The More Things Change........

Good afternoon.  I've got some heavy chores to do today so we'll try and keep it short and sweet this week.  We'll take a look at the most recent wiggles by the Government and the hysterical assumptions being made about paying for all of the spending, the (sorry) state of our economy, and an update on the Yen trade. But first.......

On a short-term basis, it looks like we're at a critical point for the equity markets in the USA. With the Dow 30 following the Transports to new lows, all eyes are on the S&P 500, which is plumbing the depths of the intraday November lows as I'm writing.  So far, they're holding, even in the face of a terrible 4Q GDP revision to -6.2% and what seems to the the imminent quasi-nationalization of Citigroup (Government to convert preferred shares to common, amounting to a 36% holding).  

Regarding the 4Q GDP number, this revision was inevitable and is squarely looking in the rear view mirror.  Therefore, try your best to ignore the talking heads on TV using these data to try make the point that the recession is deepening.  These numbers are looking at what has already happened.  This said however, the data from the current quarter imply that there has, indeed, not been any improvement in the 1Q, so we can expect another clunker to be reported in a couple of months.

Turning back to the markets, the 740 level on the S&P seems to be a pretty important one, and, again on a short term basis, it looks pretty essential that it hold here.  Otherwise, I think we can expect a rather swift move lower into the mid 600's.  As you all know, I've been saying that we would ultimately push to new lows on the S&P, notwithstanding the potential for "hope" rallies (we got a nice one earlier this week), and I still believe this to be the case.  Timing, of course is the question mark, and I'm looking squarely at the last hour of the day to give us a sense of whether or not the time is neigh.  We'll see.

I'm still looking at the potential for a more lasting Spring rally as we get hints that the velocity of the economic downturn is beginning to wane, but we have to get there first, and from what level this rally might take place is firmly up in the air at this point.  Best bet......it'll be from somewhere with a 6 in front of it if you're looking at the S&P 500 or Dow 30.  Nonetheless, on a very near term basis, the markets are trying to hold here, the NASDAQ is actually up as of this writing, and the potential for a small reprieve is present.  Stay tuned.

Turning to Washington (again, I can't help it) I'm going to spare you the pain of a deep analysis of the President's budget, as the press has done enough of that.  However, I will make a couple of general comments.  First: "Holy bad timing, Batman!".  They say that they're targeting the wealthy for tax increases, but in doing so, they're going to be raising taxes on small business, WHERE THE JOBS COME FROM, in the middle of the worst economic downturn in a generation. Huh?  They're also looking at cutting the amount of mortgage deductibility in the worst housing crisis since.....forever.  HUH??????  It seems as if the left has collectively lost their minds!  Who do you think is the only group that has a chance of getting a mortgage in here???And they want to TAKE AWAY an incentive to buy a house???? If you're looking at raising taxes on the "wealthy", fine, but let's get real about the definition (Barack, $250k might seem like a lot in the hinterlands, but YOU try raising a family in NYC on $250k.  Wealthy MY FOOT). 

As usual, the Government is doing things completely ass-backwards here, and very little of their math makes any sense at all.  It all boils down to this; you simply can't increase spending the way they are AND substantially cut the deficit at the same time.  Even if taxes are raised on the "wealthy" to 50%, you're not making much progress.   As a solid OpEd piece stated in the Wall Street Journal earlier this week, we're looking at about $4trln in spending in 2010, and if you taxed everyone making over $500,000/yr at 100% (using '06 data - you can bet there are less of those folks around today), you only come up with about $1.3trln with which to pay for it. Net/Net, don't be fooled here:  the tax raise on the "wealthy" which is supposed to pay for all of this is much more likely to extend economic malaise than come close to balancing the budget.  

