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-- Posted Thursday, 29 November 2007 | Digg This Article | Source: GoldSeek.com

Rick’s Picks

Thursday, November 29, 2007

“Phenomenally accurate forecasts” 

Given the stock market’s remarkable surge the last couple of days, anyone reading only the headlines might get the impression that all our economic troubles were behind us – the mortgage crisis, falling home prices, dark clouds of recession, the sickly dollar, etcetera.  Alas, all of those problems are still very much with us and growing, even if Wall Street’s wildly exuberant behavior would seem to suggest strongly otherwise.  But what’s a headline writer supposed to do?  Probably no parabolic stock-market rally in history has ever been properly described as having resulted from a massive short-squeeze. And yet, that is precisely what caused shares to explode yesterday against the most depressing economic backdrop since Americans queued for blocks to buy gasoline in the early 1970s.

What triggered the buying panic was a dovish speech by the Fed’s vice-chairman, who acknowledged that the credit markets have deteriorated dramatically since the last round of easing.  Now, we doubt there is anyone on earth who is so stupid as to believe that another rate cut, even a big one, is going to transform a rapidly deflating $13 trillion economy into a booming one – and, make no mistake, it will take no less than the rekindling of a full-blown housing boom to merely nudge consumer spending up to levels that would allow us, yet one more time, to dodge the bullet of recession-or-worse.

Why the Frenzy?

So if no one actually believes easing will accomplish much – other than, perhaps, to accelerate the dollar’s destruction – then why were buyers whipped into a frenzy yesterday on the NYSE?  The answer is that they were buying simply because they recognized that none of their OPM-churning colleagues would be able to suppress the buying reflex in the face of a dovish speech from the Fed.

We have no doubt that those who paid up for shares yesterday will eventually come to regret it. Even so, we can only defer for the time being to the irresistible power of this short-squeeze, which we expect to continue at least into today. For we are likely to find that demand arising purely from short-covering will not have abated much, since bears never had a chance to escape from the ringer yesterday.  Indeed, the Dow Industrials gapped sharply higher on the opening bar, then scarcely corrected for the next six hours. This has consequences for Thursday morning that are potentially tradable and which have been analyzed in detail in the touts section of Thursday’s Rick’s Picks. To anyone who would rather experience Thursday’s opening hour as a disinterested observer rather than as a victim, I would urge you to check it out. 

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Thursday, 29 November 2007 | Digg This Article | Source: GoldSeek.com

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