Here comes the Santa Claus rally

We could be on the cusp of a Christmas miracle as Main Street optimism overpowers Wall Street pessimism.

By Anthony Mirhaydari Nov 27, 2012 2:14PM

Image, Santa Claus copyright John Lund, JupiterimagesFor weeks, there has been a rather large divergence between growing measures of consumer confidence, strength in the housing market, and buoyant retail spending and increasingly nervous CEOs and investors. 


The latter have been obsessing over two large political unknowns: Will the eurozone get the Greek bailout back on track, and will Washington bungle the "fiscal cliff" negotiations?

 

So, as executives pulled back on hiring and spending, and traders sent stocks reeling, consumers kept humming along. As a result, with Greece getting another debt reduction deal, a batch of better-than-expected economic data Tuesday has the pessimists scrambling to unwind their bearish bets -- setting the stage for an end-of-year Santa Claus stock market rally.

 

Assuming, of course, Republicans and Democrats can agree on a short-term deal on the fiscal cliff.

 

 

Early Tuesday morning, leaders from the eurozone, the International Monetary Fund, and the European Central Bank -- after holding their third meeting on the Greek bailout/debt sustainability situation in as many weeks -- finally came to an agreement to extend more help to Athens after its conservative government passed painful new austerity measures.

 

Features include cutting the interest rate on Greek bailout loans, forgoing profits on Greek bonds, and other ideas that are projected to cut Greece's debt burden to below 110% of GDP in 2022.

 

While this won't solve all of Greece's problems -- it still needs to get its economy growing again and fend off ongoing political turbulence -- it's a step in the right direction and removes a major source of uncertainty in the markets.

 

This clears one of the two major hurdles we faced heading into the end of the year. Now, we just need a short-term extension of the "fiscal cliff" here at home so stocks and other risky assets can blast higher into 2013 fueled by a likely QE4 Treasury purchase stimulus out of the Federal Reserve in a few weeks.

 

Also contributing has been a bounce back in the economic data, which led Goldman Sachs to increase its Q4 GDP growth estimate to 1.8% from 1.4% today. Durable goods orders beat expectations in October. Manufacturing in the Richmond region rebounded in November. Home prices are steadily rising in the Case-Schiller index, up another 0.4% in September. And the Conference Board reported its consumer confidence index hits its highest mark since February 2008.

 

What's driving this? JPMorgan economists note that finished inventory levels have fallen to their lowest level since the current growth slowdown started early last year. In other words, when CEOs get nervous, they can try to insulate their businesses by doing things like pulling back on new orders. But if things don't fall off a cliff, and customers keep coming in, they will eventually need to replenish their warehouses.

 

So, somewhat begrudgingly, managers are restocking their shelves.

 

From a technical perspective, things are still looking good. The Nasdaq, after months in the doldrums, is finally enjoying some relative strength against the overall market. Save for a brief spell back in August, this hasn't been seen since March. Also, hedge fund types, based on the latest data from the Commodity Futures Trading Commission, are busily covering their most aggressive net short positioning against stocks in years and moving long. And options traders are feeling more confident, market breadth is improving, and cyclical economically-sensitive stocks are leading the way higher.

 

 

I continue to recommend my clients position for additional gains with a focus on energy and commodities. Ideas include Tesoro (TSO), up more than 10% since I added it to my Edge Letter Sample Portfolio last week. The ProShares UltraSilver (AGQ) is up 9.2% since I added it on November 9.

 

Disclosure: Anthony has recommended TSO and AGQ to his clients.

 

Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

167Comments
Nov 27, 2012 7:14PM
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Just think! When you walk into that store with all the pretty colors and flashing lights, playing the hypnotic sheep music. Just look around. From the front to the back. Corner to to corner. Floor to ceiling. Everything you see is bound to the dump. Most of it toxic, a lot of it hazardous.
And all for what? Nothing! No real reason other than total F***ing bordom.

