Monday, October 20, 2008

An Up Monday

Top Line: The stock market staged a good rally on Monday. The volume was weak but the price move was strong. Pullbacks would be reasonable but we are looking for more upside over the next few weeks...Fed's meeting next week and it's the end of the month, too.

The market seems to have accepted the ING cash infusion from the Dutch government. ING rallied about 20% during the day. We'll see if the market continues to think this over the next few days. We will drop this item from any further posts...

The stock market didn't feel too strong during the day but we may be a little biased due to our favorite index, NDX (NASDAQ 100) being weaker than the broader market. We realized early on that the four horsemen were trading weak all day even going into the close, with RIMM ending down about 10% on the session. Our FSI was up but less than 1% compared to the NDX going up 3% and the Dow going up almost 5%.

The big mover was the GDX which gained 11.5% on the day. Gold itself wasn't up very much but the miners were trying to make up for lost time. Yes, it does have a long ways to go and it should continue to rally into the reliquification phase of the central bankers' plans. Interest rates should come down which could give gold a good cushion.

After the close, Texas Instruments disappointed and the market dropped TXN's price. At the same time, the news pushed the US futures down on the evening forecasting a bit of a drop going into the morning.

We remain bullish stocks against the low point around 7900 on October 10th. We expect a good tug of war between the bulls and bears for a while. The strength in the market should be enough to move the market up strong into and shortly following the election. There are too many positive items on the media's agenda over this period of time.

We, here at the Update, are proud to be aligned with Warren Buffett. We were too engrossed in the news items to remember to include Mr. Buffett's Op-Ed piece from the NY Times in yesterday's post. We include it because he must have been reading the Update and decided to follow our advice to get out of his Treasury securities and go long equities. Mr. Buffett doesn't short stocks so he just waited for our call on the move out of TLT (long term Treasuries) and into stocks. Well, maybe he doesn't read our blog but we think it's perfectly fine that he is following our lead.

There are two other great articles to share with you this evening but they may not be available to you because they are from the WSJ. The first is an interview of Anna Schwartz, a 92 year old who co-authored, with Milton Friedman, "A Monetary History of the United States" (1963). It's the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression. This article, "Bernanke is Fighting the Last War", is a great read.

Ms. Schwartz suggests that Bernanke has a good idea, from reading the book mentioned, how the Great Depression could have been avoided. She thinks that Bernanke is fighting that war and not the current one which has a different basis. She thinks the banks that made mistakes should be allowed to fail. For those that invested in those failed banks, they would lose money and that would be ok, she says. Go, Anna. Meanwhile, Bernanke spent the morning arguing for another "fiscal stimulus".

Then there is another article in the WSJ. This one is from James Grant entitled, "The Confidence Game". Mr. Grant is a good writer and has tackled a difficult subject. We recommend reading the article. If you have any comments or questions on any of these subjects, let us all know by putting them in the comment section below.

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