Morning Audibles 5.21.10 - A "Cock & Bull" Story

Bloomberg (for Dummies)


May 21 (Bloomberg) -- Any investor who wants to gauge how serious the stock market’s retreat is need only know the Standard & Poor’s 500 Index has fallen to within 6 points of its low on May 6, when panic selling prompted calls for reform.

Translation: We make up things like "fat fingers" because we too like to watch "Dancing With the Stars" and taking the time to get to the bottom of things would distract us from that.

Europe’s debt crisis has pushed the S&P 500 down 12 percent during the past month as concern grew that deficits in Greece, Spain and Portugal will unhinge the global economic recovery. Regulators have proposed six potential causes of the May 6 crash, including losses in exchange-traded funds and an unwillingness to match orders among some electronic traders.

Translation: if we can't blame it on fat fingers, we'll make sure you believe that the problem is caused by fiscally irresponsible little countries across the pond (even though our own policies are just as bad).

“As far as we know, it’s not a computer error today,” Jerome Dodson, who oversees $4 billion as president of Parnassus Investments in San Francisco, said of yesterday’s slump. “The May 6 flash crash was driven by technical troubles and didn’t reflect any fundamentals. It’s surprising that regular trading would take us down to the same levels as a technical glitch.”

Translation: "Fundamentals!" (pauses to clean coffee off of keyboard). If the stock market GOES UP, it's fundamentals, if it GOES DOWN it's a glitch. & "These are not the droids you are looking for".

The chart patterns show concern the U.S. economy may weaken after expanding during the past three quarters. Reports yesterday showed more Americans filed for jobless benefits in the week ended May 15 and the Conference Board’s index of U.S. leading economic indicators unexpectedly declined in April.

Translation: When Uncle Sugar runs out of money that was borrowed and you've yet to be taxed on, and that was used to artificially bring demand forward to make himself look good & to give his bankers friends betting cash, the charts start looking bad after awhile.

“If this begins to bleed into people’s psyches, then it can perpetuate a negative sentiment that could weigh not only further on the index, but begin to impact the real economy,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, which oversees about $90 billion.

Translation: People don't like it when their Treasury is looted.

U.S. stocks are valued at 19.4 times annual earnings from the past 10 years, according to inflation-adjusted data tracked by Yale University Professor Robert Shiller. That compares with the average of 16.4 since 1881.

Translation: I'm being "generous" with these so-called valuations. But you'll never hear that on TOUT-TV.

Birinyi Buys

While the stock selloff reflects reasonable concern that Europe’s sovereign debt crisis will derail global growth, U.S. corporate earnings and favorable valuations will prevail, said Laszlo Birinyi, the founder of Birinyi Associates Inc. Profits for S&P 500 companies are forecast to increase 17 percent this year, pushing the index’s price to 13.2 times annual income, according to data compiled by Bloomberg.

“I am not of the view that we’re going to go into a 20 percent downdraft,” Birinyi said in a telephone interview yesterday. “We are buying to take advantage of this weakness.”

Translation: "I'm a tool"

Billionaire investor Kenneth Fisher also sees the equity plunge as a buying opportunity. The chairman of Fisher Investments Inc., who oversees about $35 billion in Woodside, California, said the U.S. economic recovery will outweigh the debt crisis in Europe.

Gross domestic product in the world’s biggest economy rose at a 3.2 percent annual rate in the first quarter. Consumer spending increased by the most in three years and business investment on new equipment advanced at a 13 percent pace. The economy will grow 3.2 percent to 3.7 percent this year, the Federal Reserve said on May 19.

“If GDP is rising, you don’t have a recession,” said Fisher. “We’re getting the stock market correction that begins to let us put everything behind us and move on to the next leg. This is a bull market.”

Translation: "I'm an even bigger tool than Birinyi. Anybody that followed my real estate advice back in 2005 is broke & destitute. But I still flap my gums whenever I get a chance"

All kidding aside, Last night I was asked my views on some levels that we could hit... Frankly, there are too many crosscurrents at play here, but I'll toss out a few levels to give it some perspective.

1070 - TD&ZH are warning that there's a huge "size wall" there... If it gets taken out in the cash, watch out below...

1065 - Flash crash LOW PRINT (seems irrelevant now - futures pointing near there)

1050 - The Chicago pits seem to love that number

1044 - The February low (with the "forces that be" may prove to be an irrelevant number as well)

1042 - The .1457 FIBO extension from 1219.80... EW'ers & fibo freaks (like me) are keen to this number

1000 - purely psycological

972 - A number CV tossed out during the January correction but was never hit...

956 - That was the summer '09 previous high (may act as somewhat of a H&S)...

932 - (a .2357 fibo extension from 1219.80)... This would mean the market has done more than a 20% correction... Many pundits would say that we're now in "BEAR MARKET" territiory (as if we were ACTUALLY in a bull)... Whatever...

Or, if you wish, I could go find Birinyi, Fisher, or AJC for you... In the end, they'll probably be right... Obama is probably on the phone right now asking how many trillion it will cost to buy back 2,000 DOW points...