The deficit is high and headed higher.  Write this down: there is NO WAY that we've seen the end of the spending.  I have no problem with throwing money at this situation in theory.  These are amazing circumstances.  So in my opinion, the Government should be expanding the deficit at this time with well thought out, productive, targeted, spending programs.  Unfortunately, what we seem to have today is a "throw enough at the wall and something will stick" policy. It's not targeted.  It's extremely unwieldy.  It's not remotely as productive as it should be, and as a result, it's VERY expensive.  Notwithstanding all the recent talk of focusing on balancing the budget, you can't have it both ways.  In this economy, spending is going to rule the day until the economy really grips, and if I'm right, we shouldn't be holding our breath on this front. 

So let's bring these thoughts to an investable point:  as I wrote a couple of weeks back, in my humble opinion, you need to own TBT (short US Treasuries).  If you don't own any and have any semblance of a reasonable timeframe, I'd buy a partial position even with the recent move up.  As I've said before, given the "safe haven" status of the Treasury market and given the state of the global economy, we cannot expect TBT to rise in a straight line.   I'd also throw out the near term caveat that as investors realize that the gig is up and sell with more conviction, the Fed, in my opinion, is very likely to come in and buy Treasuries outright to try and keep rates low.  This may well lead to some pressure on TBT, but would mark an opportunity to fill in partial positions.  

Finally, let's take a look at the short Yen call I made last week.  So far, so good. Industrial production is dropping like a rock and pressure is mounting for (very unpopular) officals to intervene for the sake of their exporters.  Yes, the USD's long term fundamentals do not look good, but I'd argue that fundamentals in Japan look worse than our own, and I'd ask the proverbial question, "Where else are currency investors going to park their money at the moment (besides, perhaps, gold)?" Now, the downside move of the Yen has been aggressive lately, and I think that it may well consolidate as it prepares for a move through 100Yen/Dollar, but nonetheless, I think that it will eventually break through. So for those who missed the recent pop in YCS, you might have a chance to invest in the potential for an additional move as the consolidation plays out.  

Thats all for this week.  Try to stay happy, and watch that last hour!!!

TRB

Please Pass the Prozac

FRIDAY, FEBRUARY 20th

Good afternoon all, 

I hope everyone has had a good week, but if you're long equities, I'm guessing it might have been a bit trying to say the least.  

This week, I want to touch on the "goodies" that have been thrown at the housing market, talk about the gosh-darned banks, and expound a little on what might be a trade on the Yen.  But first.........

Can we PLEASE remove the description "a perfect storm" from the lexicon of financial talking heads?  I've made the crucial mistake, out of pure boredom, of tuning into the various financial channels recently, and if I hear one more person describe the housing market, stock market, global economy, etc. as being in this nasty weather, I'll lose my lunch (purely budget at this point - I've a new found taste for the glorious bologna sandwich. Yum!).  

Look, the movie came out about 9 years ago, and frankly the timing was perfect at that point to use the descriptor for the tech meltdown (even I, sadly, am guilty of using it in multiple speaking engagements back then).  But come on people!  It's old.  It's a cliche (sorry for the lack of accent here - my french teacher would be mortified).  I realize that we can't use the more appropriate, more colorful "storm" reference on television (nor in such a classy blog such as this), but the technical definition of the "perfect storm" is one that is quite rare, blows in with great destruction, and blows out.  Unfortunately, when one really thinks about the past decade or so, it seems more that the weather pattern has changed and the "perfect storm" has actually become more of the norm.  Now, I haven't come up with anything new and pithy as of yet, but I'm taking all suggestions.

This said, lets take a look at a couple of topical issues.  The signing of the "shmimulus" package came (with the fervor of a political rally - Ummmm, Barack?  You already won!) and went with the markets seemingly in firm agreement with me that it won't do too much for us save increase the deficit.  Additionally, Mr. Obama presented us with a plan to stem foreclosures and stabilize the housing market.  

So lets take a peek at what's going on here.  On the (marginal) plus side, conceptually the plan helps keep ~4mm homes from going into foreclosure, thus keeping very cut-rate inventory from coming onto the market: a market that is already flush with supply.  Now, even I must admit that the fact that the Government is actually finally attacking the root cause of the issue is nice, but I have to question how effective the plan is going to be.  

