Reply #2: WrapUp by Martin Goldberg [View All]

[ozymandius]

Tell Your Fundamentals to be Quiet!
“It’s a Technician’s Market”

“Tell your fundamentals to be quiet!” It’s that kind of market. Bad news is good news and good news is good news. Sure, there are many fundamental facts that would suggest stocks don’t deserve historically high valuations in the aggregate and bubble-like valuations in several isolated localities. Even as quarterly earnings are coming in with numerous write-offs, one time events, and special items, their interpretation by the market is similar to the 1990’s when any optimistic explanation by management would suffice. After reporting increased sales a few weeks ago based on an “employees discount,” General Motors reported shrinking margins and a huge quarterly loss of $1.2 billion, yet the stock finished little changed. This occurred as their two US rivals initiated similar margin-threatening price war tactics. Eastman Kodak, a company whose core business is dying a quick death due to obsolesce, badly missed earnings expectations as film sales “eroded,” and the stock gapped down, yet finished little changed. Yahoo and Intel reported earnings which showed the world it’s hard, even for technology companies, to make money, and yet this has little effect on the general stock market. A few soothing words by Alan Greenspan who suggested that the economy is on a sustained expansion followed by about an hour of accolades by various congress-people, and the stock market had all the reason it needed to produce a high volume decisive rally. Forget any thought of the long-term fundamental picture. In many cases that will get you only rationalizations about the long term while your next door neighbor gets paper profits.

While the major indices are making 4-year highs, negative emotions have never run higher from the bear camp, and optimism has probably never been greater with the bulls. From the bullish side, “Mad Money” was shown before a live universally bullish cheering and hooting public. Such optimistic bullishness draws out the negative and emotional feelings in the bears. While reading a FSO editorial, I identified an abbreviated derogatory term that would make a sailor blush, used to describe government economic data reports. Even our webmaster, a resident of a Navy town, hadn’t heard of this term before. (It was quickly edited out.)

Emotions are running high. The public is being bombarded by a wealth of economic data suggesting things are fundamentally sound. Yet, for anyone who views the big picture with a critical eye, most of this data is fiction at best and dirty, bad-spirited deception at worse. Negative emotions are running higher in the bear camp for the simple reason that the “truth” of the data is being confirmed and accepted by the public based on the positive direction of the stock and real estate markets. It is tough to refute or take issue with the “truth” that is making much of the public wealthy on paper. For those who professionally manage other people’s money for a living, the current environment must be even more frustrating. Consider the thoroughly considered and cerebral debate between the professionals in the inflation and those in the deflation camps. While their emotions may be running high, it must be even more frustrating that over the last 2 years, these folks have been locked in both a debate and trading range with their fundamentally-based positions, while money managers who suggested clients to buy Nordstrom based on the potential for a good quarter were better off.

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