Monday, April 28, 2008

Housing stock: looking good

- I just read a really frightening piece entitled "The Coming Mortgage Meltdown." And I think to myself, "Yeah, but the market has to know all about this and more." So I have to wonder, am I seeing things? C'mon, Mr. Market, don't play tricks with me. No these aren't tricks, they're charts, and charts, unlike politicians and Fed statisticians, don't lie.

So I punch out the chart below, XHB (I follow this chart closely), and darned if it doesn't look as though it's turned bullish. XHB is the S&P's Homebuilders exchange traded fund. Could the homebuilders be turning bullish in the midst of a time of countless foreclosures and widespread bearishness in housing?

XHB turned up in January, and as of today I see that XHB has rallied above both its 200-day and 50-day moving averages. That doesn't seem logical or possible, not in the current state of real estate pessimism. I need more proof.

The D-J US Real Estate Index Fund is turning up as well. It turned up from a January low, and as of today's close, IYR is above both its 50-day and 200-day moving averages.

Could the stock market be telling us that it has discounted the worst of the housing disaster -- and that real estate is fated to turn up in the months ahead? That would be counter to all the bearish housing talk that is now filling the newspaper and TV. Is this possible? Yes, it's possible. And what a bullish shocker that would be.

This whole real estate situation is so important for the economy and so opposite to what we read and hear. ICF the iShares for the Cohen & Steers Realty Major Index Fund. This Index represents the relatively large and liquid real estate investment trusts. The chart is as bullish as it can be. Hey, the sun may be rising on the whole housing and real estate picture. If so, you probably won't hear about it until maybe this summer. Remember, the market is always first to see a turn.

Monday, April 21, 2008

Stock Market: bull market since Jan. 22 lows

You already know why I thought the D-J Averages established a bottom on January 22. The market at the January 22 lows had discounted the worst that could be seen ahead, even as the bad news continued to fill the airways and newspapers.

What gives the Averages the incredible ability to "see the future," to discount what none of us individually can see? Ah, that's what's so fabulous about the stock market. The stock market is a compilation of what everybody knows about everything. And what everybody knows is far ahead of what any single person or any group or any collection of experts know. It's all part of what I call the "miracle of the markets," but what's also needed is the ability to interpret what the markets are telling us.

The most spectacular markets are those that are counter-intuitive. These are the markets that are "marching to a different drummer," markets that are rising in the face of bad news or falling in the face of bullish news.

The current market has been rising in the face of what experts many call "the worst economic news to emerge since World War II," and the market has been doing this ever since January 22. In fact the bank news and the housing news and the employment news has been so spectacularly rotten that most people have failed to notice what the stock market was doing. The first quarter of the year 2008 was a stock market classic, a textbook example of a market that is looking past the ugly news of the day.

The question now is -- "what lies ahead?" I think the action of the market will tell us what lies ahead in the economy. If the market stalls here, backs off, slips into a deep correction, it will be telling us that the road ahead for business will be spotty, difficult, and slow-going. If the market continues to move higher, if we start seeing expanding volume as stocks advance, then I believe the US economy will brighten rather faster than most people are prepared for. If the market turns sluggish and meanders sideways, then I believe it will be telling us that business will be doing the same thing -- just trying to "muddle through" as John Mauldin describes it.

You'll notice that most of the talk these days boils down to various experts and CEOs presenting their assorted guesses as to what lies ahead. You can see and hear their opinions on TV, you can read their warnings in the newspapers, you can monitor their guesses on your computer. But as for me, I depend on the markets to tell me what may lie ahead. The markets are the money. And I stick with that old adage that tell us -- "Money talks, BS walks."

I might also note here that the short interest on the NYSE has now climbed above 16 billion shares -- this is the highest recorded short interest ever. In order for the shorts to make money, they need a declining market, preferably a market declining on rising volume. So far, the shorts have not received that kind of a market. That means that we have a record short interest locked into a market that refuses to fall apart. A rising short interest in a market that refuses to head down is a potentially explosive market. My guess is that in due time the current huge short interest will be driven out by way of a rising market.

The big picture is for the Dow to advance to new highs in the months ahead (and it may take a year or so). If the Dow is fated to rise to new highs, the Dow will take a large number of stocks with it. The further implications of this will be that the US economy will be due to improve, and very possibly to boom in the period ahead. In fact, I expect this bull market to end with an unexpected bullish explosion in both stocks and the US economy.

I have no idea what might cause such a boom. The stock market has its secrets and its remarkable intuitive and discounting powers. The stock market can tell us what, but it never tells us how or when.

