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Welcome to the What the @*%& Rally!

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March 23, 2010 – Comments (41) | RELATED TICKERS: MPG.DL2 , MNI , SSO

I would like to officially welcome you to the second annual "What the @*%& Rally." Participation in this event is required and the great thing about this event is that absolutely no economic factors are relevant. Some of you seem skeptical and appear not to believe me. Let's take a closer look.....

Housing Starts fell for a third straight month. Let me get this straight, are you telling me that we are in the midst of a robust economic recovery and we have been selling fewer homes for three consecutive months. Single family homes sales are down and homes for sales (inventories) are up, and not just up, but up dramatically, their largest month over month jump in 22 years. These are the signs of a recovery? Eh what the hell, it doesnt matter because we can just ignore these facts and move higher because this is the "What the @*%& Rally!"

Washington DC led by President Obama and the Democrats passed landmark legislation that will reform the healthcare landscape this week. What this program entails will be a higher tax rate for those who are currently propping up our economy and an addition 940 billion dollars in costs which will add to an already increasing 12 trillion dollar defecit. I haven't even gone into the implications it creates relating to breaking constitutional law by mandating the purchasing of any form of insurance. It's another program that the United States cannot afford and it's largely unpopular with the American public, not to mention how it will cripple major insurance providers. But what's the difference, this is all unimportant because we are in the midst of the greatest "What the @*%& Rally" in the history of the stock market. Just pretend like that horrible legislation isn't there and let's move forward.

Greece's debts problems could cause a Jenga-like collapse of the world financial system. Numerous superpowers hold Greecian soverign debts and it is seemingly more and more likely that come the maturity date Greece will have a hard time meeting those obligations thus creating a worldwide domino effect. Germany, Spain and France are particularly vulnerable and investment in any foreign banks is simply suspect at best right now until this problem passes. Nothing has been set into stone yet regarding how Greece is going to solve its debt problems, but psssshhhhh, it's all fun and games because the most awesome "What the @*%& Rally" since your parents were born has kicked into high gear. Foreign debts don't matter....this rally can continue while countries around us teeter on bankruptcy.

Garbage stocks continue to be the daily leaders moving us higher. The biotechnology index which is ripe with dozens of companies lacking tangible products and burning money at nearly as impressive a rate as healthcare reform is topping new highs. Companies like Maguire Properties can report FIVE times its market value in yearly losses and move higher. Media and advertising companies can carry debts greater than their market capitalization with year after year declines in their revenues and motor higher. But you know what? Who cares, we're in the middle of the "What the @*%& Rally" and none of this imporant. Fundamentals - factual evidence of a business' success...totally unimportant as long as the rally continues.

Brutally overbought conditions in nearly all sectors of the market. Not since man developed his obsession with B2b possibilities in 2001 have stock market indexes been so incredibly overbought from a technical perspective. Standard deviation models, bollinger bands, relative strength indexes, stochastics, summation indexes all agree that more than just a breather is needed at these levels. But what does a bunch of hooey-fooey technicals have to do with the "What the @*%& Rally," I mean only 20 million people follow that stuff, clearly they have no clue what they're doing. The Rally must continue!

Jobless claims are up two months in a row while consumer confidence is down. Suddenly more people are filing for unemployment claims, a direct reversal of a trend we've seen over the past six months and consumer confidence took a much larger than expected tumble with most Americans still mildly pessimistic about the country's economic future. But what are government facts other than just another thing to ignore as the "What the @*%& Rally" kicks into a super high gear. 

Government stimulus is winding down and government investments have been brutally bad. The stimulus package which has boosted spending and driven growth in infrastructure companies over the past 18 months is beginning to run dry while Fannie Mae and Freddie Mac continue to bleed investors dry. The government could indeed be out something on the order of 200-300 billion dollars when all is said and done. What's the big deal though, because we're going to rally higher whether we lose money or not because we're on the "What the @*%& Rally" ride, the best one in the whole amusement park!

If you haven't figured out by my inherent sarcasm, the "What the @*%& Rally" is a big heaping pile of crap! How much longer can the market continue to ignore some absolutely horrid financial stories and facts for the gain of garbage companies? Do you really expect me to believe Maguire is worth what it is now or that biotechs will continue to march higher after seeing 3 of them fail to pass a drug by the FDA in the past 2 weeks? Do I really think the indexes are going higher - hell no! Do I think I can accurately call a top - no...but I can get as close as possible to a top and take advantage of the inevitable sell-off. Summer must be close by because I believe it's time to get those shorts out and bet against this, what I shall now call the "Jenga Rally"....because it's all going to come crashing down eventually. The market can't ignore factual evidence forever. 