Nov 27, 2012 7:14PM
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scroll up to the santa picture without the head showing and a bag full of freshly printed unearned worthless money fresh off the Feds printing presses which he will fund all the "goodies" he will be giving away. Santa needs to show his face, he just got reelected
Nov 27, 2012 7:05PM
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Bernanke is Santa, he will drop fresh printed bills down your chimney . Here come Santa clause!
Nov 27, 2012 6:39PM
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DONTHOLDYOURBREATH:Don`t hate me because I`m smart, shapely and hot.Respect my brains.
Nov 27, 2012 6:37PM
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The one thing I love about Mirhanydan, is that when he brings up a chart... He is ALWAYS wrong in his conclusion. He is one of my contrarian indicators that I love to bet against.

Nov 27, 2012 6:36PM
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I remember when we were kids and if a game didn't go the way we wanted we would just change the rules.  Congress made a big deal about establishing this cliff.  Most of us on the outside think of the cliff as some kind of committment that those cuts will actually happen if they can't reach an agreement.  Nah they will just argue until the end of the year and change the rules again.  It will be another do-over to carry us through another few months.
Nov 27, 2012 6:34PM
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oldchum

 

Taxing the rich is a joke. Here is a simple example, I own rental property. My taxes and insurance went up this year. The cost of my repairs went up. I went up on the rent, because I still need a profit. So the increase of cost was passed on to the consumer the tenant. Taxes are a cost of doing business, the cost will be passed on to the person buying the product. What a joke tax the rich?

Nov 27, 2012 6:28PM
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Rag man

 

Stop watching the sky is falling Fox news, you will sleep better at night. The drama is just for us to think they are working? LOL

Nov 27, 2012 6:26PM
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Now we have Warren Buffett the azz  kisser ( who by the way owns Moody's that slapped AAA+ ratings on the credit default swaps and mortgage derivatives and bankrolled the Obama campaign through GE and other companies he either owns or has great influence over) saying things are great with the consumer and increased taxes will not effect investment in the US. Good old Warren has a lot of favors to pay back as a recipient of TARP monies and an apparent immunity from prosecution for fraudulent ratings on debt instruments. What a mess we are in, $ 50K more in debt per household in just 4 years and no constructive solutions to over spending. Enjoy the rally if we get one, but look out down the road. There's too much wrong with the economy and too few viable solutions anyone can agree on.
Nov 27, 2012 6:25PM
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Will Washington bungle the "fiscal cliff" negotiations?

Let's see, congress tried the 'Super Committee', and they tried at least 4 different groups prior to that to come up with a plan to avoid the 'Fiscal Cliff' with no avail.  This policy was known (or was enacted) the last time the federal budget was raised.  I believe that was in August of 2011 so congress has had 1 1/2 years to come up with some kind of new strategy and all they have done - as they have done since the past several elections is discuss, argue, grandstand and point fingers at the other side - so to think that by some miracle they will come to an agreement before the end of December is kind of a pipe dream.

But as I see it in reality, the budget cuts - while painful - need to happen in order to reduce the tremendous national debt the US has.  The tax cuts expiring I can only see as a good thing.  They should have never have been put in to begin with - who cuts taxes while participating in a war or two. (of course if that war or two is not being put on the 'books' it's easier to ignore).

All of these things have to happen sometime, or the 'can' will just be kicked down the road further.  They suck, but I wouldn't hold my breath in hope that either political party or Washington in general is going to come to the rescue of anybody or anything.  Past performance records that our congress doesn't seem to be able to get out of it's own way
Nov 27, 2012 6:19PM
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Dan

 

It's like this Anthony is not as good as a guy I used to work with he could predict snow with his knee replacement, he was good.  I would always ask him the weather. He gave me the knee report.  LOL

