I am now a married man....wow, it feels weird saying that. Everything went really well and I'll be going away to Spain on my honeymoon on the 19th for 12 days...I'm really looking forward to it but I'll be still trying to keep on eye on the market...for me, it's an obsession that I can't get away from.
My portfolio currently consists of a handful of Canadian microcap stocks, puts in POT and a big position in cash. As I stated late last week, I believe the market will likely catch it's breath for at least for a few days with sideways to slightly down action. Markets made yet another marginal new YTD high today but the action felt like a short lived short squeeze. One measure of ST trader sentiment I follow has just crossed into bearish territory and I sensed quite a bit of angst from the shorts today....so I wouldn't be surprised now to see the market throw the bears a bit of bone soon. But as I mentioned before, so long as bonds remain about where they are now, I believe downside should be limited unless I see extreme greed on the part of traders/investors which I don't see at this time.
We are in the sweet spot right from both a fundamental and sentiment perspective. Economic momentum is positive, interest rates are rock bottom and governments around the globe are simultaneously maintaining significant stimulative measures. Meanwhile, investors are only cautiously optimistic at best with plenty of them still skeptical/bearish. Anytime the bulls start feeling good about themselves they become quickly humbled and run for the hills when the market has only a mild pullback. This is all in regards to the longer term outlook by the way.
In Bloomberg I just read an article which mentions how the government is looking to sell its stake in citigroup which has a cost basis of $3.25 giving it a paper profit of close to $10 Billion! They've also made quite a bit of money in other TARP related programs. I know there's some arguments against just how much they have made or didn't make but the bottom line is that these bailouts turned out to be a huge positive surprise if you ask me. Everyone, including me didn't expect such successful results.
I believe that global stimulative measures are going to be in force for as long as possible because the governments around the world probably feel that a miracle took place whereby an economic collapse that would have resembled the 1930s was averted. Try putting yourself in the shoes of Geithner, Bernanke and any government authority last fall. Can you imagine the fear and stress they experienced when the financial system was literally imploding? After numerous failed attempts at arresting the collapse, we have seen over the past 6 months that these policies have finally got some traction and helped create a clear turnaround in economic momentum...sure, it's still not blue skies and apple pie but we have seen earnings rebound, credit market spreads collapse to pre-Lehman bankruptcy levels and job losses shrink dramatically to the point where job gains appear to be not too far away.
Although the fed doesn't want to exit its stimulative measures too soon to short circuit the "green shoots" they also don't want to repeat the same mistake they made by keeping rates too low in 2003-2004 which helped spawn the housing bubble. Therefore, I don't agree with the notion that rates aren't going to be raised until the latter half of 2010. Even if the fed wants to do this, I don't think they want the market to believe that this is a given otherwise it may encourage leveraged speculation leading to another bubble.
I think rates will be raised sooner but only to more "normal levels" such as 1-2% (if you want to call that normal lol!). At the very least, I believe the fed will soon jawbone the market giving a hint that it may want to remove the emergency 0% rate if the recent signs of recovery persist. Emergency 0% rates make no sense right now and will make absolutely no sense if the positive trend in economic momentum continues for another 3-5 months. 1-2% rates are still quite stimulative and such a rise in rates would help keep leveraged speculators at bay so that a new bubble won't be formed. But the fed won't do such a thing until they are more certain about the recovery. They will error on the side of being too accommodative than too restrictive.
I will be watching the bond markets a lot more closely. A short bond trade is beginning to look appealing based upon the above.
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