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goldminingXpert (29.37)

The Market Is About To Plunge (Day 9, Vol.8)

Recs

46

May 08, 2009 – Comments (59)

Um, uh, anyone here own Bank of the American Government? (BAC) Honestly, I don't mean to be mean, but are you out of your mind? The shares are trading over $13 yet I see this on the newswire:

"B. of A. prices stock offering at $8.79 a share

09:27 a.m. 05/08/2009 By John Spence

BOSTON (MarketWatch) -- Bank of America Corp. (BAC) on Friday said it plans to offer 1.25 billion shares of common stock at a proposed maximum offering price of $8.79 a share. The government has told Bank of America (BAC) it needs to raise about $34 billion to make up for a capital shortfall. The stock, which closed at $13.51 on Thursday, was up 9% in premarket action.
"

You do know that shares shouldn't be worth even a smidge over $9 if they're selling more of them at $8.79, right? From this, it is clear that BAC is ~35% overvalued. Once it corrects to reality, XLF and the financials will go tumbling pulling JPM and GS down with them and thus taking the market down. WFC and others raising capital will also get pummeled when reality returns.

Speaking of reality, investors are shorting reality today:

The reality index (gmXmkttiming's score) is down 343.03 points to 1,368.65. After a strong surge yesterday, it appears that investors are rotating capital out of the truth sector and using the proceeds to strongly bid up the fantasy, illusion and fraud sectors of the economy.

59 Comments – Post Your Own

#1) On May 08, 2009 at 10:57 AM, outoffocus (22.75) wrote:

Wells Fargo did the same thing yesterday.  Offering shares at $18-$20 per share while their stock was selling at $24 per share.  But if people want to lose their money its their perogative.

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#2) On May 08, 2009 at 11:06 AM, tfirst (33.45) wrote:

I've noticed a lot of premarket volume that has raised prices at the open, the past couple days. I suspect foriegn money speculation overnight.

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#3) On May 08, 2009 at 11:07 AM, DeerHunter73 (73.06) wrote:

Im equally surprised that BAC is trading up. I saw the same thing while having breakfast this morning on Bloomberg. I had a feeling about AIg as well. where the reported the 1.97 loss yesterday, I figured there shares were going down today, Then i also saw where they were expected to report a 5 Billion loss and they reported something like 4.3 Billion loss.Analysts were expecting a .13 loss. Somedays i never get the numbers and never will. How can you show less of a loss yet more of a share loss then expected? I see a SMALL correction next week but nothing major. Alot of investors are tryin to keep the S&P at 900 or above, For me thats good.Unemployment came in way below expectations. I thought it would since the most of the news lately has been beating expectations. I never thought it would come in that much lower. This is going to be one of the slowest recoveries in history. My father in law arguies with me about the unemplyment number. He's comparing apples to oranges. During the depression it peaked at 12 million. With 25% unemployed. Hes said we would never see 25% unemplyment and hes right, HOWEVER my claim was we would surpass the 12 million and we have. Its currently at 13.1 and will probably peak around 15.5 million even at the rate the number is declining month over month. I agree the economy wont stabalize till the job markets produces jobs. BUT the stock market always comes up before anything else. Yes the recession may be over or at the end but as i said before this recovery will take along time.

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#4) On May 08, 2009 at 11:10 AM, IIcx (< 20) wrote:

Thanks GMX for the heads up -- "there's something about this market that doesn't smell right" ;)

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#5) On May 08, 2009 at 11:18 AM, BigFatBEAR (29.09) wrote:

"When crap floats, the $#!@ hits the fan!"

:)

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#6) On May 08, 2009 at 11:20 AM, Rehydrogenated (32.20) wrote:

Wow...I really should not have went short FITB...Its up like 120% it burns!!

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#7) On May 08, 2009 at 11:39 AM, rd80 (98.26) wrote:

outoffocus - WFC's offering went at $22.

