9/26/11…Buffetted!

Bloomberg Top Stories:

*Stocks, U.S. Futures Rise on European Outlook; Copper Snaps Seven-Day Drop

*Merkel Shifts Her Stance as Currency Crisis Dissolves Taboos

*Global Takeover Rebound Falters as Europe Woes Overshadow U.S. Dealmaking

(Read first slug and this one together, if it makes sense you are better than TB)

*Greek Leaders Appeal for support as U.S. Presses for EU Faster Debt Action

*Italy, Spain Borrowing Costs Increase at Auctions of $24 Billion of Debt

*Blackstone Takes Top Spot Among Private-Equity

*Fed Officials Express Doubt About Faster Inflation as Tool to Boost Growth

*Apple Outlook Spurs Clash of Views Between JPMorgan’s U.S., Asian Analysts

*Starbuck’s Sevenfold Rally Over S&P 500 Fuels Put Buying – and rightly so!  

*Buffett Buyback Shows S&P 500 Meets Berskhire Valuation Test on Book Value

*Mededev Moves to Stamp Out Dissent Before Stepping Aside for Putin Return

*Senate Approves Bill to Avoid U.S. Government Shutdown, Fund Disaster Aid

 

Volume dipped slightly to 4.54B shares from 4.7B shares, a far cry from 6.95B shares in Thursday’s rout. For NYSE stocks while trades executed on the Big Board dipped to 1.16B from 1.23B shares. Note that both days were up while the big volume days are almost always down and down large! Advance/Declines were positive again but not compared to the past two sessions: +2.7:1 vs +1.8:1 vs -7x!!! on NYSE and +1.9:1 vs +2.2:1 vs -6x!!! on Nasdaq. Breadth was good on NYSE but so-so on Nasdaq given the past two sessions: +8x vs +2x vs -22x!!! vs -19x!!! on NYSE and +2.2x vs +5x vs -12x!!! vs -4x on Nasdaq. New 52 week highs rose minisculely to 20 from 15, while new lows declined to 499 from an incredible 551, the high on Thursday was 1499!!! This level has only been seen a few times…think 1987 and 2008 – the ratio is back to -25:1 from an incredible -98:1!!! The VIX had s key reversal (higher high, lower low and close below prior day’s low) following an INSIDE day and closed at 39.02 -2.71, having surged to 43.58 Thursday. A gap remains below from 39.02-37.32 – watch closely! 48 was the selloff high, not seen since 5/21/10: 48.20!

Here are the returns for the day/month/quarter/ytd: Dow +2.5%/-4.9%/-11.0%/-4.6%; Transports +2.2%/-7.6%/-20.5%/-15.6%; S&P 500 +2.3%/-4.6%/-11.9%/-7.5%; Nasdaq Composite +1.4%/-2.4%/-9.3%/-5.1%; 100 +1.2%/-0.3%/-3.9%/+0.7%; Russell 2000 +2%/-8.4%/-19.6%/-15.1%; NYSE Financials +3.8%/-9.3%/-21.0%/-21.4% – note that the NDQ 100 is in the black for ytd only. Reminds TB of an accountant at a firm that was bleeding money. One day he came in and proudly handed the income statement to the boss. “Surprise! we finally made a profit!” The CEO said but it is in red ink…go out and buy a black typewriter (you remember what that is, right?) ribbon. If we do that we will be back in the red again. Today is last day for T+3 settlement this quarter and thus hedge funds will have free rein for the remainder of the week. REMBEMBER: to merely recoup these losses the market has to go up by double the declines…and with the mess in Congress sure to last thru 2012, and the Eurozone – good luck!

European stocks are rallying for a second day but strongly this time on the latest blather about things being better. This time they are bringing Asia with them: FTSE +3.1%!!! vs +0.8% vs -1.9% vs -4.5%; CAC 40 +4.2$!!! vs +2.3% vs -2.7% vs -4.9%; DAX +4.1%!!! vs +2.9% vs -3.1% vs -4.3%; Nikkei +2.9% vs -2.2% vs closed vs -2.1%; Hang Seng +4.2%!!! vs -1.5% vs -1.4% vs -4.9%; Korean KOSPI +5%!!! vs -2.6% vs -5.7%!!! vs -2.9%; Indian Sensex +3% vs -0.7%-1.2% vs -4.1%. Two things: first, they are all still NET down for past four sessions, and second, beware of quarterend window dressing! U.S. futures rallying too: DOW +176; SPX +19; NDQ +34. 10 yr 1.97% -5/8 after a RECORD low Friday of 1.6855%; 30 yr back above 3% from a low of 2.748%, now 3.08% -2 points –think about it: it is off 6% in three days!!! Long TIP is 1.09% down 1-5/16!

Gold closed below $1600 yesterday ($1594.80, low $1534, lowest since 7/6!) but is rallying back overnight and is now $1659.20 +464.60. Buying opportunity? Monday’s low was nearly to the 200 day, $1527.20. We negated the spike to $1923.70 that culminated on 9/6. Crude is bouncing off yesterday’s low of $77.11, lowest since the reversal from $75.71 on 8/9, also negating that rally! It is now $82.96 +$2.74,

…yesterday, Warren Buffett, that cherub-faced little old billionaire, announced he is going to buy back Berkshire shares as they are way too cheap. Now remember he is very much like Bill Gross, the Bond King, and says what behooves him. His reason for telling us this was to be fair to his…ahem…shareholders. He also said he would not pay more than the valuation he uses for all companies he buys…ahem again…the market acceded to his wishes and took Berkshire up to the EXACT level…meaning he won’t be buying more and prompting some to say he not only put a floor in for the stock but a ceiling. Wake up people.