First off, the targets of the plan are households that are already in pretty bad shape, NOT households that are current on their mortgages but facing tougher times.  At issue here is that the households that currently pass the test for help are generally facing issues paying off large amounts of non-mortgage debt as well as mortgage debt (i.e. sub-prime borrowers).  What drives the point home here, and what gives me pause as to how effective this might be, is the fact that around 55% of reworked mortgages last year fell back into default within around 6 months of the adjustment being made.  This does not give me a warm and fuzzy feeling that this plan is going to do much.  So, much like the shmimulus plan, it seems that while we may get some benefit here, a good deal of the price tag (in this case $275bln) may well go into the ether, which most certainly has long-term consequences for interest rates and the dollar. 

Additionally, the plan does absolutely nothing to aid the owners of 6.5mm houses that are currently > 10% underwater (= mortgage is more than the house is worth).  We are dealing with both a supply and demand issue here folks, and as history has taught us these homeowners are more likely to just walk away from their houses - credit score be damned! We're already looking at a very high level of empty houses vs. the total historically - which is a major supply problem - and at the end of the day the plan looks to be only a very, very small step towards correcting this issue.

Speaking of supply, there was a bit of (perversely) good news on this front this week in the form of the housing starts data.  Now, on the surface, a 17% decline in starts for January (lowest on record) would seem to indicate just how bad the situation is.  This, in a sense, is true.  But the key to investing is not looking in the rear view mirror, and in my opinion the news was actually positive on a forward looking basis.  Inventories are at extremely high levels at this point (12+ months), and in order for prices to stabilize, these inventories must fall.  In this respect, the fact that new homes are NOT currently being built is a great thing.  This NEEDS to happen in order to lower the level of inventories.  This NEEDS to happen not just for one month, nor one quarter for that matter.  While this is not good for economic growth on a near-term basis, people need to realize that this process will take TIME to play out, and while it might hurt us in the short term, it's better to rip the band-aid off quickly and get it over with. I'll trade abysmal GDP numbers over the next couple of quarters for a quicker bottom vs. "just crappy" numbers for an extended period of time.  

Net/Net, for those looking for a bottom in the housing market this year, you have to understand how over-cooked the market was and where we're coming from in terms of inventory (especially given a weak demand picture with the unemployment rate likely to breach the 9% level).  This said, should we continue to see starts at very low levels, it would indicate that we're moving closer to truly attacking the supply problem.  Now, if the Government's next step (and believe me, there will be next steps) is to better incentivize renters and real buyers to jump in, we'll be getting somewhere!  THIS is what I'm watching for to get a little more optimistic.

Lets move on the banks, which have been an utter disaster of late.  I don't want to dwell on the folly of Government, but it's just so easy I can't help it.  On the one hand, our elected officials are saying that they want to force the banks to lend more.  On the other, investors, rating agencies, banks themselves and, indeed, OTHER officials are saying, correctly, that banks need to shore up capital.  Well?  These do not go hand in hand.  Forcing the banks to lend at this point is asinine.  Extremely strong credits are becoming more and more rare.  Consumers are a mess.  Yet some want banks to LOWER credit standards in here?  What???  We are NOT going back to the credit environment of the past 7 or 8 years.  It's over.  True, we might be looking at an environment where banks are moving too far to the "tight" side, but their balance sheets are a mess and until they improve, I don't think that we can expect to reach a more "normal" lending environment (and "normal" does not equal what we've seen over the past decade). 

The crux of the issue at this point is the "toxic" stuff on the balance sheets and the marks the banks have to take quarter after quarter in order to try and adjust to what "current" values of these things are.  These prices are a matter of great debate, and as there is currently no market for the assets, it's all a pure guessing game.  Nonetheless, as the theoretical prices of these assets get marked lower, the banks are forced to shore up equity capital in order to keep critical ratios above water.  This leads me to the point........

