Wednesday, March 10, 2010

Oy! Tech Keeps Stocks on the Upswing

Tech stocks continued to dominate the gainers once again as stocks continued their month-long ascent. The NASDAQ easily outpaced the other major averages. Investors are coming to realize that tech companies are more financially capable and less in debt than their traditional industrial, material or financial counterparts.

It goes to reason, since most of the strong tech companies - Apple, Cisco, Amazon in particular - are young and have little to no debt service, separating them in material ways from other companies which may be struggling with finances, debt service, bond issuance and legacy costs (pensions, health care, etc.).

The general economy is still somewhat in a confused state of non-denial. While most indicators are benign or improving - other than housing and employment (Is there anything else that matters?) - sentiment remains steadfastly cautious. It actually has set up a nice paradigm for traders, especially those with more guile and shorter time horizons. In other words, the majority of the market is running on momentum, a tricky mistress, which can turn on a dime.

So long as stocks continue to gain in value, I'll reassert that they're not sufficiently discounting the future, which looks horrid. The government's plan seems to be to continually kick the can further down the road, applying patches along the way. There cannot be stability or prosperity until the government sector cleans up its act and tackles the issues of debt and entitlements head on, something few elected officials wish to do.

Eventually, piling debt upon debt is going to cause an implosion and dislocation, as it did in the fall of 2008. Current policies are leading to more spectacular failures, as exposure is now greater and includes not only financial institutions, but government entities such as the Fed, Treasury, and the unmentionable messes contained within Fannie Mae, Freddie Mac and the soon-to-flame-out FHA.

Fixed income gains are increasingly scarce and many unstable. Witness the note redemptions by Fannie and Freddie on defaulted mortgages within MBS, tight spreads and few alternatives. Flat-lining fixed income is inducing more equity investment, forcing stocks higher, eventually to unsustainable levels. It's a no-win, unless you're completely in cash because of declining asset values almost everywhere else. The stock market is nothing more than a chimera, an abstraction of the global economy and plenty of opinions. Short-term gains are possible. So are permanent losses.

Dow 10,567.33, +2.95 (0.03%)
NASDAQ 2,358.95, +18.27 (0.78%)
S&P 500 1,145.61, +5.17 (0.45%)
NYSE Composite 7,327.67, +33.65 (0.46%)

Winners beat losers, 4325-2192. New Highs: 773; New Lows: 51. Volume was substantially better than recent sluggish sessions. Lots of stock changed hands, but movement was constrained.

NYSE Volume 6,089,594,500
NASDAQ Volume 2,502,965,000

Oil posted another ridiculous gain of 51 cents, to $82.09, despite another in a series of inventory builds. The energy complex is wickedly overpriced and reversion is a certainty. Current prices cannot be maintained with reduced demand levels. Gold fell $14.10, to $1,108.20. Silver dipped 3 cents to $17.31.

Economic data has been slim and incapable of providing direction.

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