling the airwaves today.

Most of it is likely specious, though!

Excluding autos, the rate of growth for August Industrial Production was 0.4%, up a tenth from July.

This print coupled with manufacturing production (up 0.5% ex-vehicles) and good diffusion (broad based) are supportive of about a +2.5% to +2.7% third-quarter 2010 GDP.

No double-dip here!

The weak headline number in the September Empire State PMI has been emphasized by the bears.

But new orders in the latest month reversed August's weakness

And the employment component strengthened to its best reading in four months.

While the weak headline number in the September Empire State PMI has been emphasized by the bears, it should be mentioned that some of the forward-looking component readings indicated improvement.

Specifically, new orders in the latest month reversed August's weakness, and the employment component strengthened to its best reading in four months.

Yesterday, the Ceridian-UCLA Pulse of Commerce Index reported widespread weakness in nearly every one of its surveyed regions (with the exception of the West North Central area). Overall, the August results dropped by 1%, reversing July's strength (up 1.7%) and following June's weakness (down 1.9%).

The August PCI was consistent with third-quarter 2010 GDP growth of 1.5% to 2.0%. While this is far from double-dip territory, it also indicates a continued sloppy employment market.

This index measures "real-time diesel fuel consumption data for over-the-road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over-the-road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers."

The PCI report got little publicity yesterday, but its signal of a moderating domestic expansion was loud and clear.

A Good But Boring Day

It has been a peculiar day of action for the market, with some pockets of strength but a lot of weak action and profit-taking in places as well. We are technically extended, so it isn't a surprise that we have some churning, but the bulls are hanging tough and still look quite confident.

The market really hasn't done anything wrong. We are consolidating a little under a major technical hurdle at the August highs and the bears aren't gaining much ground, but the sloppiness of the action today bothers me.

It is always difficult to be totally objective about the way you view the market. If you have positions and even if you don't, you will generally wish the market was moving in one direction or the other.

Tuesday, September 14, 2010


Cisco's Dividend Isn't Big News

It's just a sign of a maturing company.

A sensible acquisition would be more meaningful.

Unfortunately for the big banks, the combined impact of financial regulation, a weak small business lending environment and an hospitable and cheap debt market, which allows the largest companies to bypass the large money center banks will all contribute to:

1. lower returns on invested capital;
2. reduced earnings power; and
3. a more sluggish profit recovery than previously expected.

It is hard to explain the early strength in bonds today.

Is the U.S. economy getting stronger?

And are the non-U.S. economies getting weaker?

I envision a lumpy and inconsistent period of economic growth.

In some reports, it will look like we are reentering the recession (month-ago series of statistics), and in some periods, it will look like we are exiting a soft patch (last two weeks).

In reality, we are simply in a moderating economic expansion, and there will be no double-dip.

That said, it will remain hard for investment and corporate managers to navigate.

Run, don't walk, to read about the economy according to Warren Buffett.

But be careful to accept his inspiring words as gospel, as he has been wrong before (see late October 2008).

As well, his portfolio of companies is among the largest and brand-leading in the world. His book doesn't face the issues confronted by small businesses, which reported continued weak confidence numbers this morning.

Boring Day

The quick reversal of the weak open this morning caught quite a few folks by surprise, and some got squeezed.

Precious metals were strong today as well, but strength there is usually indicative of a market top. I normally don't expect to see gold trading in tandem with big-cap retailers.

Got out of NFLX today and bought some more AAPL - it's just so cheap.

long AAPL

Monday, September 13, 2010


Today has been encouraging for the bulls, who appear undaunted after a winning skein that began at August's end.

Of course, the normal fireworks of the triple witch could impact the streak and so could some healthy profit taking later in the week.

Run, don't walk, to read two excellent op-ed pieces:

1. Orin Kramer's "How to Cheat a Retirement Fund"; and

2. Arthur Brooks and Paul Ryan's "The Size of Government and the Choice This Fall."

I am hearing Hillary Clinton and Joe Biden could swap their respective Secretary of State and Vice Presidential positions.

Behind the scenes, there is already active discussion that Hillary Clinton and Joe Biden could replace each other in their respective Secretary of State and Vice Presidential positions.

Given the length of time until the 2012 Presidential elections, we will not hear much about this until early next year!

But conversations have commenced.