UltraLong

41 Comments – Post Your Own

#1) On March 23, 2010 at 7:21 PM, JenkemLover (23.05) wrote:

Not to mention China's rhetoric of a trade war over their currnecy valuation

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#2) On March 23, 2010 at 7:25 PM, binve (< 20) wrote:

UltraLong,

LOL! That was great :) I think you would enjoy my new post (in the same spirit): http://marketthoughtsandanalysis.blogspot.com/2010/03/for-love-of-god-sir-there-are-two-seats.html..

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#3) On March 23, 2010 at 7:36 PM, topsecret09 (35.84) wrote:

You forgot to mention that gas prices are hitting levels not seen since 2008....   Well, I guess In this robust economy most everyone should be able to afford a litle more for gas....  Looks like we are heading to 11,000 buy hook or by crook, lets see If the master manipulators can keep It from falling as we hit a possible triple top....    TS

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#4) On March 23, 2010 at 7:36 PM, starbucks4ever (98.28) wrote:

If we had a @*%& crash, why not have a @*%& rally now? Insha'allah (or GS willing :)

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#5) On March 23, 2010 at 7:37 PM, outoffocus (22.91) wrote:

You didnt hear? Debt is the new wealth. Losses are the new profits.  Thats why the dollar continues to rally.  The bears are too bearish and thats why the markets keep moving higher.  Everyone has healthcare now. All is well. DOW to 12000!!!

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#6) On March 23, 2010 at 8:06 PM, Option1307 (29.76) wrote:

Ha ha ha, +1 for the title alone.

Let's go garbage stocks, let's go!

I just sold everything I own and I'm placing it (along with all the leverage I can) on PALM!!! 573,904 bagger here we come!!! Woo!

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#7) On March 23, 2010 at 8:11 PM, dwot (75.87) wrote:

Oh heck, why stop at DOW 12000?  All the way to 20000!!!

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#8) On March 23, 2010 at 8:15 PM, nuf2bdangrus (< 20) wrote:

I just posted a blog...the ultimate moral hazard.  Market sentiment has no fear because they one again feel they have the full faith and power of the Fed behind them....and they do.  Until they don't. 

 

What they fail to recognise is that the demographic realities are bigger then the Fed.

 

You know it.  I know it.  And the shorts get steamrolled.  It's part ofthe process. Micro cycles, in which we can miraculously replace a bear market decline in months, not years.

 

Of course, there is no underpinning of fundamental behind the credit card driven rally, and thus no healht to the markets.  It won't end well.  I don't know when.  But it won't.  But the most hated rally needs to become adored or we have a major event....

 The major even is of course the day that the bond market realises it's been had.

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#9) On March 23, 2010 at 8:26 PM, Varchild2008 (85.27) wrote:

As I keep saying on my blog over and over again...

This rally is all about the fact that people need a Job!!!!!

The stock market is litterally the only game in town!!!!!

You want a job????    Stock Market!!!

You want to afford to buy food for your family??  Stock Market!!!!

Can't afford to pay off your home mortgage??  Stock Market!!!

have $1.15 left of your Unemployment Check???  Stock Market!!!!!

I guarantee that many with unemployment checks are funneling some if not all of the cash straight into the stock market as they ride out the recession off of their Savings + dividend yields in Equities and other investments.

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#10) On March 23, 2010 at 8:59 PM, pastordisaster (< 20) wrote:

+1

Well written and excellent commentary. I always enjoy reading your blogs.

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#11) On March 23, 2010 at 9:46 PM, topsecret09 (35.84) wrote:

http://www.foxnews.com/politics/2010/03/23/fox-news-poll-say-economy-collapse/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fpolitics+%28Text+-+Politics%29&utm_content=My+Yahoo

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#12) On March 23, 2010 at 10:41 PM, TigerPack1 (98.39) wrote:

WELCOME TO THE JUNGLE!

Just remember Ben is hiding in the thicket on the west side of the forest setting a large trap...

GS is doing their best to create a stampede of antelope and wild bovine near your current position...

The Republicans are screaming the end is near as they fly from their perches in the trees (for many of them it has already passed).

Obama and the Democrats have their hunting gear, including high-powered riffles ready on the high plain if you dart for an escape.

Black swans are landing in swarms at the lake in the distance.

Navigate with care would be my advice, for anyone that thinks they are ready for what could happen in the stock market the rest of 2010 and 2011... Oh and sleep with one open each night!!!