Nov 27, 2012 6:10PM
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A friend of mine who subscribes to Anthony's Edge letter indicates that Anthony's TSO pick is up 3%, not 10%, based on the price he (Anthony) recommended it.  So, he is jobbing the results, apparently.  I guess if you misrepresent your history, your success can be phenomenal
Nov 27, 2012 6:06PM
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The housing recovery is a subsidized bounce by the Fed. Prices will become stable or rise a little. Until  the Fed lets the market correct. I don't see that happing in the near future. IMO
Nov 27, 2012 6:00PM
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Anthony-when are you going to write a article with substance. The economy is getting worse. Housing is in a small blip before a further 40 percent decrease. Net incomes are taking a beating under Obama's reign. Housing is going to rise...? Wow, glad your not my broker
Nov 27, 2012 5:59PM
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Retailers must be blind; the large numbers of desperate shoppers on black Friday are because of the weak jobs market. Most people are just trying to salvage a small part of the holidays. No good jobs equal no money to spend on the holidays, and black Friday is the best opportunity to get a good deal and maybe at least have something under the tree. The large numbers signify the desperation of the families in this county. Next headline after Christmas, consumer sales started out strong on black Friday but ended the holiday season flat or below spending expectations.

The desperation and lines on black Friday is making America look more and more like the old Soviet Union during the days of rationing when 500 people would line up for 3 pairs of shoes. Sad very sad.   

Nov 27, 2012 5:56PM
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- Fellow Comment-ers...Anthony is saying that "energy and commodities are 'in trend' and that if the fiscal cliff gets pushed down the road there is a high probability for a rally at the end of December. "
- This is totally accurate.  Despite all the negativity in some of your comments.
- Look: the short term trend is up.  The intermediate term trend is down.  And the long term trend is up.  Trying to apply emotion to the market is a losing game.  Sure the economy is in the tank, I agree that we are looking at serious problems, and we could very well become Greece in a few years.  But that doesn't mean the market will go down now. 
- Back in 2003 there were some loud people yelling that the housing market would collapse.  It didn't until 2007.  That's four years of excellent returns in that sector.  Remember the dismal economic mess in the first quarter of 2009?  And I bet we all wished we would have suddenly fully invested our dollars on March 19th, 2009.  Stock market rocket ship since then (with a couple refueling breaks during summers.) 

Wouldn't it be more profitable to  Invest/Trade the market in front of you; instead of the market you feel it "should" be?
Nov 27, 2012 5:56PM
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Farmer

 

My guess is inflation in 2013. Gone shopping for food lately? Deflation would wipe out the financial

sector.

Nov 27, 2012 5:51PM
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This liberal media puppet promotes fantasy land every couple of months.  Some day......
Nov 27, 2012 5:48PM
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Anthony may be a little right.   The Fed is going to do a QE4.  The congress will kick the can into 2013 (if they can agree on that).  Those two events alone will cause the market to go up just like it's done before.  Don't fight the Fed.   Whether it is real and will last is another matter but if you are good at timing the market, there will be a bump.  The sell-off will come when Congress actually starts fixing things.....if that ever happens.  It's in their interest to string it out as long as possible because every fix is gonna be a bitter pill and they don't want to swallow them all at once.   In the meantime, all the institutions are going to get tons of new cash and it has to go somewhere.  

 

I still have a sense that Congress maybe wants us to go over the cliff.  That way they can let all the unpopular stuff get passed automatically and they can all say they didn't vote for it.  Then they can come back at their leisure and fix things and look like heroes.  If I were a career politician and I wanted to keep my job that sure looks like a clean way out to me.  Plausible deniability.

Nov 27, 2012 5:48PM
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Excuse me Darwin --- or should I say JP..?

We live in a mobile economy now.  If you are referring to black people, they and everyone else are now free to go where they want.  The SEC succeeds because of the simpler focus of fans driving athletic programs and conference management.

I would suggest that you take your clothes back to the retro-wear consignment shop and stop living in the 19th century
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