The phase-in period of the Basel Accords' new capital rules is all the way out until 2019.

To quote Denny Gartman:

In other words, the banking authorities punted the capital ball down the field to others to handle years into the future. In other words, this is almost comically silly.

Stocks are cheap relative to bonds, but that does not mean that equities are inexpensive in an absolute sense.

Bonds are overpriced.

There will be no double-dip. Nevertheless, the domestic economy will experience a (consensus) shallow and inconsistent recovery contained over the short term by political (regulatory and tax) uncertainties and over the intermediate term by numerous non-traditional headwinds.

After a strong cyclical surge in 2010, corporate profits should expand further (albeit modestly) in 2011.

The risks to forward corporate profit and U.S. and worldwide economic growth rates as well the overall stock market's progress are all to the downside but not meaningfully so.

If I am correct in these views, the above conditions will likely result in a relatively trendless but volatile U.S. stock market into early 2011, presenting a clear challenge to:

1. a buy-and-hold strategy; and
2. delivering excess returns.

This near-term backdrop will not be a permanent condition, but, for the time being, it will likely provide fertile opportunities for a shorter-term, catalyst-driven trading strategy.

A Good Day, But I Thought It Would Be Better....

It was a good old-fashioned Monday morning gap, and then the dip-buyers showed up for the party and helped to prevent some midday weakness. That gave us a strong finish and the eighth positive day out of the last nine for the S&P 500.

The momentum has been quite strong lately, and that is why the overbought conditions haven't mattered so far. Today it felt like we also had some performance anxiety kicking in. With this straight-up move, there aren't as many easy entry points, so if you are trying to make up some relative performance, you will have to pay up and will likely want to be looking at the bigger movers. Many of the biggest percentage movers are small-caps, and that is why we saw the Russell 2000 gain almost twice what the S&P 500 gained today.

Technically, the major indices all cut through their 200-day simple moving averages. I didn't expect that it would come so quickly or so easily, but those levels now become our first area of downside support. We are extended and could use some consolidation, but a lot of market players are move worried about being left behind than they are about paying up too much.

One of the hallmarks of the rally from March 2009 through April 2010 was how often we'd have these V-shaped rallies where we just went up day after day, often on light volume. Since April, overhead resistance has mattered much more in but this past couple weeks we have cut through it like butter.

The bulls have the momentum and have leaped some pretty substantial overhead resistance levels, but unless they consolidate a bit, they are going to need to pull off a V-ish move, which is never something we can trust all that much.

It continues to be a good market for individual stock-picking.

Friday, September 10, 2010


Broker conferences in the next couple of weeks should increase the news flow.

Plenty of tradable noise, not alot of impact news flow ... fortunately! Things start to get interesting next week in terms of news flow. A ton of broker conferences are coming up in the next couple weeks, and they give companies a chance to update guidance, change tone, etc. Then it gets quiet until earnings in October. Look for a little more action for the balance of the month.

Big pharma is catching a nice bid, while tech is catching a brutal beating.

Big pharma is catching a nice bid, with MRK and BMY both strong.

UBS raised price targets on some momentum software names: VMW, CRM and RHT.

Speaking of dividends, I noticed PM, not MO, raised its dividend to $0.64 from $0.58. Philip Morris International goes ex-div on Sept. 22. That is a 1.2% payout, and the stock is up big today.

They hate tech today. HPQ, CSCO and MSFT are the worst performers in the DJIA. NSM's report is driving a lot of it, reinforcing negative sentiment generated by INTC last week. This could be an inventory correction; NatSemi says sell-through is still OK. Techs will take their beating today, but don't count on seasonal strength not showing up in fourth quarter like usual.

Corn inventory is down, and price realization expectations are up. Surprisingly, ethanol leader GPRE is up nearly 3%. It must have some nice hedges paying off, because this is not good for ethanol.

Average returns on interest-bearing deposit accounts slipped to 0.99% percent in July.... It is the first time its measure has dipped below 1% since the 1950s.

With bank deposits paying nothing, risk-averse capital is being forced into government bonds, which also are paying next to nothing. (I guess next to nothing is better than nothing!)

Many are looking to dividends for income. Many would argue that bonds are safe because they pay off at maturity, whereas equities are risky. Fair enough, but if you never sell the stock, then all that matters is that the dividend is safe, so you may not be in a much different risk/reward position owning dividend stocks long term. "As long as the check shows up," as they say.

