*****The Effects of Uncertainty
*****The Blame Game
***** Stocks were unable to build on Thursday’s momentum. Friday’s late sell off seemed like a pretty obvious vote of no-confidence for Paulson. It also suggested the market had low expectations that the G-20 meeting that took place over the weekend would lead to any concrete action.
And the market was right. The G-20 meeting resulted in nothing more than a pledge for coordinated action. No specifics on what that action might be. Not even a hint.
That means investors still lack any direction. When Paulson’s TARP plan was focused on relieving banks of the toxic effects of bad mortgages, we saw some stability from the big banks like Bank of America (NYSE:BAC) and Citigroup (NYSE:C).
Both banks managed to post gains after the big washout on October 10. That is, until Paulson changed the focus of TARP. Since last Monday’s closing prices, both Citigroup and Bank of America are down 20%.
That’s directly due to investor uncertainty.
*****GM (NYSE:GM) is another example of this. Now that some kind of bailout for the automaker is gaining traction (congress begins meetings on the issue today) GM stock has moved higher.
And Las Vegas Sands (NYSE:LVS) has stabilized now that bankruptcy seems to have been averted.
*****Many analysts are saying that stock prices currently reflect the recession and the potential for 8%-9% unemployment. Maybe, maybe not. But the uncertainty surrounding the credit markets make it almost a moot point. So until Paulson can specifically articulate his new plans for TARP, or the world’s biggest economies come up with some action, stocks will have a difficult time moving forward.
*****Buck-passing is a pretty popular pastime these days. Banks are blaming the rating agencies for giving mortgage-backed securities credit-worthy ratings. Ratings agencies say they can’t afford good enough people to get ratings right. Homeowners blame mortgage companies for getting them in loans they can’t afford. And pretty much everyone blames Alan Greenspan.
Well, here’s a good one from the President of the United Auto Workers Union, Ron Gettelfinger.
"We’re here not because of what the auto industry has done," he said. "We’re here because of what has happened to the economy."
So it was the economy that did GM in. It wasn’t GM’s failure to see higher oil prices coming and deciding that SUVs and Hummers were the answer. And it wasn’t the unions whose unrealistic pension and wage demands crippled the automakers. It’s the economy, that’s been bad for less than a year.
I wonder who Toyota blames? Toyota’s steadily taken market share from GM, selling its cars made in American-based factories by American workers to the same American consumers.
Yeah, sure, it’s the economy’s fault.
*****Perhaps the biggest uncertainty for all of us concerns accountability. As in, when are Corporate America and Wall Street going to get some?
Most of us don’t have the luxury of blaming others for our mistakes. And we probably wouldn’t take that cowardly way out even if we could. We’re accountable to our friends and family, our co-workers and employees.
*****On Friday, I introduced you to a couple stocks that my stock selection system uncovered. The first, Graham Corp. (AMEX:GHM), was a past winner (125%) that’s fallen on hard times. The second, Questcor Pharmaceuticals (Nasdaq:QCOR) is an up and comer.
I’ve been meaning to tell you more about my stock selection system, but there’s been so much else to discuss lately, what with financial Armageddon and all, that I haven’t gotten to it. (Whoops, there I go, blaming the market.)
Eventually, stability will return to stock prices and we’ll once again once again want to buy stocks. When I buy stocks, I look for two things – fundamental strength and buying pressure.
I don’t like the value investor’s route, where you buy what’s cheap and wait for the market to recognize the value. That can take a long time, and it’s my opinion that you suffer "opportunity loss" while you sit on a stock that doesn’t move, regardless of the "value."
At the same time, I’m not comfortable buying a stock just because it’s going up, regardless of fundamentals. Call me greedy, but I want to see fundamental strength confirmed by a rising stock price.
So I hired a programmer to work with my Senior Analyst, Benson George, and build me a computer based stock selection system. Over the next couple of days, I’ll tell you more about the inner workings of the selection program, which I named TRIGR.
For now, you can see the TRIGR demonstrated in the selection of Questcor Pharmaceuticals. There aren’t many stocks that posted gains for October, but QCOR is one of them. And it should post more nice gains going forward.