We HAVE to begin getting these assets off the banks' balance sheets in order to break the vicious circle that is crushing the banking system and in order to get back to a "normal" environment.  The Treasury is trying to move in this direction with its Financial Stability plan. In the plan, it intends to provide private buyers with incentives, backstops, and financing to buy up these assets, some of which are actually probably worth something (and perhaps substantially more than the current marks suggest ) at maturity.   The problem is, the banks know that some of these assets are probably worth more than the current marks, and they're reluctant to let them go (and take even greater capital hits) at even more depressed prices.  So we're at an impasse here. 

Many have made comparisons to what's going on today to what went on in the late '80's and early '90's with the Savings and Loans.  At that time, a government entity called the Resolution Trust Company (RTC) bought up depressed real estate assets from the S&L's, created a market, de-gummed the financial system, and actually turned a profit for the taxpayers.  Sounds like a great solution for today, no?  

Ah, but there's a very important distinction between then and now which is the fly in the ointment: in '90 the RTC was taking these assets from banks that had already gone under; today these banks are still under the control of the stock and bond holders (many of which are other banks, both foreign and domestic) which don't want to sell at a price that will further hit capital ratios.  So at this point, the Government can't force the banks to disgorge the assets at the prices at which private investors might be interested in buying them. 

So what happens?  Every day that passes where we don't hear boo from Mr. Geithner, more and more folks start to think about the prospect of the nationalization of at least a couple of the major banks.  "Recapitalization" might be a better word to use here, but it's the same difference. Banks need equity capital to absorb the losses and where in the heck are they going to get it, other than the Government?  So no matter what you call it, it seems as if bank shareholders are going to be diluted, and the Government is going to become a shareholder , and perhaps a sizable one, of certain financial institutions.  

Another, more draconian, option is to take the banks in worst shape and dismantle them, wiping out shareholders completely, haircutting bondholders substantially, and placing deposits with "sounder" banks.  Should this occur, there would most likely be global ripple effects, a nice-sized decline in the equity markets, and a grand wailing and gnashing of teeth coming from the bondholders.  If the Government was smart (insert joke here), it would offer a way for the bondholders to get something (lets say $.50 on the dollar for point of argument) to make the move more palatable, but nonetheless it would involve more volatility in the global markets as surviving banks would take yet another hit.  

However, much like the housing market, the band-aid must be ripped off so we can get to the bottom.  Should nationalization, or quasi-natioanalization take place, the Government could take control of the bad assets of the non-survivors, apply some sort of "black box" model as to what price the assets should fetch (with potential clawbacks in return for guarantees), and finally get a market going for this stuff.   Is this the only solution? I hope and guess not.  But time is of the essence here, and as the Treasury's "stress test" is applied to various banks and they realize their options are relatively limited......yikes!  It gives me the willies, but it's hard to argue that it's not one way to bring an end to the situation.  Again, should this take place, the initial reaction in the markets could be brutal, but I think it would mark THE bottom. Hopefully there's another way, though. Tim.....WE'RE WAITING!!!  SAY SOMETHING!!!

On that cheery note, let me turn to an opportunity that may have presented itself.  As many of you know, I spent some time living in Asia as a strategist for my former employer.  At this time, I was fully immersed in the markets and economies of the region, including Japan, and I believe that I can provide some interesting perspective as a result.  In my daily readings, I came across an idea from the Gartman Letter (an incredibly worthwhile read, by the way) which I believe has some merit.  Specifically, the idea is to short the Yen vs. the U.S. Dollar (actually, Gartman is pegging it against the Canadian Dollar, but I think that the USD will work as a substitute as well).  