I think that stocks can continue their run for the rest of the year.

Quiet Day

It was a very quiet day of trading, but the bulls continue to hold up very well. There was some profit-taking in momentum names today, but strength in oil, biotechnology and retail more than made up for it. Banks and utilities struggled, but the weakness in semiconductors is the biggest negative right now.

Bonds pulled back again as market players are becoming much more sanguine about a "soft patch" in the economy. Two weeks ago, we had a very high level of negativity as concerns about a double-dip recession were bubbling up, but after a few slightly better than expected economic reports, the mood now feels rather positive.

It has been a good market for individual stock-picking lately, and I'm optimistic that will continue. The major indices are all in trading ranges right now. The S&P 500 is slowly inching up to the upper range at the 200-day simple moving average at around 1115 and is slightly overbought, but the buying momentum is persisting and keeping the bears at bay.

It is a bit of a tricky juncture here, as we could use some more consolidation before making an assault on some significant upside resistance, but the bulls keep on chugging along slowly but steadily. Next week the bears are going to be tested, and we'll see if they have any teeth or are just going to end up being fuel for a short squeeze.

Thursday, September 9, 2010


I saw Nouriel Roubini on CNBC again, touting the same bearish stories that he says will tank the economy and hit the stock market. My take is that all of the bearish theses (tight bank credit, potential for higher taxes, continued housing malaise, strapped consumers, double-dip potential, etc., etc.) are already well known by investors, and thus they are well discounted by the market. It is the stories that come out of left field and surprise investors that usually take the market lower. Today's low P/E on the market is likely a reflection of the dour mood out there due to all of the bearish stories that seem rigorous. (They always sound that way.)

I think that the apathy toward Apple is symptomatic of this environment and the general apathy toward stocks.

One of my favorite stocks, still, is AAPL. I know this is already a favorite of many, but when I look at the number of funds that hold it, the number is still smaller than names such as CSCO and MSFT.

Fundamentally, the company's execution has been superb. Forget the "antenna-gate" issue, earnings growth has been stellar, as has profitability. Apple has a great streak going of topping estimates and seeing consistent upward revisions to earnings estimates. This is one of the important and overlooked factors that have kept the P/E multiple so low.

To that end, I am still surprised that a company that is this well-managed and that continues to innovate and come out with blockbuster products and that is growing at such a high rate for a large company is still trading at a P/E in the 14x range. I think that is symptomatic of this environment and the general apathy toward stocks. If this were a normal environment, I think this stock would be trading at 20x-25x forward earnings, and no one would be up in arms about its valuation. I would even argue that it might trade at 30x from time to time.

I think this holiday season is going to be huge for Apple. I consider myself a fairly normal consumer when it comes to tech products. I waited years before I bought my first iPod, and I still don't own a single Mac. I own an iPad. I am also growing more interested in the Apple TV product. So Apple's share in my household is growing, and I'm far from alone. Today, the company announced that it is easing restrictions for apps developers, which should help grow its already dominant applications store. This stuff is totally addictive, and in many ways replaces what people rely on their PCs for.

As for the stock, it often trades well in the fourth quarter, and currently, it has been consolidating for roughly six months and looks like it's ready to breakout to new highs again soon. Apple is my largest position, and I am very comfortable with that. The company will likely post EPS of $18 to $19 next year, which I think could get the stock as high as $375 or so over the next six to 18 months.

The Bank of England held its target interest rate at 0.5%.

Take Profits?

We have had a very good run over the last six days, and what has been even more impressive is the fact that there have been some unusually strong pockets of momentum. The action in many of the strongest names has become downright frothy, but market players have been increasingly confident lately and eager to chase the hot names.

The somewhat better-than-expected weekly unemployment numbers this morning provided the bulls with another reason to keep on buying. We still have enough unemployment claims being filed to keep the unemployment rate moving higher, but the market has had very low expectations lately. Nonetheless, we have become overbought enough that it didn't take much for some profit taking to kick in.

We hit the highs of the day at the open and then meandered about until the news hit that DB may need to raise a substantial amount of capital. We fought back from that dip late in the day and managed a pretty good close. Breadth was solidly positive and the indices in the green, however there were quite a few toppy looking patterns in some recent winners, including CRM and CROX.