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#8) On May 08, 2009 at 11:41 AM, whereaminow (< 20) wrote:

I am really enjoying this series, but I'm a bit worried that you may find yourself running Day 242, Vol. 183 by the time the market actually does crash (though the severity of the crash will be as you predicted.)  As I have stated before, I believe we are in a bubble, particular in bank stocks, but when that bubble will burst I don't know. 

What, and who?  Concering BOA those are the two questions everyone should be asking today.  What is driving up their share price after they have announced stock dilution?  And WHO is driving up their price?

On the second question, it can't be just "idiots."  Lonely idiots have mostly fled the market and are just now coming back in.  They don't have the resources to move a stock 5% in the face of share dilution.  

These have to be Institutional Idiots.  These guys have the money and the lack-of-brains to move into BOA and buy up shares when we can see the obvious stupidity of such a move.

So where did these Instituitional Idiots get the capital to do this? 

Bailouts.

Dollars handed out to proven idiots are now being used by proven idiots to invest in the very institutions that they destroyed.  This is a classic example of malinvestment.

That answerst the WHAT question. 

So WHEN does the market plunge?  When these idiots run out of money.  When will that happen???????

David in Qatar

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#9) On May 08, 2009 at 11:42 AM, portefeuille (99.66) wrote:

see page 3/104 of this:

CALCULATION OF REGISTRATION FEE
Proposed Maximum Offering Price
Per Unit (1) $8.79

(1) Pursuant to Rule 457(C) of the Securities Act of 1933, these prices are estimated solely for the purpose of
calculating the registration fee and are based upon the average of the high and low sales prices of the Registrant’s
common stock on the New York Stock Exchange on May 1, 2009.

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#10) On May 08, 2009 at 11:45 AM, portefeuille (99.66) wrote:

(the pdf-document is from here (Form 424B5))

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#11) On May 08, 2009 at 11:52 AM, dudemonkey (39.48) wrote:

So WHEN does the market plunge?  When these idiots run out of money.  When will that happen???????

That's a really good question.  The answer is "we probably won't know until after it happens" since they are getting money from an organization with the power to print more.

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#12) On May 08, 2009 at 11:54 AM, IIcx (< 20) wrote:

Hmmmm -- possibly a short squeeze on BOA? The close today is going to be a sight.

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#13) On May 08, 2009 at 11:55 AM, portefeuille (99.66) wrote:

the "maths": (see here) (9.02 + 8.55) / 2 = 8.785 = ca. 8.79

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#14) On May 08, 2009 at 12:40 PM, motleyanimal (87.23) wrote:

Think of the poor people who listened to our many Prophets of Doom. How many of them are living in caves with their guns, gold and canned goods?

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#15) On May 08, 2009 at 12:46 PM, IIcx (< 20) wrote:

lol "Animal" -- let's all run out and buy bank stocks so we can live on cat food for the next year?

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#16) On May 08, 2009 at 12:46 PM, binve (< 20) wrote:

I like it, smells like insanity

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#17) On May 08, 2009 at 12:56 PM, IIcx (< 20) wrote:

If we could only invent a "broker"... ;)

 

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#18) On May 08, 2009 at 1:10 PM, TDRH (99.65) wrote:

"What, and who? Concering BOA those are the two questions everyone should be asking today. What is driving up their share price after they have announced stock dilution? And WHO is driving up their price?"

It makes no sense.

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#19) On May 08, 2009 at 1:23 PM, UKIAHED (35.19) wrote:

Um, uh, anyone here own Bank of the American Government? (BAC) Honestly, I don't mean to be mean, but are you out of your mind? The shares are trading over $13 yet I see this on the newswire:

"B. of A. prices stock offering at $8.79 a share

And here is your answer:

 BOSTON (MarketWatch) -- Bank of America Corp. on Friday moved to offer 1.25 billion shares of common stock. The government has told Bank of America it needs to raise about $34 billion to make up for a capital shortfall. The company plans to periodically sell shares, rather than a single offering. Bank of America shares were up about 5% to $14.19 in midday trading Friday. (An earlier version of this story incorrectly reported that Bank of America had priced the offering at $8.79 a share. Instead, the 1.25 billion shares of common stock will be sold over time at market prices.)