I have been telling more and more people since December, that the market is acting a lot like the mid-1987 nuttiness, before the 40% market crash implosion... I am incredibly nervous with my money, and skyrocketing deficits combined with zero for interest rates are a recipe for disaster... Anyone that can add and subtract should be able to figure that out for themselves.

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#13) On March 23, 2010 at 10:49 PM, topsecret09 (35.84) wrote:

#12) On March 23, 2010 at 10:41 PM, TigerPack (99.96) wrote:    

Obama and the Democrats have their hunting gear, including high-powered riffles ready on the high plain if you dart for an escape.

Black swans are landing in swarms at the lake in the distance.

     lol !!!!!

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#14) On March 24, 2010 at 12:05 AM, d1david (29.24) wrote:

Well written post.  I commend you.  My father in law wants to buy stocks now, so the top is almost in.

 

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#15) On March 24, 2010 at 2:06 AM, awallejr (85.43) wrote:

I swear this rally gets no respect, and attack it and get a ton of recs.  Come April data and you will FINALLY see an increase in employment. Argue that it has alot to do with hiring censor takers I suppose.  But it will still be an increase.

April earnings will start anew and you will see continued profitability.  Argue that it has to do with a "low bar"  but who cares, in the end profits are profits.

Housing starts down during winter?  GOOD. Our population continues to grow yet housing starts decline. 

PEs  on average around 17ish.  Big deal.  People make it sound like the ridiculous days of the tech bubble.

Greece has problems?  Wow let's do a major selloff.

This http://caps.fool.com/Blogs/ViewPost.aspx?bpid=201013&t=01002756778892789413 and comment 4.

This market is telling you that things are slowly improving. 

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#16) On March 24, 2010 at 2:13 AM, TMFUltraLong (99.95) wrote:

This market is telling you that things are slowly improving.

No, the market is telling us things are vastly and quickly improving...its the statistics which are telling us they are slowly improving. It's that disparity which makes no sense. No doom and gloom from me, I just want to see some parity with the economic statistics we are currently getting. 

UltraLong

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#17) On March 24, 2010 at 2:18 AM, awallejr (85.43) wrote:

If that was the case we'd be at 14000.  No serious disparity from fundamental analysis. 

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#18) On March 24, 2010 at 2:28 AM, uclayoda87 (29.26) wrote:

It may be time to revisit the Fractals!! blog.

It feels like we are back in Aug 2008 with the market slowing climbing even as energy prices rise and financial news looks grim.

In Sept 2008 we topped out and then began the fall.

The Fractals plot also predicted the sell off that began in mid January 2010 and the subsequent slow climb that we are in now.

Over this next month, it may be wise to start taking some profits and build a larger cash reserve.

 

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#19) On March 24, 2010 at 2:33 AM, awallejr (85.43) wrote:

If you want to sell then sell in May and go away.  April tends to be a bullish month.

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#20) On March 24, 2010 at 8:46 AM, jdlech (< 20) wrote:

Fortune smiles and frowns all at the same time - depending on the rotation of your location.

A trade war with china would really help American jobs - someone has to make that stuff that China won't send to us.  But then, that stuff will cost a lot more, hitting people in the wallet and feeding the inflation fire.  Right now it's a cold pile of ash, but who knows - maybe inflation is an ash pile soaked in gasoline just waiting for that spark.

If inflation is your great worry, then the market is exactly where you want to be.  As well as loaded up with all the fixed interest debt you can possibly muster.  Perhaps the Russian ruble?!?

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#21) On March 24, 2010 at 9:31 AM, MarketWhisperer (93.13) wrote:

UL, you know I agree with you (just like always), but it sure feels like this guy was onto something when he posted this:

Pitch by: dragonlz 7/15/09 1:09 PMReply | Rec This (Recs: 0) | Report this post

The new bull market has begun (the trickiest, but the biggest one ever)...

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#22) On March 24, 2010 at 9:32 AM, JakilaTheHun (99.94) wrote:

UltraLong,

I agree with a great deal of your economic and political reasoning here, but I think you are committing the exact same mistake that a lot of the ideological bears have committed since April of last year.  

The market has moved upwards largely because it's come to the slow realization that the move downwards was irrational and overblown.  It's not that things are rosy in the "real economy" by any stretch of the imagination.  Rather, it's that valuation easily supports the market at the current level and the overall market is still somewhat conservatively valued.  

