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Wednesday, November 30, 2011

Market Thought... finally

(Over the next few days, posts are going to be later than usual. I'm taking all day SAS Programming classes.  Since I have the time, I wanted to get knee deep into the mega-trend of Big Data. Over the two years trading IBM, and my constant assessment of data has sucked me in.  A bit of violin before I go into my post.  AT&T data services SUUUUUUCKS in mid-town NYC.)

A line was drawn in the sand today. (About f-n time.) Today's action showed the world, unequivocally, that a credit event will not be allowed. Obviously, the market removed the 'credit freeze' discount.

Crack open the champagne cause we FINALLY got some sense of stability!!!!

The good news, now that the credit freeze is off the table, a market multiple of 12 is no longer valid.  The bad news, the dragging of the feet on the EFSF details and Germany's resistance to the ECB acting as a last resort lender (despite the already established austerity and technocrat leadership), has pushed the global economy to slow down.  (China's official PMI below 50 does not help the situation, but futures are holding up well to the news.)  This should allow the market to trade at a multiple around 13-14.  Usually I am more bullish, but we started to see the weaker global PMI data this quarter, and BRIC central bank easing fairly recently.  The slower growth in EPS should be seen over the next few months.

I do not want to be a complete Debbie Downer. There are still some awesome opportunities taking advantage of extreme value and secular growth.  ie AAPL and FIO.  But what maybe the best, and one that all the hedgies have been waiting on, is the Euro short.

The coordinated action by the central banks doesn't come free.  I guess the subtle relative weakness of the Euro on Monday meant something.  It was the beginning of the end to the SPY-Euro correlation, and today adds to the thesis.


Also, if the SP500 has an eps of 92-95, a PE of 13-14 should lead the market to the high 1200s by year end.  For now, technically, it is in sea of resistance.

Despite my somber tone, I am interested in NUE and SU. We got interesting information today regarding the US being a net exported of Oil againConfirming the thesis I had a few weeks ago about WTI exports. With WTI and Brent well above 75-80, SU should be trading north of 34.

China's public interest about western infrastructure bonds, makes a compelling case for America's political leadership to implement an infrastructure 5yr plan.  If we get something like this, it will benefit NUE.  And considering I have absolutely ZERO faith in our politicians to realize this, NUE has a nice yield while we wait for the right lobbyist to whisper the obvious in the ear of our leadership.


2 comments:

  1. I'm confused by your comment about "the start of the euro-SPY correlation." It seems to me the rule has been that stocks and the euro have been rising together; are you actually referring here to a loosening of that connection, such that the SPY can rise despite a weakening euro?

    I'd certainly appreciate your taking time for a reply.

    ReplyDelete
  2. yeah. Should read 'the beginning to the end'. Thanks for pointing it out.

    ReplyDelete