Always remember - if something does not make sense - it is possible that you have the wrong information.

BTW - I like BAC - it will make money in the future - but I will not touch the stock at this time or price...

Have a great day and remember - Invest well and prosper!

Ed

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#20) On May 08, 2009 at 1:25 PM, IIcx (< 20) wrote:

David in Qatar got it right TDRH.

Here's a thought, let's have another Congressional investigation ;P. Probably not a great use of taxpayer dollars but it's fun to watch the blind define an elephant.

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#21) On May 08, 2009 at 1:27 PM, goldminingXpert (29.37) wrote:

UKIAHED: Thanks for that. I was very confused. Now I'm only moderately confused.

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#22) On May 08, 2009 at 1:31 PM, IIcx (< 20) wrote:

Great post GMX - I wish I could give you 2 recs.

Best, IIcx 

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#23) On May 08, 2009 at 1:33 PM, portefeuille (99.66) wrote:

looking at the prospectus can help ...

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#24) On May 08, 2009 at 1:52 PM, BotsNBits (< 20) wrote:

Hey llcx, we did invent a broker... or should I say "elect" a broker.

Even with all of the government intervention, it'll work itself out eventually.

XLF was a nice run (in @ 8.78, out @ 12.35),  but there's other fish out there. Still trying to figure out how to work the "Rural Communications Development" angle. Jeez, why would cows need broadband? ;)

BNB

 

"Dey is de broker, we is de brokee"

 

 

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#25) On May 08, 2009 at 2:25 PM, motorist12345 (31.34) wrote:

Guys, the bank stocks have been overbought lately and definitely will drop in prices soon! This whole process of buying financial stocks in a very bad economy and drive their prices so high in a percentage rate for a such short period of time looks to me as a speculation. Somebody needs this to get to the pick of prices and then plunge to a "small crash" that will bring them a LOT of money.

After the Stress Test results (that most of investors expected this way) the stocks of those banks that need to increase their capital went up tremendously. It's weird but it's a reality! Something is strange here and I'm pretty sure that in the coming weeks the financial companies will see a big drop. Nobody knows how fast and good the troubled banks will generate their capital and recover from this recession...

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#26) On May 08, 2009 at 2:27 PM, Alex1963 (28.34) wrote:

I have to point out that pursuant to a somewhat tongue in cheek post I put up 3/12 MF membership is continuing to increase. My post at that time proposed that perhaps the market was going to run up based on renewed investing interest from the "little guy" joining MF. Could be hokum of course but there are dumber indicators out there with loads of market credibility. The question is if there is any correlation and then at what point does increased membership become a contrarian indicator? 

Also, I have to say that something I haven't seen anyone discuss anywhere is the pressure on institutional investors to not miss out on the run up. Imagine the heat from clients if they not only lost 40+% last year for their investors & clients but failed to make up ground at one of the quickest sharpest rallies ever? This may go on for some time yet. I keep having to reminding myself that the market is, at it's core, irrational. You can analyze the numbers all day and be 100% right in the strength of the fundamentals and the overall econmy & market and still be dead wrong on what that means for the broader sentiment or sector or an individual company.  I understand wanting to be "safe". I myself am over 60% cash right now but I continue to take profits and reinvest always keeping a fair amount on the sidelines. I'm getting better at non option hedges. I do fully expect a correction, too but then I've been missing out on full particpation for 4-5 weeks now. Bemoaning "the stupidity" of it is a waste of time. What's stupid is to not be positioned to take advantage to some degree either way.

The market is going to do what the market is going to do no matter how right an investor may been in the past. I think there a quite a few fairly safe strategies for bull plays with bear hedges right now.

Also I don't agree with  whereaminow  that the market is mainly driven by bailout money. That's quite a stretch and I think msses the impact of the mutual & hedge funds plus the small investor. All anxious to recaprture last years losses. More money is still sidelined than in from my understanding.  I do agree you might be posting this series far longer than you might think possible.

