Tuesday, April 27, 2010

Goldman Gets Grilled

I have to admit that the reason my morning post is so late today is that I have not been able to take my eyes off of this ridiculous congressional hearing of Goldman Sachs execs. My first problem with it, is that Goldman didn't do anything different than any other investment banking operation across the globe. So when they paid back TARP, we were happy they made money, but no we want to demonize them for it.

Second, these congressmen don't even understand the issues that they are discussing, and proposing to regulate. They don't know the difference between a market maker, which just makes prices for clients to transact, and a financial advisor which has a fiduciary obligation to do what is right for his/her client. Its a joke, and the public expects these folks to come up with sweeping regulation that will protect us in the future. Good luck.

The market had already started off on a negative note after S&P downgraded the credit rating for Portugal. Then came the news that they also downgraded Greece's debt to junk. Good timing on downgrading both in the same day.

The news is hitting the euro, and boosting the dollar. Most commodities are lower, but gold is higher on a flight to safety trade. U.S. bonds are also up big on this flight to safety, with the yield on the 10-yr note plunging to 3.71% as a result.

The negatives above overshadowed some positive economic news in the form of a higher than expected Consumer Confidence number (57.9 vs. 53.5), the best reading since August 2008. Also, the CaseShiller home price index for February rose 0.6% yr/yr, which marks the first increase since 2006. I think the figures for March and April should continue to improve, marking a bottom in the housing market.

There were also more strong earnings reports from Ford (F), MMM, DuPont (DD), and Texas Instruments (TXN), but the stocks are lower as a result of the overall market.

Trading comment: I have cautioned recently that complacency was building. And last week (4/16), I noted the big spike in the VIX that day and said that these spikes were rarely one-day events, and that there was probably more to come in terms of a selloff. The market went on to make new highs in the ensuing week, but today the selloff has resumed. The VIX spiked as much as 20% today, gapping above its 50-day to as high as 21.25.

I think a lot of today's selling is profit taking, as the Nasdaq has been up for 8 straight weeks, a rare event. I have done bits of profit taking along the way, and raised cash. The S&P 500 has just pierced its 20-day average today, and I still think this pullback has more room to run. As such, I am doing little today, and hoping my patience has paid off.

long F


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

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