The Canadian Financial Market and Trading Network
Why an Obama rally is coming . . .
Today was another bleak day on the exchanges. Dow testing 8200, the S and P faltering again and the TSX commodity rally is all but done with the oils, golds, and miners giving it all back (Teck is $5 again)! So why is the Obama rally gonna happen and why I think you should get long asap. I have three reasons to believe this will happen.
First of all, capitalism and the stock market rely on hope and positive thinking to result in higher days. Negative sentiment, job losses, lower retail sales, etc. are yesterday's story, at least in the short term have demonstrated the ability to knock the stuffing out of stocks and disuade people from being long anything. However, with some of the richest and brightest people in America being supporters of Obama's campaign, I believe the same emotion and hope that were prevalent within his campaign will resurface. In the face of Bush being set aside, and Obama offering another speech of success ahead, money will flow into the capital markets in the hope that he will succeed and set the economy straight again.
Secondly, the Tarp fund and the mismanagement of the first 350 billion. Wall Street got it, they shored up their balance sheets, paid off the Christmas bonuses, and lent nothing to anybody. Classic! However, Obama has figured Paulson out as nothing more than a Wall Street crony and will have control over the final 350 billion. His plan is to put it in homeowners and consumers hands this time. These are the people who spent their ways into massive debts for houses they couldn't afford and Ipods they didn't need, look for them to do it again and earnings to surprise moving forward. Remember, the stock market is an indicator of earnings to come, not those that have already happened. The long term consequences of these actions will still be painful and will cause the market to fail again later, but in the near term we may get a rally that carries us through the summer.
Lastly, the LIBOR rate is insane. The 3 month lending rate hit a 5 year low today at 1.09%. Credit and money is starting to flow again, however, it is only flowing to the bond markets as corporate bonds are yielding ridiculously high rates and true capitalists follow the yield return. To be ranked higher on the food chain than the equity holders and to get 11 or 12% yields on blue chip companies demands money flow from equities to bonds. However, because credit is beginning to flow easier now, the debt market will no longer be desperate enough to offer such ridiculous yields and the equity market will begin to draw that capital flow as banks begin to expand lines of credit to corporations again at more reasonable rates. Thus, Nokia at 6% or GE at an 8% yield on the common stock will undoubtedly get bid up, as will all the other hammered stars of the past, and we will be at Dow 9400 before you know it. Don't get fooled though, this will only be an Obama bandage, when the money is spent and the hope is replaced with reality, our bull rally will be consumed by the bear again.
Happy dart throwing and may all your tosses be 4 baggers!
First of all, capitalism and the stock market rely on hope and positive thinking to result in higher days. Negative sentiment, job losses, lower retail sales, etc. are yesterday's story, at least in the short term have demonstrated the ability to knock the stuffing out of stocks and disuade people from being long anything. However, with some of the richest and brightest people in America being supporters of Obama's campaign, I believe the same emotion and hope that were prevalent within his campaign will resurface. In the face of Bush being set aside, and Obama offering another speech of success ahead, money will flow into the capital markets in the hope that he will succeed and set the economy straight again.
Secondly, the Tarp fund and the mismanagement of the first 350 billion. Wall Street got it, they shored up their balance sheets, paid off the Christmas bonuses, and lent nothing to anybody. Classic! However, Obama has figured Paulson out as nothing more than a Wall Street crony and will have control over the final 350 billion. His plan is to put it in homeowners and consumers hands this time. These are the people who spent their ways into massive debts for houses they couldn't afford and Ipods they didn't need, look for them to do it again and earnings to surprise moving forward. Remember, the stock market is an indicator of earnings to come, not those that have already happened. The long term consequences of these actions will still be painful and will cause the market to fail again later, but in the near term we may get a rally that carries us through the summer.
Lastly, the LIBOR rate is insane. The 3 month lending rate hit a 5 year low today at 1.09%. Credit and money is starting to flow again, however, it is only flowing to the bond markets as corporate bonds are yielding ridiculously high rates and true capitalists follow the yield return. To be ranked higher on the food chain than the equity holders and to get 11 or 12% yields on blue chip companies demands money flow from equities to bonds. However, because credit is beginning to flow easier now, the debt market will no longer be desperate enough to offer such ridiculous yields and the equity market will begin to draw that capital flow as banks begin to expand lines of credit to corporations again at more reasonable rates. Thus, Nokia at 6% or GE at an 8% yield on the common stock will undoubtedly get bid up, as will all the other hammered stars of the past, and we will be at Dow 9400 before you know it. Don't get fooled though, this will only be an Obama bandage, when the money is spent and the hope is replaced with reality, our bull rally will be consumed by the bear again.
Happy dart throwing and may all your tosses be 4 baggers!
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