What about the primary bear market that will inevitably follow when this greatest of all bull markets finally tops out? Ah, that's another story, and it will not be a pleasant one. At this point I associate the next bear market with the US dollar's loss of its reserve status.

From: DowTheory RR

Thursday, April 03, 2008

George Soros and Jim Crammer: bullish

Soros is one very smart fellow, he's made fortunes, and he's always worth listening to -- Russell

April 3 (Bloomberg) -- Billionaire George Soros called the current financial crisis the worst since the Great Depression and said markets will fall more this year after a brief rebound.

``We had a good bottom,'' Soros said yesterday in an interview in New York, referring to the rally in stocks and the dollar after JP Morgan Chase & Co. agreed to buy Bear Stearns Cos. on March 17. ``This will probably not prove to be the final bottom,'' he said, adding the rebound may last six weeks to three months as the U.S. moves closer to a recession.

Last summer, worried about market disruptions that started with rising subprime-mortgage defaults, Soros, 77, returned to a more active role in managing the $17 billion Quantum Endowment Fund, whose profits pay for his philanthropic projects. Quantum returned an average of 30 percent a year before Soros started using outside managers in 2000 for much of his money.

He also decided to write a book, his 10th, ``The New Paradigm for Financial Markets'' (Public Affairs, 2008). Released today online, the book explains the causes of the current meltdown, a crisis he says has been in the making since 1980, and the trades he put in place this year to protect his wealth, much of it in Quantum.

Soros has bet on declines in the dollar, 10-year Treasuries and U.S. and European stocks. He expected foreign currencies to rise, as well as Chinese and Indian equities. The latter bet helped Quantum return 32 percent in 2007. Quantum's returns this year have ranged from up 3 percent to down 3 percent.

The euro has climbed 7.5 percent against the dollar this year and the Japanese yen has gained 9.1 percent. These and other currencies may continue to strengthen, he said.

"There is an increasing unwillingness to hold dollars, though there's a lack of suitable alternatives,'' he said. "It's a period of heightened uncertainty.''

Federal Reserve officials dropped their benchmark interest rate 2 percentage points this year to 2.25 percent, and Soros doesn't see that they can lower the rate much further, given the weak dollar.

"We are close to the limit,'' he said.

As for his wagers on developing markets, Soros hasn't abandoned his holdings in India, even with the 22 percent drop in the benchmark Indian index this year.

"The fundamentals remain good,'' he said. He is less certain about what will happen to Chinese H shares, which trade in Hong Kong.

Credit default swaps -- a way to bet on the creditworthiness of a company -- may be the next crisis area because the market is unregulated, and it's impossible to know whether counterparties can meet their obligations in the event of a bond default. The market has a notional value of about $45 trillion -- or about half the total wealth of U.S. households.

Soros recommends the creation of an exchange with a sound capital structure and strict margin requirements, where current and future contracts could be traded.

The cause of the current troubles dates back to 1980, when U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher came to power, Soros said. It was during this time that borrowing ballooned and regulation of banks and financial markets became less stringent. These leaders, Soros said, believed that markets are self-correcting, meaning that if prices get out of whack, they will eventually revert to historical norms. Instead, this laissez-faire attitude created the current housing bubble, which in turn led to the seizing up of credit markets and the demise of Bear Stearns, Soros said.

To avoid a super-bubble in the future, Soros said banks must control their own borrowing. They must also curtail lending to clients such as hedge funds by demanding greater collateral and margin requirements on loans.

Asked if such moves would make it impossible to achieve returns like those of his pre-2000 days, Soros laughed.

"Since I'm designing these regulations, they would not hurt me,'' he said. ``We made direction bets but we haven't used leverage'' like the $25-to-$1 borrowing that brought down John Meriwether's Long-Term Capital Management LLC in 1998.


Not to be left out, here's the latest from wild-man Jim Cramer (who can be very intuitive ). This is from the latest Mar. 31 New York Magazine (I love this magazine).

"What do you call it when the stock of the country's fifth-largest investment bank trades at $50 on a Thursday and at $3 the following Monday? It's been called the most dramatic fallout from the credit crisis, an epic stock market analyst's whiff, and one of Wall Street's greatest collapses. All true, but I call it something else. I call it a bottom. Not just for the stock itself, which happens to be the venerable Bear Stearns, but for the whole stock market, and for the long-suffering housing market, too."

Russell Comment -- You heard it right -- the Cramer-man is now in the bull camp, saying that the bottom is in. Mr. Cramer, meet Mr. Soros, and let's see if you two can come up with the trillion dollar answer.