About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, October 05, 2010

Stock Market Fundamentals

The last detailed post on the fundamentals was Tues. 7/27/10. I concluded then that I
was still positive on the market, but very watchful. The major issues remain strong
private sector caution resulting in household, business and bank cash hoarding along
with private sector credit contraction and a Fed that misread the economy in early
2010 via curtailing monetary liquidity in anticipation of a turn around in private sector
credit demand that has yet to materialize.

Despite the massive simulus programs and initial large easing by the world's major
banks, we have a global economic slowdown which includes the US and a de facto
liquidity freeze in the US financial system. The freeze has left the US economy to
recover primarily via internally generated funds, and this has been hampered by the
ongoing strong private sector caution in evidence.

The Fed has opted to hold off on providing additional monetary liquidity as it has
been awaiting the loosening up of caution and the advent of a more normal credit
cycle to underwrite moderate economic expansion.

My core fundamentals have gone from being tremendously positive over the first
half of 2009 to moderately positive now. Moreover, the trend is moving toward
less positive as we go along. What's more is that there is still the issue of whether
and when the Fed will see fit to  resolve the liquidity freeze and by how grand a
means (As discussed last week, the Fed has in effect put an ace up its sleeve by
trimming the monetary base by 9% or nearly $200 bil. this year).

Since there is no evidence the economy can grow without a measure of financial
liquidity growth, I plan to go fully negative on the stock market by this year's end
if the liquidity freeze extends and is unresolved.

My stock market fundamental coincident indicator -- the weekly cycle pressure
gauge -- has improved modestly since July when the market correction ended. The
strong run in stocks in recent weeks is likely due more to speculation about a
new round of quantitative easing by the Fed later this autumn than the behavoir
of the indicator.

The US has the potential for an extended bull market in stocks but this may well
not happen if folks remain too uptight about the economy and if the Fed does not
"man up" and inject more liquidity if that's needed.

1 comment:

mgibs17 said...

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