But his timing couldn’t be better, following Thursday’s incredible rout and culmination (?) of the selloff that began on July 22 (the peak was on May 2 and this was the second lower high…to those of you who think the rout is over we took out the old low ((8/9) on Thursday with a new low, which also negated to higher lows since the bottom…caveat emptor!). Anyway we had a nice rally on average volume which didn’t even take us back to Wednesday’s close, which was also Thursday’s high on the Dow. THINK!

Remember that many managers have been holding high cash balances during the selloff (TB included due to trailing stops), and have to meet with clients in October and ‘splain why they are holding so much cash – not fun when market it rallying. Then you have the hedge funds whose quarter ends today (this is because unlike other managers who are required to use trade date positions, the use of leverage requires that they close the quarter on settled positions only…otherwise they could buy securities and not have to borrow to pay for them, thus inflating assets. This means that for the next three days panicky investment advisors may be forced to buy (window dressing) and be subject to the whims of the hedgies and high frequency traders who now have a whole new set of resistance levels to play with. This is not to say you ‘shouldn’t buy’ but it does mean you better have a darned good reason to buy here.

Lastly we have both the European and U.S. debt crisis problems…and this trading off every hiccup is insane…up on good news, down on bad news, yet we all know that Greece will eventually default and the situation will get worse again. For the U.S. the Senate passed the stop-gap spending bill which favors GOP causes, thus averting a shut-down but at what cost? Of course, Obama will sign it…he has no choice.

So there you have some good reasons for an interim rally in stocks (bear market rally, or correction), and yes we remain in a secular bear market and will likely be in one for years. The recovery form the March 2009 lows ended on May2, followed by two lower high and lower lows…it seems natural that the Dow will test 10000, and the S&P, 1100 again – we have a triple bottom there, if so support lies at 1040 and 1010 (critical). Note also that the 50% retracement of the rally from the March 2009 lows rests at 1121, and the 61.8% (2nd Fib retrace) is 1014. Note these are on the cash market while the futures are slightly higher…and more closely watched by technicians (1126/1017).

Get a hunch…bet a bunch…or not!!! You decide! TB

. . .  – – –  . . .    . . .  – – –  . . .

Last night, TB stumbled across a documentary on Seabiscuit…NOT the movie, but an honest to goodness doc that is even more fascinating but couldn’t have been distilled into a movie.

Here are some highlights:

*Seabiscuit was an awkward horse…the Abe Lincoln of horses?

*The jockey, Pollard, was a loser who went around second and third rate tracks looking for a mount. He was tall, 5’6’ and weighed 20-30 pounds more than other jockey’s

*Pollard had numerous life threatening falls, two on Seabiscuit. The first one was when the horse pulled a tendon and fell, rolling over on and nearly killing Pollard. The second, in practice when the horse spooked, broke through the rail, ran into the side of the stable and nearly severed Pollard’s leg.

*Seabiscuit raced four times in the  Santa Anita Derby, the biggest race off the east coast. He finished second three times: the first, Pollard didn’t see the horse coming up on him and for 15 lengths didn’t use the whip, still he ended in a photo finish. Why did it happen? Pollard was blind in his right eye and didn’t see the horse coming up, but could never disclose this or the stewards wouldn’t let him race; the second time after being caught in traffic he came from behind and lost by a nose; in the third, it was similar and despite coming in second he set a time that has never been matched in a surge from near last.  Despite placing second, all the talk was about him and that set up his race with War Admiral. Finally, in 1940 he won- by four lengths

*He had the handicap of having come by train from the west coast, carried 30 pounds more weight than War Admiral (in horseracing 3 pounds is a lot), and beat him by FOUR lengths and for this was named Horse of the Year!

Soooo…why is TB relating this? Because Seabiscuit raced from 1931-1940, during the worst part of the Great Depression (we are in the Great Recession according to knowledgeable people). It was a time where people craved a hero, one who was the underdog…and it came in the unlikely form of a horse! The race between Seabiscuit and War Admiral was seen by 130,000 people and listened to by one in three Americans!

In looking at the scenes showing bread lines, it struck me how different things are today. Instead of feeling sorry for those in poverty or without jobs, we say it is their fault. We need better education to be competitive, but the wealthiest believe it is a waste of money (it does need serious revamping, such as restoring trades classes as Mayor Bloomberg favors), but those with kids in private schools say let it go…in other words, let them go. But we have to instill parental responsibility, not leave it all to the teachers who are underpaid and overworked and mocked. That isn’t the case at TB’s local school district which is drawing students from other districts. Tomorrow, TB will focus on what is wrong with the Tea Party approach – not the concept, but the timing and how whether we cut the budget or not we will arrive at the same place…the only way out is fiscal discipline accompanied by higher revenues.

Lee Iacocca, in his book, asks “where are the heroes?” They are not in politics…not in either party, but they are out there. There is Dakota Meyer, a U.S. Marine who was awarded the Congressional Medal of Honor and now wants to join the NYFD. In an incredible SNAFU (or more accurately FUBAR), he and two others charged a superior force to save four men who were later found dead. Two other marines who were with him were decorated too but both declined them in protest of the conduct of officers not present but issuing orders and failing to send in air support.

There is a common link among Medal of Honor winners: not one of them believes they did anything heroic. Read their stories if you doubt this…they all felt they did what they had to do. To TB, the whole concept of a medal is to encourage bravery by setting an example for other soldiers. The saddest being a posthumous award. You make a split second decision that if you really had time to debate it most likely would not have done…an impulse born of training and integrity….like in Forrest Gump where he saves his captain.

Have a great day!

TB

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