Technically, the major indices were all stopped before they could make a run at their 200-day simple moving averages. We are in the higher end of a trading range and have plenty of support to go along with the 200-day moving average resistance.

Wednesday, September 8, 2010


TBT and Raw Industrial Commodities

Note the strength in raw industrial commodities over the last week.

Reinsurers Getting Jiggy

The reinsurers, a sector of which I am enamored, have started to move.

Another TBT Driver

An enormous amount of financing is now taking place to capitalize on generational lows in interest rates.

Supply represents another tailwind to a TBT long position.

I am optimistic that housing is in the process of stabilizing. Go read what Jeff Matthews wrote about housing (and pattern recognition) yesterday. It is priceless!

Bernstein has an outperform rating on Cisco and a $31 price target.

Sanford Bernstein makes a strong case that Cisco should initiate a dividend now.

We believe now is opportune for Cisco to initiate a dividend as investors flock to coupon-bearing assets. Cisco's net cash balance is in the top five of S&P 500 ex-financials, and it generates above an 8% free cash flow yield, creating ample space for a dividend.

To signal strength to the market and attract new yield-oriented investors, we recommend a 1% to 2% yield dividend, in line with precedents. This would create a new virtuous cycle for Cisco, raising return on invested capital and building confidence in shareholder returns.

Cisco is constrained by onshore cash balances. The historical practice of issuing debt at a higher rate than its cash earned to fund U.S. operations destroys shareholder value. We advocate offshoring and repatriating cash as needed.

Bernstein has an outperform rating on Cisco and a $31 price target.

Nouriel Roubini created an interesting table that favors a below-trend recovery above other GDP outcomes.

I am in his camp on this one.

And I am increasingly more optimistic regarding U.S. equities.

Here is an interesting table prepared by Dr. Nouriel Roubini, which outlines six possible GDP cases:

1. above-trend recovery (5% probability);
2. below-trend recovery (40% probability);
3. stagnation (12.5% probability);
4. double-dip, V-shaped (30% probability);
5. severe double-dip then weak recovery (10% probability); and
6. global financial economic collapse (2.5% probability).

I am in the U (below-trend recovery) camp, which he assigns a 40% probability.

And I am increasingly more optimistic regarding U.S. equities.....

A Good Day

It was an interesting day of action and, despite some late-day weakness, the bulls had a pretty solid win. Breadth was solidly over 2-to-1 positive with the strongest action coming from some of the high-beat, big-cap names such as PCLN, AAPL, NFLX, BUCY, FFIV and GMCR.

Even though the point gains in the major indices were fairly mild, there was some exceptional momentum to be found under the surface. Some things closed a bit weak as the market became a little nervous this afternoon due to the Fed's Beige Book and President Obama's latest stimulus plan, but dip buyers were sufficiently interested to keep us from doing the big U-turn.

Technically, the S&P 500 failed to recapture the 1100 level at the close, but we are working off the overbought conditions created by last week's big, three-day rally. We still have some substantial overhead looming at 1115 and higher but we are well above the key support at 1082. We can safely call this a trading range right now and whoever takes control is going to determine the trend.

One big positive that I see is good trading in individual stocks. There is obviously some speculative money out there that is chasing the hot action, and that makes for some interesting plays. If there is speculative money out there, then that means that confidence is increasing and that, of course, is bullish.


Tuesday, September 7, 2010


Computers don't sleep, don't get tired, don't care about politics and don't celebrate Rosh Hashanah or Yom Kippur.

So be prepared for some sharp moves in the days ahead as some market participants are in Temple on Thursday and Friday!

Elizabeth Warren to Head Bureau of Consumer Financial Protection?

I am hearing that Elizabeth Warren might be shortly appointed head of the Bureau of Consumer Financial Protection.

This rumor might account for the weakness in credit card stocks today.

Government to Sell LNC Warrants

The U.S. government is planning to sell the Lincoln Financial warrants it owns over the next few weeks.

Political Battlefield Limits Upside

I find it hard for valuations to expand and for the S&P 500 to make much progress above 1,150 this year.

"These are the folks whose policies helped devastate our middle class and drive our economy into a ditch. And now they're asking you for the keys back."