In fact I have to say I have even begun to think that if there is any truth to the credibilty of "the street" as a contrarian indicator(I don't) I'm beginning to think there might be one for Caps players. When more and more lesss killed, low scoring players are almost comically certain in their prognostication as they leap on the "Iminent Crash" bandwagon you have to consider the possibility that it might not be a "reality" indicator but an excellent contrarian indicator. No offense to anyone in partiicular here. It's rampant thru Caps.

If anyone is interested here was the original, short post

Does Total Caps Membership Mirror Market Sentiment? 

I hope this adds some value to your blog, GMX.

Maybe I'll post my own blog and see if any TMF staff will comment this time. 

Alex 

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#27) On May 08, 2009 at 2:50 PM, dbails (< 20) wrote:

Everyone, please see comments 19 and 21.

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#28) On May 08, 2009 at 2:54 PM, SideShowMel0329 (43.01) wrote:

How does it feel to be wrong about everything the last two weeks GMX? Seriously, if you actually followed your own advice in your real portfolio (which you probably didn't), I'm sure you're doing pretty poorly.

These are the dangers of stock trading, and this is why experts constantly repeat that "no one can time the market". Not even you GMX!

Now why don't you stop these daily blog posts and suck it up and realize that you were completely wrong about this rally.

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#29) On May 08, 2009 at 3:04 PM, goldminingXpert (29.37) wrote:

Oh boy, the market is up 40 more points where I called it a false rally after rising 200 points before I commented. How horrible. You're absolutely right Sideshow, after a mere 9 days, I am horribly utterly completely wrong and I am totally devastated--wiped out--penniless! I can't time the market down to the hour, therefore my prognostications are useless! I'll go back to my checkers set. Thanks for correcting me Sideshow. You're a genius! Everyone should bow down and worship you!!!

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#30) On May 08, 2009 at 3:10 PM, BearTrend (96.97) wrote:

It’s very clear that the markets are trading on nothing but pure emotion right now, fueled by daily policy actions coming out of the Fed, Treasury, and U.S. Government.

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#31) On May 08, 2009 at 3:26 PM, russiangambit (29.12) wrote:

> Always remember - if something does not make sense - it is possible that you have the wrong information.

-------------------

Isn't all market information supposed to be public? Otherwise, it is insider trading, i.e. crime? I tend to agree with you, it does seem we have the wrong information but isn't it because the "right" information is not being dicslosed.

>Have a great day and remember - Invest well and prosper!

----------------

Yep, good advice. I am not sure how one would follow it based on your statement above.

P.S.

GMX, hand in there. I need my daily dose of reality, for one.

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#32) On May 08, 2009 at 4:14 PM, stockfreak1 (20.58) wrote:

I think these video to me poses one of the best arguments of why the market is going to plunge. 

http://finance.yahoo.com/tech-ticker/article/243817/The-Big-Lie-Stress-Test-Optimism-Just-Wall-St.-Propaganda-Former-Bank-Regulator-Says?tickers=BAC,C,JPM,WFS,MS,GS,XLF?sec=topStories&pos=5&asset=&ccode=

http://finance.yahoo.com/tech-ticker/article/243889/Beware-Crisis%27-Next-Wave-Option-ARM-Foreclosures-More-Debt-Defaults?tickers=XLF,FAS,C,^GSPC,JPM,BAC,^DJI?sec=topStories&pos=9&asset=&ccode=

 My market timing has been the worst ever, but this is the writing on the wall. Coming from someone who understands human behavior better then market behavior, this man's career of being a current Professor of Economics and Law and a former financial regulator, we at least can't take what he's saying as a grain of salt. I also think Alex1963 has one of the best posts on the board.

 

 

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#33) On May 08, 2009 at 4:18 PM, stockfreak1 (20.58) wrote:

Oh, darn it I forgot this was html. Here's the links above. HERE and HERE. Two seperate vids.

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#34) On May 08, 2009 at 4:28 PM, IIcx (< 20) wrote:

please don't use the term plunge -- it's only going to be 150-200 pts on the S&P.

The financials however are about as overpriced as you can get for the next 2 years. 

