Can Bank of America Break $14?
I'm still miffed at Fed Chief Ben Bernanke for not speaking with confidence about the U.S. economy. For a group to succeed, it must have confidence that it can succeed.
Generals know this. Coaches know this. But for some reason, Ben Bernanke just can't bring himself to give the economy a vote of confidence.
But perhaps he's competing with the Bank of Japan and China's government in the great race to the bottom for currency valuations.
China pegs its currency primarily to the U.S. dollar, so we do its dirty work. The BoJ recently started actively intervening on the currency markets after its repeated threats to do so failed to lower the yen.
Perhaps Bernanke, after recently re-starting its Treasury purchases, is simply keeping pace with his cautious tone and promise (threat?) to "do more" if the U.S. economy weakens.
The more I think about it, the more I think Bernanke's uncertainty is a front to keep traders uncertain about the U.S. dollar. Outright bullishness on the U.S. economy would likely ramp the U.S. dollar.
Maybe I'm making it too complicated. As one prominent hedge fund guy, David Tepper, told CNBC last Friday, if the economy improves, stocks will do well. If the economy doesn't improve, the Fed will step in and everything will do well.
The stock market is certainly sending us a signal. I suspect we have one of those trading windows where stocks continue to push higher in a virtually straight line for a few months.
We saw one of these rallies off the Feb 2010 lows to the April 2010 highs. And we saw one that started in mid-July last summer that carried into the Fall of 2009.
Both if these rallies were noteworthy in that they didn't give investors many dips to buy. One had to quickly act with conviction, or simply sit on the sidelines.
Since August 31, consecutive down days have happened only once, and that was last week. The S&P 500 looks like it is on a collision course with the April highs above 1,200.
This is a heavy week for economic data. Consumer confidence is out Tuesday, the final 2Q GDP reading comes on Thursday along with a Chicago area manufacturing survey. Friday is crazy, with personal income, spending, consumer sentiment and the ISM Index.
If I had to hazard a guess, I'd say spending and the Chicago PMI are the ones that have to come in good. And spending is the most important.
Technology stocks have taken over the rally, wrestling the leadership position away from energy and financials. But that doesn't mean the early leaders, especially financials, have given up the race.
As you know, I recommended Bank of America (NYSE:BAC) on August 31 as a way to take advantage of an imminent rally. It rallied better than 10% in a matter of days, easily outpacing the S&P 500.
But BofA hasn't done much since it ran into resistance at $14.
The stock added $0.43 on Friday to close at $13.60. The S&P 500 added 23.84 to close at 1,148. Another move like Friday's puts BofA a couple pennies above resistance at $14, and the S&P 500 at resistance 1,172.
According to Wyatt Investment Research analyst Jason Cimpl, editor of TradeMaster Stocks, financials are setup to make a big run higher if the group can take out near-term resistance. To find out more about his assessment of financials and his trading service click here.
I said I'd include some reader mail today. These letters are long, but let's get started with Greg N.:
I was a business man once, self employed for just under 20 years. I don't recall ever waking up, going to work, and asking: What can my federal government do for me today. It seems to me, our government and political leaders have been working really hard trying to make the majority of American people a dependent class of people. They deliberately get in the way and continuously pass one piece of onerous legislation after another that makes more and more people dependent on the government. Survey all businesses, and the overwhelming response to the government would be: Get out of the way and leave us alone, keep our taxes low, and just quite simply create an environment in which we can thrive and succeed; we don't even want to notice that your there!!!
I love Greg's reference to JFK's "ask not what your country can do for you..." And it's impossible to ignore the feeling that government has been fixated on "fixing" things, rather than promoting growth. I also get the sense that government is getting back to the idea that idea that promoting growth is the way to go.
Gary S. wrote: I have been in construction all of my life. I am 66 years old, and just retired. I didn't retire because I wanted too. I retired because of the current economy.
The first time I was on a construction project was when I was 7 years old. It was on a Synogogue in Hollywood, Calif. My dad had me sticking slab dowels in a wall that they were pouring concrete in. Needless to say that in this day and time you would receive a hefty fine if you let a 7 year old do such a thing. But, I was hooked for life. Over the next few years I went to work with my dad on many construction projects when I wasn't in school. At the age of 12 I started working on a chicken ranch after school and on the weekends. I did that all the way through High School. At the age of 17, between my sophomore and junior year in high school, I got a permit as an ironworker. For the next year I worked on permit every break in the school year. In August of 1962 I joined the union as a Journeyman Ironworker. That was just before my Senior year. After High School I worked in the field for over 15 years. In 1972 I got my Contractors License for Reinforcing Steel C-50. At the time I was the Superintendent for a small rebar company in Southern Calif.. Five years later, during the Carter Administration, I started my own placing company. For 2 years business was good, and I was building a good reputation. Then in 1979 things started to change. The interest rates were going through the roof, and the construction industry as usual took the 1st hit. Construction loans were very hard to get, so my business started on a 3 year spiral in the wrong direction. In 1982 I had to close down, even though I could see that the new policies of the Reagan administration would eventually bring interest rates back down. In May of 1983 I took an overseas job in Sri Lanka. In August of that year my daughter was killed in Sri Lanka by a snake bite. We came back to the US and I took a job detailing and estimating for the company that I had been Superintendent for in the early 70's. To make a long story short, the next 20 years we were quite busy, except for 1993 & 1994. In 2004 I moved to Idaho and started an outside detailing and estimating service. For 5 years I was extremely busy. Then 2008 happened. You know the rest.