Now,  I'm not generally one to make currency plays as they can be very complex, but in this case I think that there is solid broader logic behind the argument.  I also want to make perfectly clear that I'm not a LONG TERM dollar bull.  Quite the opposite actually (and we'll tackle some of this next week).  However, I do feel that, on a relatively short term basis, there might be a decent trade here.  Here's why:

For some time, the Yen was under pressure due to the "carry trade", which evolved due to the extremely low yields in Japan relative to the rest of the world.  The trade involved shorting the Yen and buying higher-yielding assets globally.  This worked swimmingly until it stopped working, as Central Banks around the world cut rates aggressively to combat the current global economic situation.  This led to folks covering their Yen shorts, driving the currency higher. 

So now that the carry trade backdrop has gone poof, let's take a look at what's fundamentally going on in Japan.   Economically, they're a bit of a mess (and who isn't these days, but the most recent GDP figures were startlingly bad).  Without going into long term issues such as demographics (old population, little immigration, low birth rate = issues) and deficit (while ours is indeed growing, theirs is the largest in the developed world by a long shot), there are a couple of short term issues to consider.  First, Japan's industrial complex is heavily export-focused (about 20% of GDP), and these companies are getting crushed, both due to the overall demand environment AND the additional pressure of the recently strong Yen (making their goods less competitive price-wise vs. goods of other countries).  As a result, we've seen a large increase in layoffs from some of the larger, iconic companies in Japan.  This is NOT the norm, as unions are generally very powerful over there and layoffs are usually a very big no-no.  

Soooooo Japan's powerful international exporters are obviously feeling intense heat at the same time the current administration is in the complete doghouse.  I'll spare comment on the actions of the former finance minister at recent the G-7 conference (YouTube it.  He was HAMMERED) and just mention that PM Aso's approval ratings make Bush's look stellar.  With this said, and given the Japanese Government's high propensity to meddle in the currency markets coupled with its complete lack of popularity, it would not be surprising at all to see it throw the exporters a bone by doing just that: intervening to drive the value of the Yen lower. Couple that with an economy even lousier than ours and you have the makings of a Yen retreat, all else being equal.

Now, it seems as if folks have followed Mr. Gartman's lead here, as the U.S. dollar has indeed begun to lift vs. the Yen (not today, mind you), so we're not grabbing the bottom here. However, in my opinion, it's a trade that can work from here.  For those intrepid souls who want to take a look, the way to play this is through YCS, a levered short ETF on the Yen vs. USD. 

As for Mr. Market, he's sick folks.  The Dow 30 has confirmed the Dow Transport's move to new lows, and the S&P 500, while valiantly trying to hold the November lows, looks like it will eventually succumb as well.  I think it's more a question of when and not if.  This said, the market seems very oversold here as the selling has been relentless of late, and a bear market rally of some sort can't be ruled out in here.  Call it intuition (which honestly doesn't mean much) or hope, but it just wouldn't surprise me.  However, before all is said and done, I'd expect that we're looking at one more vodka-grabbing fall to new lows before the "all-clear" is sounded. From what level is the million dollar (or at this point $500,000) question.  

Take a deep breath, drink multiple buckets of scotch, and have a good weekend!

TRB

 

Stimulus, Shmimulus

Well.....I'm back. To those who have read my ramblings in one way, shape, or form over the years, hello again! To those who haven't, I hope you enjoy!

Being out of the big bank meat grinder is a blessing, especially when it comes to writing. I feel as if the shackles are off and I now can say what I want, the way I want to. It's back to the good old days for me! Back to the time before Grubman, before the ever-expanding pack of lawyers combed over every word, taking the life and fun out of all written pieces and reducing them to lifeless masses of investment-speak. The worst part of it is, as it turns out, all of the uber-editing and watering-down did absolutely nothing but take the fun out of the business for me. It accomplished nothing. Maybe the powers that be should have been watching the prop desk a little more and me a little less because, and you'll hear me say this again and again, you rarely get hit by the bus you see coming. But I digress. There's a whole bunch to think about this week, so LET'S GET CRACKING!

