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Thursday, January 28, 2010

Market Thought... step back

Been doing a lot of thinking about this market. Obviously I have not been a fan of how it has been trading, but now that 'the smell' is calming down from Washington it is time to re-evaluate just what the market is telling us here.

Its no surprise the market was due to correct. Well, now that we are knee deep in the correction, does continued weakness make sense?

Here is what we know:

1. Earnings this quarter have been good. With the decline in the market, and earnings beating expectations, valuations are not optimistic. So much so, we now have GOOG and AAPL trading with a 2010 PE of 19-20.

2. Bernanke got re-confirmed, and after Obama's speech the other day, a lot of the smell from Washington was removed. However, the political pandering amongst the people that are suppose to be leading is still very present.

3. Technically, the market very oversold, but intraday action is simply WEAK. No sugar coating it, the action sucks. The big boys just do not know what to do, so they are choosing to sell.

4. On the macro-economic front, commodity leadership was completely lost. (I guess our monetary policy is not causing commodity prices to go through the roof.) China's effort to slow down, and the dollar rallying are most likely the reason. (The one exception to this is Sugar. The SGG is still very strong, which makes me keep liking fertilizer names, like SQM, despite POT's sell-off today.)

China took steps to slow down, but they are not grinding to a halt. Despite their ghost cities, and malls, China still has $2trillion to keep things humming.

5. Unemployment. Job creation is simply not here yet. (Gauging the productivity number seen late last year, I was expecting job creation to accelerate. But the proof is in the pudding, and it is just not here yet.)

So the economy has two fairly strong head winds to swallow... 1. lack of Job Creation and 2. the perception of China grinding to a halt.

Do these head winds justify a 2010 PE of 19 to GOOG and AAPL? (considering the Mobile Web is suppose to growth expodentially faster than the PC role out) Does it justify IBM having the lowest PE in 5 years, after it produced a simply blow out quarter and indicated faster EPS growth?

In my completely irrelavent opinion, NO.

There are reasons for the market to be weak, no doubt about it, and with commodity leadership lost, I am sure many big boys are scratching their heads because their thesis is shot to hell. (loose monetary policy equals higher commodity prices). Personnally, I disagree with this thesis at the moment because its not monetary policy that causes higher commodity prices. An acceleration in dollars entering the system is what causes higher commodity prices, and we just do not have that. But hey, to each their own.

The market should be churning here, as all leadership is lost, and this should be a stock picker's market. Instead we are in blind selling.

To the Big Boys: take a step back, look around you and grow a fucken pair.

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