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Airtime: Mon. Mar. 15 2010

S&P affirmed Greece’s BBB+ credit rating and took them off credit watch with negative implications but the outlook is negative from stable (which reflects their view of the govt’s ability to sustain reform momentum in the medium term). S&P said “we view the Greek govt’s total package of deficit reduction measures as appropriate to achieve its 2010 fiscal target, given the deterioration in Greece’s growth prospects.” They see “real GDP contracting by 4% this year.” “Despite the new measures, we think it will be difficult for Greece to comply fully with its planned consolidation path…if it does not implement additional measures in teh coming years.”

S&P 500 – Weekly Chart

courtesy of Fusion Analytics Investment Partners

As seen in the chart above the S&P 500 is retesting its highs from last week near 1,150. Given this is the first attempt at overtaking 1,151 and the index has to come up over 10% just to get there we are expecting some sort of pullback at least in the short run.

As long as the index stays above its recent pivot lows and uptrend near 1,045 the long running recovery rally is still in place. Should the S&P 500 defy logic here and blow through the 1,151 area without any pause then the secondary upside target is the 1,200 region.

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Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. He is the main architect for developing their proprietary stock selection models and trading algorithms. Mr. Lane is a member of the Market Technicians Association.

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Barron’s notes that the M1 money multiplier biweekly indicator is worth watching closely.

Why? Because the multiplier is declining “corresponds so exactly to the expansion of the Fed’s balance sheet It hits at the core of the problem in a credit crisis. Until [the multiplier] expands, we can’t get sustainable growth of credit, jobs, consumption, housing. When the multiplier starts to go back up toward 1.8, then we know the psychological logjam has begun to break.” (Constance Hunter, economist at hedge-fund firm Galtere).

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The M1 Money Multiplier (biweekly)

Source: St. Louis Federal Reserve

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Source:
Reserved Banking
Leslie P. Norton
Barrons MARCH 15, 2010

http://online.barrons.com/article/SB126843827248361291.html

I have a few good quotes about secular bear markets in The Bear: Dead or Just Sleeping?:

“And, in fact, many in the bear camp believe the market is destined to meet its maker as soon as the Fed starts to raise interest rates – which could happen late this year.

“When rates go up, it becomes more expensive to borrow, corporate profits slide – all the negative things that take place that make the market less appealing as an investment opportunity,” Mr. Ritholtz says.

In fact, Mr. Ritholtz is one of several commentators who believe this rally has merely been a temporary cyclical swing in the midst of a longer-term bear market – one that began roughly a decade ago and is far from over. These long-term, or “secular,” market trends tend to last 15 to 20 years.

“This does not have the characteristics of a secular bull market,” Mr. Ritholtz says. Not only would it be starting ahead of schedule, he argues, but even at the market lows of a year ago the stock valuations were never as low as they typically get at turning points in secular market trends.

“In the past, at the start of these big secular bull markets, you have really cheap stocks … I’m not sure we ever got to that point,” he says. “Stocks became reasonable in March [2009] for a month. Now, there are plenty of stocks that are expensive and there are plenty of indexes that are pricey.”

There is a lot more in the article . . .

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Source:
The bear: Dead or just sleeping?
David Parkinson
From Thursday’s Globe and Mail
Published on Thursday, Mar. 11, 2010 XXX http://www.theglobeandmail.com/globe-investor/the-bear-market-dead-or-just-sleeping/article1497020/

Weather impacted Feb Housing Starts totaled 575k annualized, 5k above estimates but down from 611k in Jan which was revised up by 20k. Permits totaled 612k, 11k above expectations but down from 622k in Jan. With both starts and permits, single family and multi family categories fell. Single family construction fell in the Northeast and South but rose in the Midwest and West. Weather notwithstanding, builders have been getting ready for the spring selling season and the last hope, for now, for people to take advantage of the upcoming expiration of the home buying tax credit while mortgage rates remain historically low. So, from an inventory perspective on one hand we want lower starts but on the other, builders have boosted GDP in the hopes that the buyers come out for new homes rather than existing ones. The housing stimulus party is about to end so we’ll see what gets squeezed in while it still lasts and what kind of hangover we see after.

One Day at a Time, no not the sitcom staring Valerie Bertinelli that many of us grew up watching but the new drama that is now the FOMC where the flip side of their extraordinary accommodation, that of exit, becomes the main focus where they will be literally analyzing the process one day at a time. There is big focus today on whether the Fed will alter the wording on keeping the fed funds rate “substantially low” for an “extended period” but I think the Fed will keep that unchanged as they want to first wait to see the markets reaction to the end of QE by months end. If all signs are then clear, the Apr meeting will see a change in the wording I believe. German investor confidence fell but was 1 pt above estimates and EU officials made progress on Greek bailout plans. China stocks rose off its 4 1/2 week low and commodity prices are following. Their action is the missing link in the run to Jan highs.

Posting will be light this morn, as I am presenting at the NYHFRT today.

The topic: The housing boom and bust, the credit bubble, as well as the stock market crash — where do we go from here and how to repair the financial markets.

Looks like a good crowd of fund managers — I’ll be back before noon.

I mentioned the Elizabeth Warren presentation on consumer protection at the Make Markets Be Markets.

She was on Charlie Rose last week — here is a small excerpt of the appearance, with a related graphic:

“Credit cards, mortgages, car loans, check overdraft fees. This is all the stuff that you have to do in your daily life to survive economically.

And what’s happened is this is an industry where the business model itself has fundamentally changed. The way the game used to work — let’s start with credit cards. It’s the easiest way to see it. Back in 1980, the credit card agreement for Bank of America, 700 words, would have fit on that one sheet of paper that you’ve got in front of you.

Terms are clear. They kind of figure out well here’s your creditworthiness and here’s how much we have to charge, we’re a little worried about inflation, how much it will cost us to monitor it, we’ll make a little profit. It works. Mortgages are set up pretty much the same way, car loans set up pretty much the same way.

And what happened over time — we got rid of usury laws right at this same point in time — is that the credit card folks, they were the real innovators here. They said we could hold up one or two things in front of you — low, low financing, 7.9 percent. We could hold up free gifts. We could hold up a warm and fuzzy relationship. We’re just the people to do business with.

And then put what are called in the trade “revenue enhancers” back in the fine print, and we can make a lot of money because you won’t figure out what this product costs.

So that one page credit card agreement in 1980 has now grown to about 30 pages. And it’s not just 30 pages, it’s 30 pages of incomprehensible text. The fine print, the “whereas,” the heretofores.”

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Comparison between 1980 and 2010 Credit Card Applications

One year ago, on 60 Minutes, Ben Bernanke uttered that now famous phrase.

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