-- President Obama's speech on Monday

"We don't need more government 'stimulus' spending. We need to end Washington Democrats' out-of-control spending spree, stop their tax hikes, and create jobs by eliminating the job-killing uncertainty that is hampering our small businesses."

-- Congressman John Boehner (R-Ohio), House Republican Leader

Yesterday President Obama announced a $50 billion-plus infrastructure program, which included a pointed campaign season assault on the Republican party. (Later in the day, it was reported that businesses would be allowed to expense capital expenses.) The GOP's leaders immediately assailed the administration's proposal of more federal spending as ineffective.

With the administration's ongoing and committed populist message/rhetoric at such close proximity to the midterm elections (and the Democrats very wobbly), one has to wonder why the President continues to launch these fiscal chip shots. To use the words written by Paul Krugman in the New York Times -- President Obama may simply not have the "intellectual clarity and political will."

Many Democrats have obviously over rated Director of the White House National Economic Council Lawrence Summers' critical thinking and the dogma and seeming class warfare incorporated in Obama's ideology.

In light of the growing friction between parties and with so much at stake in House and Senate, nothing substantive on the jobs front will likely get done by year-end.

Barring an unlikely transformative fiscal initiative that is focused on jobs growth (which I had been hoping for), I find it hard for valuations to expand and for the S&P 500 to make much progress above 1,150 this year.

In stating the obvious, there is clearly no incentive on the part of Republicans to be cooperative, and there is no political interest on the part of Democrats to deviate from their populist views.

So, absent an exogenous event, the year's lows have likely been put in, and stocks could move modestly higher. That being said, with too combative a political situation (rendering impactful 2010 fiscal policy effete), still elevated unemployment and absent much economic momentum, I can't find a P/E-enriching market catalyst that will push equities to the levels that many optimistic strategists are anticipating.

long LNC

The Fuse Needs To Be Lit.....

If the market is going to correct after a big three-day move, then the action today was a good way to do it. We could have done without the very weak finish and breadth was pretty poor overall, with just gold in positive territory, but volume was extremely light and many of the best stocks held up relatively well. The bounce in bonds was a bit troubling, but it was mostly just boring and slow rather than a stampede for the exits.

The biggest problem this market faces right now is that there aren't many catalysts out there. The excuse for the selling today was increased worries about the levels of European debt. That sounds more like a convenient excuse rather than the driving force, but there just isn't much else competing for investors interest so they decided to focus on this convenient negative today.

We have the Beige Book report tomorrow afternoon, but the news agenda is very slow until next week. The problem with that is that market players look for excuses to make a move, and when nothing much is happening, it is often easier to find negatives.

Technically, the S&P 500 lost the 1,100 support level that it had reached on Friday, but it held well above the 1,080 50-day simple moving average that I see as the most important support in the near term. The Nasdaq and Russell 2000 are lagging the S&P 500 a bit, but both also managed to hold their 50-day support as well.

Overall, we are still in OK shape for a further upside push. We needed to consolidate and work off slightly overbought conditions, which we did today, but now we need to find support and entice the buyers back in. The biggest obstacle is that there just aren't a lot of great reasons to be jumping in right now when things are so slow.....

Friday, September 3, 2010


Exxon Mobil may be looking to raise money for a stock buyback.

This would be another headwind to the fixed-income markets.

Let's add sizeable supply/corporate issuances associated with capital allocation strategies as another potential headwind to the fixed-income markets.

Bonds Will Become Certificates of Confiscation

Bond holders face the likelihood of large capital losses.

At current yields, bonds represent certificates of confiscation, and bond holders face the likelihood of large capital losses.

I believe that, on a risk/reward basis, shorting fixed income is among the most attractive investment strategies in the year(s) ahead.

Bearish economic concerns are overblown. There will be no double-dip. Most indicators point toward a domestic economic growth rate that is moderating but also likely to be sustained.

The 2.60% yield on the 10-year U.S. note is discounting a double-dip. Over the course of the past 60 years, the 10-year note has yielded 365 basis points more than GDP growth. In other words, the fixed-income market is now discounting an unlikely 1% drop in GDP (2.60% less 3.65%).

Over the same time frame, the yield on the 10-year U.S. note has averaged about 300 basis points more than the inflation rate. While zero-interest-rate policy argues for a somewhat lower relationship, since the implied inflation rate in TIPS is about 1.6% now, this would imply that the yield on the 10-year U.S. note should be closer to 4.60%, or 200 basis points above the current reading.