You ask what could government do? I'll tell you my thought. Government should freeze or reduce government hiring of beaurocrats. If we are going to spend tax money on anything it should be fixing and/or updating our aging infrastructure. That would put Contractors and construction workers back to work. Beaurocrats push paper. Construction workers actually build a product. Then government should cut the red-tape, and let private enerprise do what they do best. This country is the most over-regulated country in the world. As an example: go back to my beginnings in construction, and my work on a ranch. They say that Americans will not take certain jobs. I wonder why. Is it because we have restricted our children from working through the age limitations we place on them for certain jobs? When I got my first paying job (my dad never paid me when I went to work with him) on the chicken ranch I already knew what hard work was all about. Kids today are told that they cannot work certain jobs (unless it is a family business) until they are a certain age. Don't get me wrong. I think children should be well supervised if they are in any job, but they need to learn work ethic. I'm not saying we should go back to the 1800's, but we need to be more realistic. Other countries train their children at an earlier age to be self reliant. As those countries become more efficient, and educated they will have the advantage of adults who have a better work ethic. We have spoiled our children. As a union member all of my adult life I have tried to warn the leadership of our union that they were making a big mistake by asking for too many benefits and pay increases. We have made our companies non-competitive in the process. Well, I could go on and on. Sometimes I think I could write a book, but no one would listen to and old ironworker anyway.
My condolences for your family's loss. That is heartbreaking.
Now, I think, in the wake of the financial crisis, we Americans have taken a hard look at ourselves. And the basic conclusion is that we've forgotten some fundamental American ideals. We've squandered wealth, we've spent too much, we bought homes we couldn't afford and we trusted Wall Street too much.
It's high time we re-value a hard day's work. And I'd like to read that book.
Robert B. wrote: I see your point about restoring US jobs. One thing we can do is make the cost of industrial energy in the USA as inexpensive as possible by creating domestic supply or at least North American supply. What is the real cost of Middle Eastern oil when you add the cost of the Military to protect it? If we are protecting it for the Europeans, Japan, China, etc. let them pay that cost. However, that doesn't mean cheap gas for civilian cars or cheap energy for homes. Energy costs there should be based on a globally realistic price. It's ridiculous that Venezuela keeps its gasoline price at about .10 cents a gallon. We are probably helping indirectly with that subsidy.
Another thing we can do is keep our newest and best technology at home. My brother works for a company that makes a high tech product. They've shipped the low tech. part of the production to China and then sell the product in Asia. The Chinese are trying every way they know to beg, borrow or steal the piece they need to make it all. If they get it our Co. is in trouble. This is true with many other industries.
If we give the Chinese, Indians, etc. our best technology, science, etc. and finance their factories, etc. we just can't compete on labor, environment, health, safety,etc. My brother's previous Co. did that and they are extinct like the Dodo! Globalism has a dark side. We can't use our capital and tax dollars to develop proprietary systems, science, technology, materials here and immediately take them to a third world country for a few extra dollars profit. I'd tax the life blood out of companies that did that.
Why?
Because their executives and owners have told me personally that they are in it for the short term because everybody else is doing it, etc.. They admit that their factory, industry, product will go overseas and they'll eventually be out of business. I realize that it's not easy to tax overseas profits. The company can keep its profits overseas. In fact the Chinese won't allow my brother's company to take currency out of the country. But the USA will have to do something soon or we'll finally realize we are bankrupt and the borrowed money is gone or worthless. History has recorded times like this in the past where rabid, starving wolves, hungry wild dogs and crazed mobs ruled the countryside. It's not a pretty picture!
This letter highlights the point that America is the primary source for the technological innovation the world thrives on. That's an edge that must be maintained.
Tom N. wrote: I read with interest your comments regarding job creation and you questioning if the government should be involved. I question the government involvement but certainly the stimulus package bill of goods did promote job creation as a fundamental reason for bill acceptance/approval. Much of the money has been spent to support the infrastructure, fed.,state and local government.
Unfortunately if you peel back the onion I am sure considerable amount of money has been wasted or just disappeared, more pork belly.
Job creation, for moving rocks from one pile to the other, or roads going nowhere is certainly not the answer. We know that as much as 2/3 of spending is consumer spending and the sector that stimulates the economy. We not only need the consumer to part with their money but to purchase products that are produced in the good old USA. I am not talking about government protectionism. People need to take this action on their own. I have certainly traveled to places such as Korea, Japan, Taiwan where people buy their home products. While only from observation, but I would guess, by a large margin, you will find Korean branded cars traveling the Korean street. And Korea certainly is heavily engaged in encouraging foreign brands to build local plants for domestic sells.
Many here may thing they are doing their part by buying domestic household names such as P&G, but many of these companies are now creating their products offshore. Yes it is stated it is in the name of better pricing but one must wonder if the better pricing reaches the consumer or greater profit for the company. In a recent article, I read from a conscientious buyer that they read the label on where product was actually produced. In many instances the unfamiliar brand made in the USA, matched the quality and offered a cheaper price than are familiar brand.
I read with interest how GM is building a new police car for the USA market, it naturally will be targeting the municipalities. The car is actually be assembled in Australia. The USA bails out the company and they in turn have the product assembled in Australia and want the tax base in the USA to pay for these, what is now a foreign car. Many people are very sensitive on buying American but it is time to not look at the brand but the label to see where it is actually created or built. We now have foreign companies building plants in the USA, I am in favor of supporting these products rather than the historical, once was, USA branded that now go off shore.
Certainly I may be all wet. But it is my simple thought that such action would encourage more domestic production, more jobs, more consumer spending, the upward spiral.
Buy American: that's a great message.
Of course, I'd like to hear your thoughts here: dailyprofit@wyattresearch.com
