Tuesday, January 17, 2012

New Year Rally Continues, But Financial Stocks Fade

Another three-day weekend has passed, another European crisis barely averted and, lo and behold, another Tuesday rally fueled by speculation in pre-market futures. To say that US markets - and, by inference, global markets - are being propped up on false hope and denial of reality would be a gross understatement.

A little history suffices to show that last year, January was a positive one for the markets, with the S&P 500 gaining 29 points, pointing the way toward - according to the mighty January Barometer - a solid year, and we all know how that turned out, with the market's absolute top occurring in late April.

This is a replay of just about the same scenario with one big difference. Stocks are probably a little better than fairly valued, but corporate profits are not expected to set new records (after 2011's record earnings). Rather, competition and currency exchange concerns will likely limit what most of the big, multinational firms will make in 2012, to say nothing of the impending default of Greece and the recent downgrading of about half of the nations comprising the Eurozone.

Here in the US, focus will be on the presidential race, which looks exceedingly like it will come down to a very disturbing and divisive fight between the incumbent Democrat, Barack Obama and the Republican Mitt Romney, who looks quite a bit like what "occupy" movement supporters deride as a fat-cat, political and capitalist sociopath.

In essence and for the practical purposes of governing, Romney's not much different from Obama, leaving Americans with the usual unpalatable choice of the lesser of two evils. The press, for the fourth presidential election in a row, will hail this as "the most important election of your life," which, of course, it certainly is not, though the amount of money pumped into the campaigns by super-PACs will be the stuff of legend.

With any luck, the preponderance of political advertising will result in more Americans revisiting old habits and older friends, and tuning out the mainstream propaganda machine full time.

As for this current vapor-rally on minimal volume (a tell-tale sign of weakness), it may just come to an abrupt end with the expiration of options on Friday, or, being that the powers behind the Ponzi fiat money scheme need to keep up appearances, it could just saunter along for a few more months. Since the Republicans in congress wish to unseat Mr. Obama at almost all costs, expect gridlock in Washington for the rest of 2012, though geo-political events (think Europe, Iran and the Middle East) could certainly send stocks spiraling lower, just as they did in late 2007 and through much of 2008.

Some interesting macro-economic facts came to light over the Martin Luther King holiday weekend, such as ratings agency Standard & Poor's commencing to downgrade the EU's main liquidity funding mechanism, the ESFS, a notch, from AAA to AA+, putting even more stress on the Continent's debt issues.

As mentioned Friday, talks about restructuring private Greek debt have fallen apart and an outright default before March 20 appears to be all but certain.

Back in the US, the average age of vehicles on the road has reached a new high of 10.8 years as strapped consumers delay the purchase of new cars indefinitely. So much for the government's bailout of GM and Chrysler. Shares of General Motors are up about four points this year, reaching 24.20 as of today, but are still well below the IPO price of $35 per share.

Two of the nation's largest banks issued 4th quarter earnings reports prior to the opening bell. Wells-Fargo (WFC), now the largest bank in the US by market cap, met expectations, but Citigroup missed badly, with reported earnings of 38 cents a share, missing rosy estimates of 51 cents per share and well below last year's fourth quarter of 43 cents. Shares of Citigroup were bashed, losing 2.53, to 28.22, a loss of more than eight percent.

Today's market was punctuated within the first 20 minutes of trading, hitting the highs for the day, with the Dow up 161 points before the day-long selling commenced. Optimistic gapped-up opens followed by floundering into a weak close is a sure sign of an over-hyped market, though the Dow has sported gains in six of ten sessions this year.

Bull markets don't last forever, especially secular bulls, such as this one, which has persisted since the bottom in March of 2009. The mini corrections in the Spring and again in August haven't dampened investor sentiment much, though weak volume remains a persistent feature. Eventually, reality, such as Citi's poor showing today, will take hold of even the most stubborn bulls... and their money.

Dow 12,482.07, +60.01 (0.48%)
NASDAQ 2,728.08, +17.41 (0.64%)
S&P 500 1,293.67, +4.58 (0.36%)
NYSE Composite 7,670.47, +38.44 (0.50%)
NASDAQ Volume 1,819,276,375
NYSE Volume 3,883,768,500
Combined NYSE & NASDAQ Advance - Decline: 3262-2341
Combined NYSE & NASDAQ New highs - New lows: 217-46
WTI crude oil: 100.71, +2.01
Gold: 1,655.60, +24.80
Silver: 30.14, +0.61

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