Numerous cyclical components of the economy (inventories, autos, housing) are at very low levels relative to GDP and substantially below their long-term trendline relative to GDP. This limits the likelihood of a double-dip, and in the fullness of time, a mean-reversion could add several trillion dollars against a $15.0 trillion GDP.

Housing, in particular, stands ready for a gradual expansion that could be sustained for many years. Affordability is at a multi-decade high, mortgage rates are at generational lows, the value of home ownership vs. renting is back to mid 1990s levels, payroll growth should soon expand, and new-home production has fallen well below household formations for over two years. (Supportive of a positive forward-looking view was the 5.2% increase in pending-home sales in July reported yesterday.)

While business indecision associated with tax and regulatory policy has led to disappointing payroll growth, most indicators (corporate profit growth, productivity, risk/credit metrics, average weekly hours, etc.) continue to point to an improving employment picture in 2011. More typical payroll growth could come sooner than many believe if the logjam of tax and regulatory is somehow relieved.

Focused fiscal and/or tax policy geared toward job growth could unleash confidence and jump-start domestic economic growth, raising the probability of higher interest rates.

American consumers are in better shape than is generally expected, as they are deleveraging their balance sheets and rebuilding savings faster than generally recognized. While debt/income is elevated, two key metrics -- household debt service as a percentage of disposable personal income is projected to drop from 120% in 2008 to an estimated 72% by 2012 (back to mid 1990s levels), and household debt as a percentage of disposable personal income is forecasted to decline from 124% to 107% -- indicate that the deleveraging timetable is nearly a year ahead of schedule.

Looking forward, the plunge in mortgage rates will likely push debt service still lower, and a refi boom could put money in consumers' pocketbooks. So, the headwind to consumer spending from deleveraging seems to be becoming a smaller risk to the economic outlook, as consumers now can spend more of their income.....

Low Volume

Some better-than-expected economic news helped the bulls deliver a very upbeat three-day rally in front of the Labor Day holiday. Of course, volume was very light all week, and that always worries the technicians, but this is a market that feasted on low-volume rallies after we bottomed in March 2009.

Just a few days ago, we had bond yields going to almost zero as market players fretted over the possibility of a double-dip recession. We probably just had too much negative sentiment, because the economic data that triggered this three-day bounce weren't anything really fantastic. We simply had already priced in something even worse.

Next week, volume will pick up as everyone returns to work after Labor Day. The indices and many individual stocks are now overbought, and while we have cut through some overhead resistance this week, there are still some major hurdles out there.

We have very little news on the calendar for next week. No major earnings reports are scheduled, and about the only real economic news is the Beige Book on Wednesday and weekly claims on Thursday.

Without any major news catalysts, some will focus on sentiment. One of the benefits of a sudden, low-volume, three-day rally like we just had is that a lot of folks missed out, and this creates a supply of buyers who want to buy a pullback. Those dip-buyers are what helped this market move straight up for much of last year and back in March and April of this year. I'd be surprised if they have the same tenacity again, but you have to be very careful about underestimating how far these sorts of rallies can carry.

The biggest hurdle for this market remains the highs we hit back in August. We still have a long way to go to return to those levels, but if we can consolidate and hold above some support levels for a while, we will be in good shape for an attack.

Whether a lull in the news flow is good or bad depends on the momentum. Right now the bulls have control, but we may be extended and ripe for some profit-taking, especially if we have another one of those gap-up opens on Tuesday morning.

Thursday, September 2, 2010


Yesterday afternoon, Dallas Fed President Richard Fisher gave a speech that has some significance, but which was not widely reported.

The important element of his speech was that the Fed was unlikely to engage in additional quantitative easing unless it was coupled with a fiscal initiative geared towards adding new jobs in the U.S.

That's the good news.

The bad news is that given the timing of the mid-term election (two months away) and in light of the apparent inroads the Republican Party is expected to make, we are on hold for now.

I would conclude that we have reached a housing bottom but the slope of the recovery will be gradual and disappointing vis-a-vis previous cycles, owing to a number of new influences that will offset the positive factors.

