More Bearish Data

by Larry Levin

Whoa, the bad news is flowing like beer from a broken bottle of PBR: it's good news to the teetotaler, but bad news to the night reveler. The nascent rally may have run into a formidable opponent - reality - so I may have to give up on my call for a higher S&P in the near future. But when has reality stopped a rally? In the meantime I'll do what comes natural to me, I'll follow the trend.

The first burden of today's market actually started yesterday after the close. It was then that I first heard the proposed buyout of Clear Channel Communications Inc. was in jeopardy. It doesn't seem very palatable to swallow up another firm with insane amounts of debt financing these days. How long will this last? Longer than one might think. Clear Channel fell $5.70, or nearly 17.5 percent, to $26.86.

The economic data is not agreeing with the "all's clear" signal from Wall Street analysts. This morning's durable goods data was bad...again...making for two consecutive bearish reports. This information is indicative of business spending and consumer demand, so two straight months of declines is worrisome to Mr. Market. And since Mr. Market has been slightly worried about the financial health of U.S. companies, he was disappointed to see a 1.7% dip in last month's orders of big-ticket items that range from refrigerators to cars to computers.

"By signaling a decline in business spending, which has declined in each of the past eight recessions, today's report is consistent with economic recession," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., of the durable-goods data.

Joseph Brusuelas, U.S. chief economist, Ideaglobal Ltd. Agrees. In a note to clients he wrote, "The data strongly suggest that the period of retrenchment in the manufacturing sector is likely to get far worse before things stabilize."

In a later report, new housing sales data was released showing a 13-year low in February. Sales have fallen four months in a row and are off about 30% in the past year. "We have two problems: supply and demand," said Mike Schenk, an economist for the Credit Union National Association, a trade group. Yes indeed, buyers are waiting for prices to fall further. Meanwhile, more sellers are being pressured to drop their price. Housing is certainly in the grips of debt deflation. Will that spread to the general economy?

But that wasn't all that pressured the market today. Remember commodities? According to the press, commodities were going down forever...because they had corrected for a few days. Now? Not so much. Oil exploded nearly $5.00 higher today while the dollar has just experienced its worst 2-day slide since 2006. The press also told us the dollar was now a buy - it had made a miraculous low - because it went up for 2-days. Yeah, right!

Why does the press make silly statements like these? Well, one reason is that most of them are English majors turned "financial experts" but really don't know a damned thing about the markets. However, some of them are so close to the "action" that they believe in the "buy & hope" fantasy and therefore want commodities to go lower forever and the US dollar to be strong at all times. If they were actual investors, this would be called "talking up your book," because if they were correct it would help there current positions.

Those following the "buy & hope" investment fantasy and not following the trend will have a new favorite song soon - Turning Japanese by the Vapors. In 1990 the Japanese market went into a tailspin like no other, costing the "buy & hope" faithful everything. The Japanese stock market has not seen a new high in 28-years!

Now, the US stock market is following the path of the Rising Sun. The S&P 500 is currently at the price it traded in 1999, which is nearly a decade of no returns. Said another way, if you had put your faith in the "buy & hold" flimflam artists back then at the tender age of 55...you would be retiring now - with nothing to show for it. And that doesn't even consider the 2% transaction costs of actively managed mutual funds, taxes, and the ravaging effects of inflation. Lop off another 4% per annum of real inflation and you’re DOWN 54% for the last 9-years. Never forget purchasing power folks!

And the hits keep coming. After hours trading has Oracle down huge after reporting lighter-than-expected sales. And Fitch Ratings just downgraded FGIC's insurer financial strength to BBB from AA and FGIC Corp.'s long-term issuer rating to BB from A. "Going forward, Fitch believes that it will be very difficult to stabilize the ratings of FGIC until the company can both raise external capital and more effectively limit the downside risk from its SF CDOs through reinsurance or other risk mitigation initiatives," said the ratings agency.

Real Time Trading Signals*for

Trade Date: 3/26/08

E-Mini S&P Trades*
(before fees and commissions):


1) B/away sell @ 8:35am at 1346.50 = +3.75 (1 lot)

2) PP buy @ 8:45am at 1342.25 = +1.50 (1 lot)

3) Engf sell @ 9:15am at 1346.50 = +3.00 (1 lot)

4) FT sell @ 10:00am at 1341.75 = +1.00 (1 lot)

5) OTF sell @ 10:30am at 1344.00 = +2.75 (1 lot)

6) TP sell @ 10:55am at 1343.50 = b/e (1 lot)

7) FT sell @ 12:05pm at 1342.00 = +2.00 (1 lot)

8) Engf buy @ 12:15pm at 1340.50 = +1.25 (1 lot)

9) OTF sell @ 1:05pm at 1340.50 = -2.00 (1 lot)

10) FT buy @ 2:15pm at 1344.50 = b/e (1 lot)

11) Engf sell @ 2:50pm at 1341.75 = b/e (1 lot)...+13.25

E-Mini Russell Trades*
(before fees and commissions):


1) Sell @ 9:57am at 699.5 = +1.0 (1 lot)...+$100


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