The biggest enemy of the market is uncertainty and much of the uncertainty has been removed for those who wish to realistically assess the situation.  So, the market will probably continue to creep upwards.  I'm not saying we won't get a retreat at some point, but people have been calling for one since late March '09 and it hasn't happened yet.  We were rangebound for a few months, but that's been the worst of it thus far.  

If we see a retreat, it's not going to be nearly as bloody of an affair as the plunge in late '08.  It will probably be 10% - 20%, before more buyers start to push the market back upwards again. 

I'm still buying small commercial banks, REITs, and natural gas/nuclear.  There are a lot of other things I'm not buying, as well, and I think commodities (copper and coal in particular) are risky bets. 

 

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#23) On March 24, 2010 at 9:33 AM, JakilaTheHun (99.94) wrote:

Oh ... and ... LONG LIVE BARREL MONSTER! ;)

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#24) On March 24, 2010 at 9:35 AM, chimpcontest (< 20) wrote:

The economy cannot recover until homebuilding recovers... This is a historical fact.  We are at about 40% of where we should be in a normal economy from a new home construction stand point.

None of the builders are killing it in the first quarter and the reason why I did a post recently about shorting builders and how builder stocks would retreat.  The higher the market goes, the easier it will be to go short when the market turns and it will be obvious when we reach a top from a technical standpoint.

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#25) On March 24, 2010 at 9:37 AM, djemonk (< 20) wrote:

My father in law wants to buy stocks now, so the top is almost in.

hahahah.  I think we all know someone that we use as a "fear/greed" indicator.

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#26) On March 24, 2010 at 11:28 AM, SweetMircha (93.98) wrote:

With all of the problems with the US economy which you mention, maybe moving to Canada & buying Cdn. stocks on the TSX would help your pocketbook. Mind you, our house prices are really going up especially in Vancouver & Victoria,BC. My Cdn stocks have done far better than my US ones have.

Just a thought. I know I'll get blasted on this one for sure.

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#27) On March 24, 2010 at 11:40 AM, rexlove (99.43) wrote:

UL,

 While I agree with you on most points - I can't agree that the market is overbought. On a PE basis - the market is priced where it should be and still has room to move higher. See my post here for more detail:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=355086&t=01007422989251003253 

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#28) On March 24, 2010 at 11:54 AM, DigitalDisco (< 20) wrote:

I'm with JakilaTheHun on this one.  During the crash, investors treated all CMO's as if they had zero value at all, which simply wasn't the case.  Factor in the increased mortgage default rate and the drop in mortgage prices, the 20-30% decreased level that we're currently at is probably pretty close to right on.  I personally want to see us rangebound between 10,200 and 10,800 due to continued uncertainty, but I feel that fair Dow valuation extends all the way up to around 11,200.

Housing starts are down because we don't need new houses right now.  Assume that new home builders aren't retarded instead of broke; with a growing inventory of existing homes on the market, why would you build more?  Trimming their business accordingly is the best possible way forward right now.

Yes, Universal Healthcare (misnomer) has "passed."  I guess the insurance companies are going to lose money quarter after quarter, right?  Oh wait, all the bill did was require them to use lube now.  As proof I point to the fact that in a market showing a much needed decline, healthcare companies are down in line with the market.  Further, there is some boom to companies in the sector as the increased push for standardized, electronic records creates new opportunities, along with the fact that the drop in margin for health insurers will be largely offset by a larger number of subscribers.  Don't forget the fact that they're now being held at ethical business practices common to pretty much every other industry.

I agree with a lot of what you say but refuse to ignore the positive indications appearing as well.  While unemployment continues, it is leveling out.  Corporate profits are strengthening.  Our regular economic levers are showing a positive bias.  We do need a 300-500 point pullback here, but even that pullback will be institutions locking in profits.  But I will say it here; if the Dow hits 11,201 I will be in my basement with my tin-foil hat on surrounded by canned goods and shotguns.  In the meantime I'm not going to ignore either positive or negative factors and invest accordingly.

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#29) On March 24, 2010 at 12:55 PM, TigerPack1 (98.39) wrote:

Don't forget to read and participate in TMFJake's live chat tomorrow night at 6 p.m. Eastern with UltraLong, TigerPack, portefeuille, JakilaTheHun, anticitrade, bullishbabo (#1 in CAPS right now), and whoever else wants to show up and join the debate about the current stock market's direction and health!!!!

http://caps.fool.com/player/tmfjake.aspx

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#30) On March 24, 2010 at 12:59 PM, TigerPack1 (98.39) wrote:

TMFJake's CAPS homepage:

http://caps.fool.com/player/tmfjake.aspx

(Link disappeared to the chat in the above comment post.)

