Needing Follow Through

The long awaited oversold rally came in the middle of the day today.  Now, it wasn’t one of those times where it just turned with no news and it wasn’t a 90% upside volume day (although it was close).  The U.K. equivalent of the SEC came out around noon and said they weren’t going to allow new short positions in any financial stock until January.  This is slightly non-capitalistic but for the time being, I’ll play ball.  The market rallied but started to fail late in the day, then rumors came out about an RTC style package.  The market loved this.  Congress, Paulson, & Bernanke are meeting right now to try to get a deal done.  I don’t know the details but basically it sounds like they would buy all these bad mortgages and securities that go along with them for a certain amount from the distressed financials, manage them, re-package them, possibly securitize them or something, and then re-sell them at some point.  This would clean up the balance sheets of the financial companies quite a bit. Goldman Sachs was trading at $85 at one point today and there was a ton of fear out there before this news.  The fear was so bad, I was able to buy some U.S. Bancorp bonds that mature in April that yield around 7%.  I bought these at a discount in about 45 seconds, literally.  This deal wouldn’t have lasted long.  It popped up and I gobbled them up.  This type of interest for that short a time frame is ridiculous.  Two things can happen.  Either, I will sell these bonds for $104 in a couple of weeks or make much better interest than I would have earned sitting in cash.  These should be yielding almost nothing but because there is so much fear,  the bonds have sold off and I got a great opportunity.  Shorting treasuries and buying agency bonds and various corporate bonds is the move I’m making. Given this news and the stimulus that was injected this morning, I covered my short position today.  Remember, don’t avoid the bond market.  There are some great deals out there right now.

What we need to see in the equity markets is follow through.  That’s what this market has lacked.  If we get some up days but they are weak based on several internals, then we’re not out of the woods.  If we come in tomorrow and we see strong internals of broad sector participation, strong volume, and this need to get more long, I’ll do the same.  I’m getting screaming buys on various commodities and materials.  I own these right now and haven’t added to them.  I’ll be looking to diversify a little as the rally progresses.  Healthcare, small caps, technology, regional banks, & emerging markets.  These are areas I think can rally the most.  Underperformers may be the staples as they’ve had a run on a relative basis.  They might be good later after the rally runs its course and investors get concerned about the economy again (which they will).  Remember though, the market hasn’t passed any tests.  But, it’s a start.  Let’s see if we can build on it.  Nice to see some green.  FYI.  Futures are up about 123 right now on the Dow as of 7:00 p.m.

I’ll be filling tomorrow morning (Friday) on Biz Radio for Jack Warkenthein on Where Wall Street Meets Main Street.  It airs from 7-8 a.m. CST on 1110 AM in Houston and Dallas/Ft. Worth.  Also, you can hear it streaming at www.bizradio.com

Make sure you tune in.

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1 Response to “Needing Follow Through”


  1. 1 Lee September 19, 2008 at 5:44 am

    Karl,

    The current moves in the market are not being driven by a traditional free market economy. They are being heavily manipulated by unconstitional dictitorial directives handed out by a few in Washington.

    If a rally is at hand but is being orchestrated by these elite who are intentionally propping up the market then how can one make sound investment decisions.

    I understand your fear indicator but that too can be driven by a manipulated market which is exactly what we are witnessing.


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