STIMULUS, SHMIMULUS

As everyone knows, politics, disguised as 2 programs (the Treasury's Financial Stability Plan and the ~$790 bln economic stimulus plan) intended to wake the US economy up from its coma, has been battering investor psyche over the past week.  While the potential effectiveness of either plan is most certainly debatable, what is not is that the past couple of weeks have turned into high season for political posturing and grandstanding. Oh joy!!! When are these politicians (on both sides of the aisle, but since there are a lot more democrats floating around these days......) going to figure out that very few of us believe that they are remotely as smart as they think they are and most of what they say is pure drivel? My (unsolicited) advice: unless you really know what you're talking about, please don't open your mouth, especially on TV. While this may sound like a random political rant, it's not. The stock market hates uncertainty more than just about anything else (save half-baked plans from the Treasury), and when the arguing and grandstanding hits a fever pitch at a very delicate time for the economy, investors are more prone to get even more nervous. Best that the loudest yammering is done behind closed doors instead of in the media.

Nonetheless, it looks as if a "compromise" has been reached and the stimulus package is as good as done. Yippee! While I'll spare going over what looks to be close to the final package with a fine toothed comb as so many others have already done, let's take a general look. First of all, depending on whom you listen to, this is either a major positive for the economy or a complete and utter waste of taxpayer money. As usual, the truth is probably somewhere in the middle. However, the crux of the issue is this: the plan is not remotely as stimulative as the government would like you to believe.  In fact, in doing a little back of the napkin calculations, it seems to me that only around 30% of the package is devoted to spending and tax cuts that are likely to have any real stimulative impact at all.  The rest, while in certain cases noble (and in others, stupid), seem destined to at best help to keep the current situation from getting worse (which is, of course, OK in the short term but potentially very costly for the dollar and interest rates in the long term). 

The other broad issue is the amount of time that the parts of the plan that are actually stimulative take to enter into the economy.  The disbursements have to be funneled through various government agencies which, as we all know, are not the pillars of efficiency.  It's like the current electricity grid: just as some electricity is "lost" as it moves along the grid, money tends to disappear as it moves through various government agencies.  So a cynic would say that the 30-35% of the package that is stimulative won't end up being even that much in the end.

Now, some might note that despite all of the above, ~$250bln is a heck of a lot of smackers, which is true.  I'm not arguing that our economy will get zero benefit here.  The problem is that many economists are looking for a stimulus-led economic pop in the second half of the year, and I just don't see it.  The numbers simply don't add up.  I think that the more likely outcome is that we'll see improvement from the terrible state we're in now, but likely only to the tune of maybe 1-1.5% GDP growth in the second half of the year.  In contrast, economists seem to be looking at 3%+ growth with some as high as 5%.  Mark my words: NO WAY.  This is likely to lead to investor disappointment in the back half of this year.  

To drive this point home, consider this: economists point out that the consumer accounts for about 70% of GDP.  This has not always been the case.  In fact, this number represents a peak. The average in the past has been about 66%, and between the mid 1950's and mid 1970's the average was about 62%.  In addition, while we've been hearing about the personal savings rate rising in the US, this process has just begun, especially with the unemployment rate very likely to go over 9% this year.  The savings rate is around 3% at last check. It was about 14.5% in 1975. I'm not saying we have to go that high, but I can say with some certainty that it's going higher than it is today.  Soooooo, assuming that this is the case, and assuming that there is some reversion to the mean in terms of consumer spending as a % of GDP, we're probably going to have to "replace" over a trillion dollars in consumer spending with other spending (read: government) in order to avoid contraction, all else being equal.  Consider this vs. the size of the stimulus package, and remember that a good chunk of that spending is not going to be on goods and services.  Net/Net: if this stimulus plan is the last one we see, I'll eat my hat.  What does this all mean?  Hellooooooo deficit!!!  Goodbye dollar!!!