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#31) On March 24, 2010 at 1:00 PM, portefeuille (99.60) wrote:

TMFJake's live chat 03/25/10 6 p.m. ET

 

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#32) On March 25, 2010 at 7:29 PM, dragonLZ (99.41) wrote:

UL, you know the end is near when... :)

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#33) On March 26, 2010 at 4:23 AM, kpoeppel (< 20) wrote:

http://www.economist.com/opinion/displaystory.cfm?story_id=15213157

they were right about the housing bubble...

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#34) On March 26, 2010 at 10:28 AM, TigerPack1 (98.39) wrote:

Is Google under attach from Asia again today?  I cannot get anything related to blogspot.com addresses to open up this morning!!!

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#35) On March 26, 2010 at 3:15 PM, ifool100 (72.59) wrote:

It seems to me that whether or not this is a rally or even a justified one, is irrelevant.  When 80% of the market is owned by institutions it doesn't matter what small investors think.  It matters what the institutions think.  If enough of them think alike (which they all do) they drive the market.  It's like people going from one side of the ship to the other.  Fortunately it takes a big ship a long time to turn.  These guys dump or buy millions of shares.  It takes a while for all that to process.  In the meantime, you and I (the little guys) just watch and wait for the signals.  It's impossible to predict the market.  Human nature however is fairly predictable and repetitive.  I appreciate your comments and insight Ultralong, but you said the HCR is "largely unpopular with the American public".  Just for the record, the latest USAToday/Gallup poll says a majorty of Americans supported passing of the HCR bill. 

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#36) On March 28, 2010 at 6:51 PM, jweems (42.62) wrote:

Ultra,

Do you foresee any outperform picks in your near future? 

Thanks,

J. Weems 

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#37) On March 29, 2010 at 1:45 AM, HarryCarysGhost (99.72) wrote:

Chewbacca defense - Wikipedia, the free encyclopedia

 

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#38) On March 29, 2010 at 10:08 AM, checklist34 (99.72) wrote:

well lets see...

A)  it still results in massive rec's and a gigantic train of people agreeing with each other and certainly, 100% knowing we're doomed if someone posts something bearish 

B)  the market sits about at fair value (or slightly above or below) by historical valuations.  Note buybacks are 1.7x dividends, so multiply the yield by 2.7 to get approx cash return to shareholders.  add 10% for 1980/earlier.  Witness price/book, consider tech and biotech R&D isn't "book value", price/sales.  See my julyish last year blogs.

C)  in history no 2nd year after a big rebound from a big market crash has been negative (per a 2 second look at some charts and, hey, i read this on the internet it has to be true)

D)  Checklist34 is standing by his policy of selling every share of stock I own that isn't below its historical valuation, going to highest cash levels i've had in over a year.  That has to lead to the market going up, just to frustrate me.

E)  it remains true that even if one is good at an internet blog stock game, the market does not need to do what we wish it to

F)  bonds haven't outperformed stocks for 2 straight decades ever (per a bloomberg article involving bill gross)

 

Look, I think that the risk/reward profile of the market isn't hugely favorable right now.  I continue to doubt that the market has entered into a big decade or multi decade bull.  

But the wall of worry remains incredibly intact. 

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#39) On March 29, 2010 at 2:47 PM, Vet67to82 (< 20) wrote:

I read your post (smiling) and I am not sure what pieces qualify as "tounge-in-cheek' as opposed to "sarcasm" ... but I enjoyed it anyway ... so I'm following the article to see how things "pan" out and I've added you as on of my favorites ...

 Good work ... Thanks!  +1 Rec  

 

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#40) On March 29, 2010 at 3:37 PM, rockbox64 (< 20) wrote:

Hey Ultra.  New guy here.  Can I pick your brain about TNDM (rode your back on this, thanks) and this patent hullabaloo that went down today. Some say the patent doesn't even matter, that NT is so entrenched in the space.  Other feels differently.  What do you see over the next month.  I think they report at the end of April.  Thanks.

 

 

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#41) On March 29, 2010 at 7:26 PM, wolverine1987 (< 20) wrote:

Hmm, well all of your post is correct, but I believe you missed something which is key to the rally--profits are expanding.  That is a fundamental factor key to any stock advance, and we have it.  And comparisons in the coming quarter to the corresponding period last year should be favorable as well, giving further life to the rally in my view.  Last quarter almost 80% of the S&P best estimates, and over 50% beat on revenue.

Now I agree that the rally is extended, and would like to see another pullback of 10% similar to what we got in late January. But if we get that I will buy it with RM again.

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