Equities – The bulls are having a party

Nikkei 225 (7.949)  Topix (760)  Dax (3.988)  FTSE 100 (3.864) Dow Jones (7.217)  S&P 500 (753) Nasdaq Comp (1.404)  

Do doubt that the current environment is positive – is it a trend turnaround or a bear market rally? The rational answer is, that it is a bear market rally because there is still no rational reason for rising stock markets. The major problem with my opinion is that the market many times isn’t particularly rational. In addition I acknowledge that this rebound has been more forceful and more substantial than prior.

I actually spend the weekend reading some bull articles and research to test my bearish view. For the frequent reader it won’t be a surprise that I keep my worried and bearish view on the world.

I respect the desire among many to buy (more) stocks, and fully acknowledge that a majority of ongoing positive investors will turn the market around. So it is a very good reason to take the up move last week very serious. Anything could have triggered the move but it can be that banks have been sold too much down. Just, one should read the message very carefully when Bank of America said they expected to be profitable before provisions and write offs. In the next sentence they mention that they hope it also will be the case for the real bottom line, but they were not sure. This is not a buy signal for me, because the investor is simply betting the credit related losses will be lower than priced in the market. In a world where well educated people discus if the recession is the worst since 1930 or 1980. I remain sceptical about these reasons to become cheerful and just go long stocks.

One of my serious concerns is that the global unemployment just goes up and up, and the jobs don’t come back within near future. The real estate market is going lower around the globe – any country (including China) sees lower prices for commercial and private properties. If you observe how many corporations per day, that announces postponed or cancelled investments, then it’s a good reason to rethink any stock purchase plan. Is it all priced in? It’s hard to believe.

One good thing in my opinion is that many corporate balance sheets are in fairly ok shape. I look at sub investment grade corporate bonds, as the debt quality is better than how it is priced……

Tactical I watch the flowing this week:

Japan: As mentioned last week, it will be difficult to imagine Nikkei below 7.000 this month due to year end position closing and window dressing. Please note the government report released Monday. A quote from the monthly report that says everything “the economy is worsening rapidly while in a severe situation”…….During the week, I watch another monthly report, the one from Bank of Japan on Wednesday.

Europe: UK stocks will still swing with the financials, but on Wednesday the unemployment data are more than interesting (exp. 6,5%). I think the fundamental concern will return to the market. In Germany, the reality arising from the discussions about Hypo Real Estate and Opel, the GM company, will also gain focus once more.

US: Financials surely did their part, the next question simply is, if the spill over on other sectors is strong enough to get them going. As written above, am I doubtful, but there is a lag of truly interesting economic data this week. So it’s still bullish to sideways for the week. 

Targets: Nikkei 225 6.683  Topix 697  DAX 3.075  FTSE 100 3.456  Dow Jones 6185  S&P 500 656 Nasdaq Comp 1191

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