On Economic Recovery and More Frustrated Mavening

There are plenty of reasons now for a pullback..as economic recovery and green shoots are finally being questioned. Meredith Whitney, a self professed market guru, credited with predicting financial meltdown, is once again in WSJ. She writes "Anyone counting on a meaningful economic recovery will be greatly disappointed...SHOCKER!!!! Are you serious, woman? WHO IS STILL EXPECTING A ROBUST ECONOMIC RECOVERY?. C'mon...anyone that still does, is not likely to be a WSJ reader, so perhaps she should really Op-Ed in New York Post instead. She should get a bit more ‘shock’ capital that way. Dougie Kass is also rehashing his 10 bearish points….again and again. And did Goldman Sachs had the actual foresight to increase their jobless claims estimate by 25%, on Thursday afternoon, a day before the release? Not sure how tough of a stretch it was in light of all the negative economic data we saw over the past week or so. And yes, having Mr. Paulson on a speed dial helps.

So, October started with a bang. BANG BANG, that is. Hey, why should anyone be surprised? Plenty of excuses for a sell off, just pick one, or two, or three. But let’s get real people! Let’s stop the nonsense of arguing if we are in recovery. This is not a question anymore. We have recovered greatly from the abyss of 2008.

Why should anyone expect anything more than a subdued, shallow slope improvement? The weekly/monthly data will be mixed and volatile. You can bet on it. No V-shape, baby. Think about it. We are attempting to dig ourselves out of the worst economic and financial crisis in modern history, of course it will be choppy! Unemployment will continue to rise for at least 6 more months – deal with it and don’t act all shocked when it gets above 10%. I see absolutely no way for the job growth to come back, until the revenue growth resumes. So let’s get real. Let’s not expect miracles. Let’s not confuse hope with reality. Let’s be patient. But there is no reason, really, to be a doomsayer either, even though fear mongering has become quite fashionable now days. And yes, let stop freaking out, every time the market goes down 3% and we get an ugly economic stat. Unless there is a trend developing, don’t use one month’s data to justify your bullish or bearish stance. Yes, Meredith and Dougie, you said your piece, now shut the hell up and let see what happens.

Diatribe aside, the market held up OK again, after a scary day or two. Will the slide continue, I really can’t tell. The issue is whether the greed (of dip buyers) and sidelined cash, can overcome the bearish arguments. Will the sentiment turn completely negative? I don't know. But the fact that the cash and bond yields are still crappy, there is little reason for institutional money managers to dump their equities. This was once again pretty obvious on Friday, as we witnessed outflows from bonds into equities, providing an army of dip buyers with some aerial support. And as I discussed in my previous post, the technicals suffered some damage, but overall held up OK, bouncing from a 50 day ma.

For now, I am comfortable with my long positions, beta exposure , and cash levels. Perhaps we can finally get the correction out of the way, in a more meaningful way that the last few we had (ranged 3%-4%). For now, I am still operating under scenario that the market will remain range bound between 950/1000 and 1100/1150. But let see what the next few weeks of earnings will bring. More on earnings and what to look for in my next post.