DEPRESSION NOT YET GREAT

Last week I was mildly positive about the market and consider the subsequent action, albeit volatile, as pretty decent confirmation as there was ample opportunities to go long. Right now I feel GE is the stock to watch because it best reflects the challenges of an AAA-rated industrial company hounded by overarching concerned of “financial” exposure. To wit, it has backed into regaining its status as an important market bell-weather company.

I always find it very instructive to constantly review my own“trader mentality” since nothing goes straight down/up, which is why, on occasion, I offer a market view diametrically opposed to my intermediate term views (6-24 months). When I’m ready to publish a book is when I’ll start commenting on my longer term visions (for suckers to buy).

Bull in a China Shop: Buying on the Rumor.  The bull case right now lies in the hope that China’s stimulus plan is the Real McCoy. It stands to reason that due to its relative size (vs GDP) and mechanism (Hu Jintao doesn’t have to deal with Congress) it should be more timely and effective. Therefore it must work before we get really excited by Obama’s plan. Until this view is discredited I think we can at least take a market meltdown off the table. For the brave few with market exposure remaining I believe that is substantial enough of a reason to look for a rally. Does anybody believe there is any meaningful selling pressure overhead between 700 and 800 on the S&P 500? I think not. I’m definitely open to dinner wagers that we see 800 before 600.

Nonetheless, I note that under more normalized conditions the collective size of the myriad entitlements offered in the U.S. is generous while China’s is still effectively nil (explains the savings rate). Without 8% GDP growth China is very concerned about social stability, and the consensus estimate is 20+ million have recently lost jobs , and the hope still is to encourage more domestic consumption to offset the global slowdown?! I fear that a higher proportion of the monies set aside for economic stimulus (short-term) will soon be shunted over to China’s nascent entitlement programs, as has already been initiated with basic healthcare. Meanwhile Chinas leadership disappointed markets last week by (tacitly) insisting a supplement to stimulus planned announced last November was unnecessary. Let’s hope so, but I’m not holding my breath.

Brace Yourself for Depression.  Yesterday, the World Bank announced it predicted global economy would be negative for the first time since WWII. To me this is an adequate proxy for declaring that we’re entering a period of Depression (term should always be capitalized). And although a spot check at the Federal Reserve will reveal that M2 money supply continues to grow at a rapid clip  (signaling possible major inflation) we can’t lose sight of the fact that credit (personal or commercial) is what is most precious these days. My strongest recommendation for those still employed remains unchanged: Aggressively pay down high yielding debt (e.g. credit cards) after leaving enough liquidity available to satisfy minimum payments in lower yielding debt and an emergency cash cushion.

Don’t Forget We’re in a Buyer’s Market.  Right now cash is king so those with the ability to pay in cold hard currency (especially before it may devalue!) should try to convert it to assets. Obviously great deals can be had not only in the housing market, but in autos and anything else that was formerly lubricated by easy money. Anybody shopping for a car not checking into LeaseTrader.com is doing themselves a disservice. And if even that’s a luxury, at least try renegotiating your rent. Landlords are always most concerned with “headline price” and utilization rate.  Use this information to your advantage to negotiating a favorable extension (you have to give back a little); that’s some major pre-tax dinero to be saved. Be aggressive. Play up everybody’s worst fears to your benefit (for a change). If successful, you will know exactly what every banker in the world is doing these days. Good luck.