Silly Silly Media Commentary - 5 / 18 / 2009

"US stocks rebounded on Monday following their first bruising week since the rally began in March as encouraging results from Lowe’s, the home improvement retailer, raised hopes the economy would soon reach a bottom." - This statement is from the overtly pessimistic Financial Times of London.

To suggest that there has been any improvement in housing or retail flys in the face of recent Fed announcements. Folks all that we are seeing is a result of the new Dow Jones index, the index driven by day trading speculators of all sizes, jumping on a story, positively positioned by the rah rah media.

Here is the real story -

"Lowe's Cos. reported a smaller-than-expected 22% decline in first-quarter profit after expense control, reduced discounts and demand for paint and other smaller-ticket merchandise helped limit the impact of a decline in sales of big-ticket items.

Shares of Mooresville, N.C.-based Lowe's rose 7.6% to $19.86 in late afternoon trading. "

Does this sound like an optimistic outlook? Lowe's executives managed their existing inventory to properly address a bleak out look, resulting in losses that were less that those these same executives originally told Wall Street Analysts to project. Lowe's is not even a member of the Dow Jones Index, so why would it's rise in price have any effect on the Dow's near 200pt move up? Answer: It wouldn't.

We are witnessing is a Dow Jones head fake courtesy of the trading professionals. In the last 6 weeks, excluding today, the Dow has climbed 300 pts from 7,975 April 6th. We have witnessed an interday high of 8657. Yes the trend looks better, but it is not at all due to improving housing markets or even less worse housing markets. Our opinion, this Dow trend is due exclusively to the cheap money given by the Fed to financial institutions which now have fresh capital to invest. And while it is true that many many mortgages were refinanced by respectful and responsible commercial banks like Wells Fargo, those newly classified commercial banks, Goldman and Morgan, were able to re-inflate their prime brokerage lending to their best hedge fund clients, and these clients bought more equities than they sold.

Not much, if any, significant capital investments have been made into the parts of US companies that are productive and create value that are represented by the shares of the .

In fairness, we believe some value has been created by US corporate finance executives who have deftly adjusted their balance sheets, converting inventory to revenues at better than projected rates and reducing the costs of debt on their books (both are cash flow positive). But what we haven't seen yet is any value creation by these companies. Mainly because they can't. Who is buying products or services in greater numbers than they were 6 months ago...few companies. And until we see revenues growing, not beating reduced projections, we can't believe that value has come back to these markets, regardless of what the Dow Jones and its media followers are ranting about today. When the Dow closes above 8,500 and then stays above 500 for 5 consecutive days, then and only then will we know that a new floor has been placed in the markets.

GE - $13.44 / Stop Loss $10.75
Dell - $11.27 / Stop Loss $9.52
AXP - $26.13 / Stop Loss $22.20

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Brad van Siclen