Thursday, January 19, 2012

Amazing Stock Market Rally Rolls Along

One of the oldest adages of stock market investing is the time-honored, "the markets can remain irrational longer than you can remain solvent," or something to that effect.

This is particularly poignant in the midst of the current Wall Street "melt-up" which has been ongoing since the middle of December and shows little sign of letting up.

While corporate earnings continue to flow, the latest being from two big banks, Morgan Stanley (MS) and Bank of America (BAC), both of which met or exceeded expectations, though the accounting tricks and tactics employed by the mega-banks leave much to the imagination.

As far as Bank of America is concerned, their beat of expectations of 13 cents per share with a reported 15 cents included a bunch of one-time items and useful reserve and loan loss calculations, embedded deep within their monstrous 110-page quarterly report. Despite the discrepancies in the quarterly, Bank of America bounced higher again today, closing at 6.95, a 15 cent gain, after popping above $7 per share for the first time since Warren Buffett invested $5 billion in the bank in early 2011.

Morgan Stanley actually lost money for the quarter, but lost quite a bit less than expected. The firm’s net loss was $250 million, or 15 cents a share, compared with profit of $836 million, or 41 cents, a year earlier. The consensus expectation was for a loss of 57 cents per share. Traders took the data in stride, boosting the stock to its highest level since October. In this case, even P.T. Barnum would be proud, noting that "there's a sucker born every minute." All the better for momentum chasers in this beat-up financial.

There was a dose of economic data that surprised some and annoyed others, notably bearish investors. Initial unemployment claims came in at a sparkling 352,000 - the lowest number in months - after last week's upwardly revised 402,000. The unemployment figures continue to be a topic of some debate, in that the "seasonally-adjusted" model used by the BLS seems to have forgotten that December was holiday season, chock full of part time and temporary hires. Whatever the case, traders seemed less-than-satisfied with the numbers, as the markets began slowly but ground slowly higher through the session.

December CPI came in flat, after yesterday's -0.1% drop in the PPI, sparking fears of "disinflation" (a Federal reserve governor term) or deflation, the bogey man that haunts Fed chairman Ben Benanke.

Housing starts and building permits were flat to lower, though new home builders have been leading this rally, up more than 10% as a group since the first of the year.

How much longer can the rally last? Tomorrow being options expiration, one would think a major sell-off is in the cards for either Friday afternoon or Monday, though, as stated at the top of this piece, rationality is generally not a hallmark of recent rallies.

If you've not already taken part in this wild market ride, it may be a little late. Stocks are getting extremely overbought, as the advance-decline and new highs vs. new lows figures have been telegraphing lately.

Adding to the upside has been the unusually quiet tones coming out of Europe, as opposed to the rather hysterical daily dispatches that typified the latter half of 2011. Nothing's really changed over there, except perception, perhaps. Europe is mostly headed for a recession, which will hit the middle classes, though Greece, in particular, in already in the throes of a fiscal straightjacket which some might say is emulating a full-blown depression. To the Greeks, most of europe is saying "pay up," to which the Greeks respond with "shut up" or some other suitable and more demonstrable phraseology.

The long and short of it, if one is of the camp that believes a strong stock market is a proxy for a strong general economy, 2012 is shaping up to be a banner year or at least a good effort at kicking the can of economic woes down the road until after the elections in November.

Throwing a bit of cold water on the rally parade, as expected, Eastman Kodak (EK) filed for bankruptcy protection today, and Republican presidential nominee hopeful Mitt Romney has been found to have a number of accounts and holdings in off-shore banks, notably in the Cayman Islands, setting the stage - if he's the nominee - for a battle of ideologies between him as the ultimate one percenter and President Obama as the champion of the 99%.

While that may make for great TV, it's hardly honest, as President O'banker is about as 1% elitist as one can get without actually admitting to it.

Dow 12,625.19, +46.24 (0.37%)
NASDAQ 2,788.33, +18.62 (0.67%)
S&P 500 1,314.50, +6.46 (0.49%)
NYSE Composite 7,819.36, +52.41 (0.67%)
NASDAQ Volume 1,974,862,250
NYSE Volume 4,442,754,500
Combined NYSE & NASDAQ Advance - Decline: 3454-2119
Combined NYSE & NASDAQ New highs - New lows: 261-26 (yes, 10-1 is a bit extreme)
WTI crude oil: 100.39, -0.20
Gold: 1,654.50, -5.40
Silver: 30.51, -0.03

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