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#35) On May 08, 2009 at 4:36 PM, TigerPack1 (96.86) wrote:

The glass is very close to being half-empty and half-full.  I think the market is reaching for a short-term peak the next few weeks, but both the wildly bearish and wildly bullish CAPS players will not be happy with the coming months of trading.

The next 3-5 months will truly be a stock picker's market, as the major averages undergo some backfilling and a simple 7%-10% correction over much time.  Many stocks will continue to trade higher, especially the brand name, consumer blue-chips, which are insanely cheap on relative valuations, and risk-adjusted discounted cash flows.

At the same time, the leading financials and higher-risk equities of late will see a decent sell-off.  I am still betting sums of money will be looking ahead for out-of-the-way inflation hedges through investments in REITS and industrial commodities, grains, etc.

I would bet whatever the May peak number for the market "averages" ends up being, they will NOT fall more than 10% into October.  At that point another strong rally will begin.  It is entirely possible we will never see the S&P 500 trade below 840, give or take, AGAIN IN OUR LIFETIME.

-Tiger's Two Cents

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#36) On May 08, 2009 at 4:44 PM, DeerHunter73 (73.06) wrote:

S&p wont go below 800 again this year, Could reach 1000 next week and the dow MIGHT hit  9000. End of year im raising my numbers from 950 and 9500 to 1000 on the S&P and to 10000 on the DOW. By DEC 31st. Holding those numbers as well..........

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#37) On May 08, 2009 at 4:49 PM, IIcx (< 20) wrote:

hmmmm -- S&P 840 in our lifetime sounds too low to me. Maybe we should go shark hunting Tiger. Looks like they like the stuff over "there" and don't mind a big price tag ; )

 

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#38) On May 08, 2009 at 8:14 PM, peachberrytea (69.04) wrote:

@Alex1963

good post.. you certainly added value with that post. thanks

another possible reason for the rally (not sure it's been mentioned here...there's a bit of  conspiracy theory in this) is that the banks are pumping the market so they can raise capital.. so, the banks know they need to raise cash, and they also know their share price sucks (if i was BAC i don't want to sell my shares at $2 per).. well, then pump the market, drive your share price up, sell your shares, then let it collapse again. yes, this implies that there's collusion involved, but it makes perfect sense from the banks' perspectives - why not control the price of your equity offering if you can?

anyway, that's my 2 cents

i'm really tempted to throw some money into some safer plays... as much as i agree with yall that there'll be a pullback sooner or later, i agree with alex. it makes sense to make use of any opportunity you get adn try to make a buck

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#39) On May 08, 2009 at 8:17 PM, automaticaev (30.11) wrote:

If i really belived in a pullback i would be buying 4$ faz but im not so i guess i dont belive it.  At least not any pullback that is insaine.  Market always drops some.

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#40) On May 08, 2009 at 9:40 PM, Ibeatmykids (81.32) wrote:

GMX

 That was comical when you were stating that yesterday was the begining of the pull back.  In my opinion you are not observing the market in a contructive way.  Your blogs sound like they have alot of contempt for a market that is going against you.  While you nor anyone else has a firm grasp on what to predict in the very near term, you are going against the golden rule of "buy low and sell high".  Its really that simple. You are not looking at the economy with any perspective as you can not see the forest from the trees. I suggest you look at a long term graph of the Dow.  You obviously road it down which was perfect but now you need to adapt.  We can analyze this rally and come up with conspiracy theories all day but there is no denying that the market will eventually be much higher than it is right now sometime in the future.

 Honestly you are starting to sound very self rightous in your blogs now as your defense mechanisms have kicked in to high gear as your predictions prove wrong day after day, week after week.

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#41) On May 08, 2009 at 10:28 PM, JGus (28.63) wrote:

GMX

I look forward to the day - which I think will be sooner rather than later - that you make your final post in this series with all of the idiotic comments made by those who disagree with you. That will be an EPIC post! Continue bringing your refreshing dose of reality on a daily basis - we desperately need it.

