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The Intelligent Trader's - Long and Short of It
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From: Robert A. Christy Editor/Publisher, ‘The Intelligent Trader’ http://www.intelligent-trader.com http://www.christyinvestments.com
Date: June 13, 2009
The Numbers
The numbers this week tell us that the Offense is still on the field, but some caution signs are in the wind. We’ll keep an eye on things as things continue to unfold with the Iranian elections and North Korea’s pushing of the nuclear envelope.
Bullish Percent
Sector Bullish Percent
The Market
Since March 9th, the Dow Jones Industrial Average has rallied an impressive 34% pushing it into plus territory for the first time this year. This move has the talking heads suggesting that the stock market and the economy have put the housing bust and credit collapse into the past tense. Jim Cramer has gone even further elevating Fed Chairman Bernanke to cult hero status.
I think all of this is a tad premature.
Trouble still looms on the horizon for stocks, housing, the economy and the U.S. dollar. The bubble engulfing the commercial real estate market is about to pop. I’ll have more to say on this later, but suffice it to say that the rising level of risk suggests that the approaching storm is gathering force.
In the Long/Short portfolio, I’ve added some protective puts to my Google position. I am using these put options as insurance against a big drop in the stock. I have a really nice gain and I am in no mood to give much of it back.
I’ve also initiated a short position on the 10 year US Treasury bond. The Obama administration is spending money like a drunken sailor and I think interests rates are headed higher. In fact the yield on long term bonds has already doubled this year.
Even though stocks have rallied, there are still a number of problems to deal with. The long economic upswing that started in the early 1980s ended with the dot-com bust in 2000. The onset of the secular downswing that followed was masked in part to massive post 9/11 monetary stimulus. We’ve just about come full circle on this. I don’t think this recession is over by a long shot and we’ve only felt the first wave of this worldwide financial crisis. I still think that the worst is yet to come.
Don’t be fooled – this is a sucker’s rally and not a new bull market.
The picture is pretty clear – the US consumer is tapped out. Consumers have run out of assets to borrow against. Falling real estate prices have caused home equity surpluses to evaporate and falling stock prices have decimated investment and retirement accounts.
All of a sudden, spenders have become savers. This is exactly what the Obama administration did not want to have happen. The folks in Washington believe that you can spend your way out of a slump. Free market economics teaches the exact opposite. The stimulus package is nothing of the sort. It’s political pork from top to bottom. Barney Frank and friends will never understand that they are the problem and not the solution to our problems.
The bottom line is that this sudden surge in savings may reduce GDP annual growth by at least a percentage point. I think it will take at least another year to unwind and de-lever our economy. The problem down the road will be the bleed over effect on the overall global economy. This kind of ripple effect occurs because many foreign economies depend on us to buy their surplus products thereby creating their economic growth.
Look for the federal government to use the current economic and financial distress to continue meddling in the market both here and abroad. We can only hope that someone realizes all of this interference actually impedes economic growth before it’s too late.
That’s about it for now. Let me here from you if you have any questions.
Robert Christy
P.S. The currency market (forex) is the place to make money this year. If you’d like to know more about how you can participate in this, just send me an email and I’ll send the information to you.
P.S.S. Please fee free to forward this to your peers, friends and anyone you think would benefit from its contents. They will thank you for it - and so will I!
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Robert Christy is a professional currency trader, stock trader, money manager, author and speaker. Mr. Christy is the President CEO of Christy Investment Group, Ltd., a fee-only registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Crabapple Capital Group, LLC and the editor/publisher of The Intelligent Trader, a subscription based long/short trading service. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@intelligent-trader.com .
Robert Christy The Intelligent Trader
The Christy Investment Group P.O. Box 625 Alpharetta, GA 30009-0625
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© Copyright 2009 Robert A. Christy, The Intelligent Trader
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