Here comes the Santa Claus rally
We could be on the cusp of a Christmas miracle as Main Street optimism overpowers Wall Street pessimism.
For 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 firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
And all for what? Nothing! No real reason other than total F***ing bordom.
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.
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?
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
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
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.
- 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?
My guess is inflation in 2013. Gone shopping for food lately? Deflation would wipe out the financial
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.
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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'We're not exactly in a uniformly strong market,' says the notably pessimistic newsletter publisher.
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