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#42) On May 08, 2009 at 10:33 PM, automaticaev (30.11) wrote:

bac announces most profits ever stock drops bac needs to raise 35 million stock rises i do see it can be counter intuitive

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#43) On May 09, 2009 at 4:02 AM, uclayoda87 (29.14) wrote:

I wonder how much the wealth effect of the S&P 500 rising from 670 to 929 in the last two months has affected the individual investor's fear and greed.  I would guess that trillions of dollars were added to investors' portfolios, which created a greater sense of security and more risk tolerance.  I would also guess that the potential buying power of this new paper wealth is far greater than the loss of buying power of the recently unemployed.  If this is true, the purchasing power of the US consumer may have actually increased in spite of the higher unemployment.

To extend this thought experiment, as long as the market stays up, retailers and real estate activity may continue to improve, but any significant sharp correction could trigger massive profit taking.  This would again deflate housing prices and hurt business activity as well as motivate investors to move back to cash and gold.

The administration and the big financial firms have a common purpose to manage expectations and manipulate a steady rise in the market.  They know that there is sill a lot of cash on the sidelines, which could help support an extended rally for several more months.  Their goal is to re-inflate the various bubbles, which burst in 2008.  This will help the banks recover from their near death experience by making their toxic assets appear more valuable.

So even though I believe the GMX is correct based on a fundamental assessment of reality, the government and its major financial partners will not allow reality to interfere with their illusion of prosperity and health.  This is similar to the concept that you can’t fight city hall.

So I have come to believe that in the short term, several months, that the market will be herded to a higher price range, but that the fundamentals of the economy will continue to deteriorate, especially when taxes start to rise.  Once the market has started to plateau, moving to cash, gold and other commodities would seem a prudent move since I do not believe that the government has enough magic to convert fantasy to reality, even if they do have the power of the printing press.

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#44) On May 09, 2009 at 4:42 AM, notsolilaznboi (36.40) wrote:

I've been a bull most of the time. That being said, I have been a bear for the past couple weeks. My timing is horrid and IMHO I suck at investing.

Stop bashing GMX people. He writes solid posts that support his views. Who cares if the market went up for under 2 weeks when he said it was going down? Were you right about every call? NO. Market timing is a funny things. That's why it's called investing and not trading.

 The S&P could and should hit 600, BUT with the government taking control of the market, who knows what will happen? The S&P seems to be at a peak around 950 right now, but there is a chance that it could easily go to 1,000 with the government pumping out more bs and financial institutions with loads of cash looking to get back into the game.

Right now, it is a game of timing the government, not investion.

 Keep posting GMX, your insight and bear marketness (<---- not a word) is an inspiration to all of us holding FAZ (hahaha) =)

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#45) On May 09, 2009 at 12:49 PM, stockfreak1 (20.58) wrote:

Jumping one more time on Alex1963's post. I just want to add one more bit of history. Before the Great Depression there was about 100,000 investors. After the Great Depression there was 16 million and the SEC was formed. If we take that same mindset and apply it to today, could we not see a parallel at least a little bit in this rally?

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#46) On May 09, 2009 at 5:15 PM, cashkid79 (93.74) wrote:

anyone here trade with an FCM (FOREX) -> I mean insight into the US financials I'd think would correlate??? I'm relatively new to FOREX but I'm 28 for 28 exchanges @ +175% last week...seems too easy to be true IF you have the patience to ride the waves up and down...anyhow this isnt a rec to try exch mkt...reminds me a lot of the casino down the road actually, but I think perhaps some of the fundamentals and major moves could be applied as early triggers of the MACRO economic results of these moves for any given currency, USD obviously the one of most significant importance to most US stock investors and CAPS members...banking institutions are among the biggest players in the currency game (well, you can figure in the gov't(s) too)...

new this week -> i-trade fx (yeah one of the little ads you see all over msn and other financial websites, well used to be) just had to drop it's retail side of the biz to continue work with banks i believe due to lack of the reserve capital requirement for operating individual retail trading accounts. All of their opened retail accounts got xfered to FXCM effective sometime Sunday 5/10.  

