Saturday, May 9, 2009

Financials Party On: No Mutual Fund Left Behind


Many traders and mom 'n pop investors have been asking why the financial sector continues to rally- seemingly unabated. Many supposed "professional" traders and market strategists appear regularly on the networks and in the blogosphere- trying desperately to slow the ramp, in fact, saying anything they can that starts with Skepticism in order to initiate a pullback- so that they and their clients- you know, the Big Dog Money- can get in on the long-side lower, rather than, heaven-forbid, have to chase the herd.

It pains them greatly that thousands of day traders (big and small) from around the world have lit a fire under the proverbial arses of the financials. Indeed, it pains these Big Dogs greatly that they no longer control the markets with the same lock 'n load that they did just a few years back. This is not your Daddy's trading environment anymore. This is war between the old money and the new money. So far- the new money is shellacking the old guard- plenty.

And now the institutions, mutual and sovereign funds have to play catch up. Scratch that- now they have to somehow catch a ride on the financials rocketship that has already taken off- last seen heading to the Moon- in order not to be embarrassed as the "Big Funds Left Behind." The ones that missed the party.

This is the way it should be. We are in a brave new trading world. Sure, the funds are up to their same old tricks. They try to "manipulate-down" using every tool they have in their arsenals- just as they have in the past. You know- leaking "negative" information and opinions to the networks and press hoping they repeat them on-air and in-print. Sending talking heads out to "bash" the sector and scare the day-trader longs, even though day-traders, battle-hardened by the message board bashers, simply laugh and continue to trade "as if." They recognize that just because you're on TV bashing, doesn't make it any different than the bashers on the boards- only shinier and hitting a network audience.

The Big Dogs try to push the pre-market futures and ETF's down trying to scare day-trader longs into selling, and engender shorts into shorting. They screw at will with the options markets hoping for golden chutes (forget green shoots). Then, like clockwork, the funds come crashing into the financials mid-day for a couple of hours and buy-in long at a somewhat lower price than they would have had to, playing out any hedge funds who have dared to be swill (and there were a few lately- that is, those even left in the game), blowing-out any and all shorts, using them as kindling wood for a short-squeeze bonanza. Then toward the end of the trading day- just as long traders get wary and begin to take profits, shorts sure they've caught a top as the market recedes- look out Mama! In come the Big Dogs yet again- and once more the markets close out higher. Then, after-hours, the whole thing begins to repeat itself.

Same old game. Different day.

Well, it is a different day.

The Financials Rocketship Has Already Lifted Off

Of course, as the financials and overall market go higher and higher- every Big Dog manager who hasn't been playing gets more and more nervous. "This is supposed to be a bear-market rally! How can this be happening? Is this 1991 or 2003? What if it is? Wow! I'd better get the heck in this thing before my clients run me out of town."

Get On the Magic Bus

Gadzooks, Elroy! What's a poor big-money manager to do?!

I'll tell you what you do, clodhopper. You get on the bus and don't stop 'til I tell you to. And that would be when the S&P 500 hits 1150 and the Russell 1000 Financial Services Index hits, at least, 250. That's right. The RIFIN.x, even with the current "monster rally" in financials underway, is only at 149. In September 2008, as the market began to unload, it was in the 220-230s- so there's a lot more to go just to get back to crash-in-motion levels. And that doesn't even include where it would be if the financial sector was remotely healthy!

Then, when we hit these levels- you get to get off the bus. Have a smoke. Get back on the bus- and we drive around in circles for a while as we all figure out the next consumer-spending hoodoo spending widget.

A Nation Of Shopaholics

A nation of shopping addicts we are. So, yes- someone on this here bus will figure it out. And then we'll be off heading north along route North Bound Greed- I Mean Green Is Good soon enough.

But, what about savings? They took away our credit candy!

What's that you say? You want to save? Tell, you what little big man. We'll save when we're dead. Meantime- they can limit our credit card privileges. They can tell us to live like our great-great-grand-parents did who grew up in the Great Depression. They can FASB 157 us into a filibuster-proof Save The Whales Dem-elected Congress and White House- shoveling in all the pent-up regs, plans and budgets they've been Jonesing to drop on the nation for 8 years. They can take away our home-prices-will-rise-forever-can-I-please-Sir-have-some-more-refis. But- mark my words: someone will figure out the Spending Addicts' Next Big Fix. And they'll do it on the bus.

Meantime. enjoy the ride- Bank Of America (BAC), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS), Morgan-Stanley (MS), JP Morgan (JPM), State Street (STT) XLF, UYG, especially now that big-money sector rotation is flowing out of tech, etc., into the Banks- and all that side-line money is about to come home to roost- because there's no place like home, right Papa-ARM T?

The only "pull-backs" you're going to see are those intraday "dips" or 2-day lulls that the funds use to buy in. Don't panic. Buy alongside the Big Money.

If you're still dumb enough to short financials against the institutional and big fund money inflows, or listen to the bashers who will come on the tube or prime the print- trash-talking for a major pull-back or a re-test- well, you deserve what you get (and what you've gotten). Back in January, as the market was tanking, I was the first person calling for a long bull run (yes- before everyone else did). And here we are- we have Saturn in our sites.

The Bull Run officially started on March 6, 2009 and it continued on as of Friday May, 8, 2009. It will ramp through June 30, 2009 through the close of the 2nd quarter, take a breather, then continue on.

Stress This

I know many of you are wondering what the government was up to with the "stress tests." On the one hand (and on the surface) you could argue they were attempting to restore confidence in the system and with private capital investors potentially looking to buy up bank cap raises per the new capital buffer requirements. On the other hand, the White House has gone out of its way to vilify Wall Street's private investors- who no longer trust getting in bed with the government. And of course, to this end- the banks themselves are already chomping at the bit to repay TARP to get out of bed with those who wish to control them. An argument can be made that the White House is merely talking tough for the sake of the taxpayer constituents on Main Street, hoping Wall Street won't take it too seriously. Although, one can also say the government is hellbent on taking control of the banks- and used the "stress-tests" and the vilification treatment to ultimately get what they want.

Stupid Is As Stupid Does

I no longer worry one way or the other about the government's objectives in all this. The stupidity-contradiction factor is no longer worth the stress of trying to figure things out, and is two-fold. First-off: the government forced higher capital buffers on the very institutions they claim need to stop hording cash, lend it out and loosen up credit. Now the banks will horde their cash for cap reserves instead- and continue fighting with the government tooth and nail on the matter. Secondly: the government and Fed has claimed the economy is going to recover by the end of 2009 and certainly in 2010- yet their "stress-tests" are directed at a "what if" scenario whereby things do not improve, and in fact, get pretty darn worse- which means they're allowing for the possibility that their forecasts are entirely wrong.

Party on dudes.

Party on GT...

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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