These include, but are not restricted to:

* the decimation of the shadow-banking/securitization industry and markets and its impact on reduced lending and credit availability (especially of a jumbo mortgage-kind);

* community/local banks, an important source of a lot of mortgage capital, are weakened and not likely to return to anywhere near their previous home-lending policies for some time to come;

* the decade of the temporary worker means that more will be renting regardless of the improving economics of home ownership;

* an elevated unemployment rate does not augur well for confidence, which is needed for the consumer to make a substantial investment in a home;

* the existence of an unprecedented shadow inventory of unsold and vacated homes -- it will take time to be absorbed and will weigh on home prices;

* the general view after the 2007-2009 home price shock that housing will no longer be an important wealth creator as it had been in the prior decades;

* as part of the previous factor (and others), the trade-up buyer (a source of important incremental housing demand) is sharply reduced vs. previous cycles;

* the possibility that the administration might even consider policy that could reduce the propensity to buy a home, (e.g. reducing/eliminating mortgage interest deduction) in order to reduce its fiscal imbalances.

The foundation of a housing recovery rests on the affordability index (which is now at a multidecade high), generational low mortgage rates, an attractive home ownership/rental relationship and, most importantly, a two-year-building and pent-up demand, owing to low new-home production vis-a-vis household formation growth.

A gradual recovery in housing is now at hand.

Bull markets are born out of distress -- witness March 2009. Bear Markets are born out of prosperity -- witness 2007.

Liquidating/de-risking out of equities and acquiring/re-risking into fixed income has been the mantra of most individual and institutional investors over the course of the last three years. Since early 2008, retail investors have sold over $200 billion of domestic equity funds, while purchasing nearly $600 billion in fixed-income products. That gap of over $800 billion is unprecedented as is last decade's spread in performance of bonds vs. stocks the largest in history. But history tells us that the S&P 500 performs famously in the following decade and ultimately moves contra to a peak in flows.

In many ways, the sentiment toward equities today is as bad as the extreme experienced at the generational low 18 months ago. Indeed, at Tuesday's close, the market zeitgeist was eerily reminiscent of 1979 in which Business Week published its "Death of Equities" cover.

The fact is that most classes of investors now view U.S. stocks with distrust.

And, as I have previously asked, who is left to sell, especially if the concerns regarding a double-dip prove unjustified?

I continue to view the double-dippers as on the wrong page. There are multiple reasons for this view.

Consider that the cyclical components of GDP, such as autos and housing, now contribute so little to aggregate GDP that the year-over-year impact in late 2010/early 2011 can only modestly impact output. Moreover, with inventories-to-sales so low and with auto and residential investments so far from their longer-term trendline relationship to GDP -- ergo, demand is pent-up! -- a double-dip seems an unlikely event. Even the spent-up consumer's debt-service ratio is at its lowest level since 2000, and, owing to a generational low in mortgage rates, a refi boom is inuring further to the consumers' state.

Certainly, Wednesday's economic releases over here and over there (in China) confirm my baseline expectation that growth is moderating but not likely to decline.

Souring sentiment, reasonable valuations, an absence of inflation, the likelihood that monetary policy will remain easy and the unlikelihood of a double-dip continue to form the foundation of value-creation in equities.

In the fullness of time, there is almost an inevitability that a large reallocation trade out of bonds and into stocks is forming. If I am correct, many investors are now offside.

In summary and from my perch, 10-year Treasuries yielding under 2.60% seem dear and should be shorted while U.S. stocks trading at 12x reasonable 2011 S&P profits seem cheap and should be purchased.

Make no mistake -- the road less traveled will continue to have bumps, and some of those potholes will be with us for some time:

* The securitization market and the shadow banking industry are shattered and shuttered and will no longer deliver credit anywhere to the degree they did in the last credit cycle.

* Residential and non-residential construction will not serve as a driver to growth, and there is little to replace the void.

* Regulation will remain a costly burden on industry.

* It is increasingly obvious that there is a structural increase in unemployment in the decade of the temporary worker.

* A policy of populism geared against the wealthy and large corporations will have negative implications -- higher marginal tax rates will weigh on growth/profitability.

* Fiscal imbalances at local, state and federal levels are unprecedented.

The good news is that most of these nontraditional headwinds -- it's different this time! -- are now recognized by most investors, so the vehicles traversing those bumpy roads seem to be reasonably prepared and relatively well-equipped.

Looking further ahead, the lost decade has passed us, and a new decade is upon us.