With all of this said, timing is always a question and there may actually be reason for some near term equity market optimism.  Should Geithner have stayed home the other day?  Yes. Was the "announcement" of the Financial Stability Plan handled poorly?  Yes.  Is there still a lot of work to be done before we actually see the fruits of any public/private investment fund that can help take bad assets off bank balance sheets? More than likely.  Was the negative market reaction overdone?  I think so.  While this press conference and hype leading up to it should NEVER HAVE HAPPENED, I believe that the basic principles behind the plan are interesting and could potentially be very helpful in SLOWLY thawing out the credit markets.  

With all due respect to our new President, no sir, the recovery is NOT going to start with job creation.  Employment is a LAGGING indicator - always has been and always will be.  Any recovery must be born within the credit markets and I believe that Treasury is potentially taking some steps in the right direction.  I realize that the devil's in the details and we sure don't have a lot of them at the moment, but I believe that the expanded TALF plan might actually work in terms of freeing up the asset backed market (credit cards, auto loans, student loans) a bit.  Also, contrary to common perception, it seems that the public/private investment vehicle has a shot at working, at least to a certain extent, especially if the bank stress-test that's been proposed leads to further write downs in asset value (in exchange for common equity). While this doesn't sound great on the surface (and it isn't initially fabulous for bank equity holders), it may help bring the pricing issue closer to resolution which, in turn, may get the market for some of the "stuff" that's gumming up the works jump started.  

I hope and pray that Mr. Geithner learned the lessons from his predecessor and doesn't go completely changing the game mid-stream.  He CAN'T be that ill-advised, can he?  If Tim pulls a Paulson, I'm moving to France.  In sum, while we have to wait a bit longer for details as to how these various programs will work, it seems logical to believe that they will emerge, and when they do, I think that it's better than even money that they'll act as positive catalysts.   

In addition, there's the possibility that the technicals are telling us something here.  The VIX (a measure of market volatility) broke below it's 55 day moving average yesterday (the lower it goes the better).  This said, the action in the US equity markets today were a trifle disheartening as there was no follow-through from yesterday's late-day strength.  As the Dow took a peek at its low yesterday before its rally, our fingers are crossed here.  We seem to be at a critical juncture in the near term, so while I'm leaning towards the optimistic side, my confidence level is not particularly high.  

So boiling the thoughts on the equity market down here, I see the possibility of bit of a rally in the spring, although the next few sessions will be extremely important in terms of that view. The VIX is providing a tentative glimmer of hope, pessimism rules the day, and while we're not in store for ANY good news on the economic or earnings front anytime soon, expectations are so low in terms of the Treasury's plan that ANY well thought out details on even one aspect of the plan could well give the market a boost.  For those intrepid souls with iron constitutions, it might be time to take a position in SSO (levered long S&P 500 ETF) for a trade with a $20 stop in case it doesn't pan out.  

This all said, I do not expect any rally to be lasting.  I expect the trajectory and shape of the economic recovery in the second half of the year may very well leave many investors wanting and I'd expect to see yet another trip to the low end of the trading range (assuming we bounce first) as this realization hits home.  If there's no bounce, then it's to new lows I'm afraid.  In other words, equity investors would be best served having their fingers on the trigger either way (ready to react to a break down of the charts OR ready to sell into strength), especially concerning consumer-related names.  

Looking forward, I see even more government spending to be proposed later this year as a result of  the prospect of a tepid (at best) economic recovery.   If I'm right and the economic pickup is nothing to write home about, I'd have my eyes on TBT (Short US Treasuries) and use any related weakness to BUILD positions.  The more the government spends, the more worried we all should be about the state of the dollar and the eventual popping of the bubble in Treasuries.  However, with economic concerns abounding, TBT is not going to go up in a straight line from here and we're likely to have opportunities to leg in on weakness (i.e. like we saw on Wednesday). Over time however, up it will likely go (and perhaps substantially so). However, this is a story for another day........ 

Have a great weekend!

TRB