Last week, I noted that a technical market rally was likely inconsistent with the underlying economic fundamentals, which continue to show deterioration across countries and continents. With the market's 4% drop last week, a likely sideways pattern is coming more into focus as Mr. Market debates whether all the fiscal and monetary stimuli coming down the pike will be able to first stem the recessionary bleeding and then jumpstart the US and global economies.
What I find so interesting about the market action over the last several months is a clear tendency for market participants to remember the up days better than the down days. If you look carefully at a chart of this market, however, it is looking more and more like a sideways pattern than any nascent upward trend.
Parsing the fundamental data, it seems to be more difficult to paint a bullish scenario than a bearish one. But a collapsing global economy is likely to be tougher than any gaggle of central banks or big spending Keynesian politicians. This is much more a time to watch and wait (yet again) while the market sorts out the news.
1. I have waxed semi-eloquent in his column for several years now about the failure of California's Republican government to impose even the slightest bit of fiscal restraint. Now, my family and I are about to pay for the governor's sins with a likely across-the-board 10% pay cut at the University of California. Thanks for that stinking cigar. But don't feel pity for me -- the bigger point I have been pounding on is that pay cuts like these represent the antithesis of a fiscal stimulus and will only help plunge the California economy deeper into the dumper.
2. Barron's magazine did a feature article on the "blossoming of nuclear power", but I think the author got the story wrong, at least from a trader's point of view. Yes, a handful of big utilities are getting ready to build nukes. Historically, however, it's not utilities that make out like bandits on nuclear power. It's the vendors who sell the technology. The reason is that the utilities operate in a regulated environment in which is very hard to get a fair return on big capital projects. We got precious little analysis from the author on vendor plays -- a great pity.
3. The “Noriel Rubini” of South Korea got busted by South Korean storm troopers for spreading truth along the Internet. This blogger named "Minerva" -- an unemployed university graduate student -- proved to be smarter than any 10 finance ministers in South Korea. With uncanny accuracy, Minerva predicted the crash of the South Korean won -- and now is wound up in the slammer. So much for free speech and a democratic South Korea.
4. And one more note about Barron’s Magazine: I can read columnists like Michael Santoli all day long and learn something. What annoys me -- and I've said this in other columns -- is why Barron's top brass insists on sticking with its usual suspects every time it does one of its investment roundtables. If I never had to listen to what people like Abby Joseph Cohen thought about the market ever again, it would be too soon. Based on her track record in Barron's, she ought to be bronzed as a contrarian indicator. Just one man's opinion.