As for exchanges I can tell you this...by afternoon FRI 5/8/09 USD/JPY dropped from up @ 99.20 to 98.37 by close @ 3EST...USFCHF Swiss Franc from 1.1400 to 1.1063...USDCAD Canadian just over 1.17 to 1.1512 drop EURUSD Euro(look this same trend USD just flipped here) around 1.33 noon then EUR up to close 1.3620 --- so the big currencys all showed a marked significant weakening of the dollar or individual strengthening of those four countrie's currencies or a combo thereof (not likely given those sizeable moves all trending the same way)...numbers say that Monday open the dollar is weaker in relation to a big chunk of the rest of the world, take it for what it's worth, FOREX is volatile as hell but all major currency pairs showed significant moves toward dollar weakening at very end of day Friday.  USDCHF shows dollar to (sell)franc at its lowest since january. The YEN not as significant moved above and below close price about 7 times since march.  Japan also has to import 90% of their oil though...the CAD canada shows dollar relative weakest since October of 2008...EURO exchange rate shows dollar ats its weakest since March as of FRI and before that it was January it last exchanged at that rate...soooooo....thats all i have to say about that....I know what my intuition tells me but some people make fortunes doing the opposite of common sense would show so....and i DONT have a fortune...Tim aka cashkid79 

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#47) On May 09, 2009 at 5:38 PM, Matt8265 (25.91) wrote:

Musical chairs.... that's what we are doing right now. 

The banks and the treasury is more than happy to see bank stocks rise so that the banks can sell into them, and take the fed off the hook as congress won't approve more funds.

 WHEN the music stops, it will be "katy bar the door" as MS, BAC. C, GS, JPM and the rest of the scum dump in concert.  

 

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#48) On May 09, 2009 at 5:54 PM, Effloresce (31.51) wrote:

It's been a strange rally, that's for sure. Or maybe it hasn't really been all that strange, I'm not enough of a stock market historian to know one way or the other (and if anyone is a historian of such sharp, bear market rallies, I'd love to hear their thoughts), but this one has sure seemed strange to me.

It seems like everyone's been jumping on the 'garbage' stocks ....and I'm using 'garbage'  just as a term to describe troubles companies/stocks that have significant question marks and/or risk about them, if not even one foot right in bankruptcy court. I'm not trying to disparage any companies in other words, but that seems where the money is flowing. The run-up in Las Vegas Sands and MGM is a perfect example of this. Both companies are in serious danger of breaching their debt covenants and going bankrupt, but yet their stocks have just skyrocketed. And GM, even with all we know about it, it still only went down .01 cent yesterday, which means somebody's still buying into this stock, but who, and why?

Meanwhile, the bluest of the blue chippers ala PG and J&J and MMM and Kraft and Coca Cola and on and on and on, the companies that you KNOW are solid as a rock and are set to ride out this recession no matter how long it might last, these companies have been mostly static and left entirely out of this rally and in fact are all still much closer to their 52 week lows than their highs. 

So I don't know what that means, or if it's unusual so far as such dramatic rallies go. What it does lead me to think is that there's probably quite a bit of speculation going on, with people willing to take on much more risk for the chance of a much greater payoff. I'm normally a very conservative investor and longterm buy and hold'er myself, but my risk tolerance has grown too, because I lost so much last year and through Jan.-Feb. of this year, that I'm still trying to make that up, and thus my willingness to take on higher risk has grown, so I've been doing day and short term trading more than I ever have in my life because of that. 

It's strange. I just wonder what this rally would look like if the blue chippers were involved. Holy cow, that would probably be the mother of all stock market rallies- but anyway, this is what we've got.  It's difficult if not impossible to know how to play it, because the Feds are tossing curveballs in all over the place, and it's sort of become like Bizzarro World, where up is down and down is up.

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#49) On May 10, 2009 at 8:17 PM, Alex1963 (28.34) wrote:

stockfreak1 

Thanks. To piggy back your point my broker was quick to point out to me a few days ago that another difference is that there was no Fed in 1929. His opinion was that we have fasr more and sophisticated tools at hand. Tho I suspect GMX would emphatically disagree that the Fed is good institution.

 

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#50) On May 10, 2009 at 8:31 PM, MGDG (34.70) wrote:

GMX--agreed we are due for a correction, although the timing is uncertain. The runup in Financials is just too big for one entity to produce. The PPT through GS could be buying the Dips and selling the Rips, which would at least assure them of a profit as they do their part in helping pump up the Financial Sector. I'm thinking a correction of 20% from Friday's close is in order in the Financials, although I'm not willing to fight the trend and pull the trigger on that trade yet. This Bear Market rally might yet have another 12%-15% gain from these levels before it's over.

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#51) On May 10, 2009 at 8:41 PM, portefeuille (99.66) wrote:

there was no Fed in 1929

see here

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#52) On May 10, 2009 at 9:39 PM, MGDG (34.70) wrote:

Well portefeuille, if there's one thing I would agree on, it's the views that Thomas Jefferson and James Madison held during their time. The passage of time has only re-inforced their views in my opinion. 

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#53) On May 11, 2009 at 4:02 AM, motorist12345 (31.34) wrote:

I agree with MGDG that there will be a correction in the Financials from the Friday's close, and it should be 20-25% (or more). The banks' stocks prices went up lately too far and this is not a very good sign for real investors who believe that there is a speculation, however, it's great for short term traders. Mostly the Government, who was interested in a quick rebound of Financials "no matter what...", caused this issue. But I'm confident that after some bad news coming out about credit cards & real estate problems related again to the banks will drive the prices down. Also, there are still a lot of real bad things for the American banks outside the U.S. and we shouldn't forget about this. We'll see many bankruptcies and take overs in the financial institutions.

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#54) On May 11, 2009 at 5:04 AM, JibJabs (89.29) wrote:

I'd be interested to see the numbers for the run up on financials compared to their downturn, bearing in mind that the "discount window" has been opened for the foreseeable future. I wouldn't touch BAC or C with a ten foot pole, but Buffett is so strong on WFC, MTB (my holding), and US Bancorp that I hesitate to consider the sector's rally totally irrational. BAC and C appear speculative, but who knows what information the big players have access to that we don't? The government has thrown its backing behind the banking industry- I'd venture that the parameters of that relationship have been much more clearly defined behind closed doors than the public is aware of. Our speculation may just be Goldman Sach and its peers' informed decision.

One more thing: if/ when inflation sets in, people much more knowledgeable than me have said that banking will be a major beneficiary. That may be another factor at work here.  

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#55) On May 11, 2009 at 7:20 AM, Matt8265 (25.91) wrote:

Efflor..... garbage stocks are the first to sell off in a downturn and the last to be picked up in an upturn. This usually shows the end of rallies. 

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#56) On May 11, 2009 at 7:24 AM, Matt8265 (25.91) wrote:

I would invite people here to Google "David Rosenberg" and read his piece from last week just prior to leaving BAC. I think he's one of the brightest minds in money forecasting. 

 

His key point is that while the markets were prior to their January downfall, unlike then, now we have the shorts driven out. Add to this that the banks have been on government provided morphine, and that unemployment really isn't falling when one discounts temp government workers, that there is still hell to pay. 

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#57) On May 11, 2009 at 11:59 AM, Alex1963 (28.34) wrote:

portefeuille 

Thanks. My bad. Sloppy posting on my end. Once again I have learned to double check, do my own research. Thanks for the schoolin'. I gues "when SB talks people (still) listen"-at our own peril LOL

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#58) On May 11, 2009 at 3:29 PM, DeerHunter73 (73.06) wrote:

What no Day 10 Vol 500 on a sell day WOW.

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#59) On May 20, 2009 at 7:10 PM, TheGarcipian (61.11) wrote:

GMX, keep up the good work, man. Like others have posted above, we need the continued dose of reality. What's going on now in the market is unsustainable at best, and bold-faced lies at worst. We will see a sharp pullback in the next 4-6 months. You can hide a smell as bad as this financial sector one for only so long...

--Gar

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