Gary Kaltbaum is an investment adviser with over 25 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
Commentary for August 16th, 2010
In recent weeks, whether markets were heading down or bouncing up, I have been saying to expect things to be tough to play as I expected vicious rangebound action. That is all we had been seeing leading into this past week.
Markets had rallied back up to what I considered important resistance and in my last report I gave you levels that if broken above, would lead to another leg up. Obviously, that did not occur. Instead, the market was absolutely cheesed…with major averages down 3-plus percent. But that is not the story. The story is the drop was much worse than the few percent that the market dropped…just downright ugly.
The all-important SOX broke resistance like it wasn’t even there. Technology stocks of all kinds have been hit persistently hard. The SOX has always been a leading area for me to watch.
RETAIL never got back in the game and remains very weak. FINANCIALS are doing the same.
Just the fact that the SEMIS, RETAIL and FINANCIALS are acting poorly is enough…but basically, everything was hit at resistance with most charts now turned down. Leadership in the market has again narrowed and anything on the ledge, broke down.
It does not matter to me how you label the action. Some are saying this is the resumption of a bear that started a few months back. Others are calling it a correction. Notwithstanding the near term oversold condition that could lead to short term bounces, until accumulation shows back up, this market is in trouble and think defense is the best offense here.
I had to touch upon something else today. That something else is the next little bubble the Fed has created. It has created it by taking money out of consumers and handing it over to the banks. They do this by keeping rates at zero. Short rates should be 2% plus here giving a better return to the saver but instead, that money is staying in bank’s coffers.
I say this is highway robbery…but what’s a person supposed to do? We can’t even get the Fed to tell us what is on their balance sheet. This action has forced savers into what is called YIELD REACH. Ten year yields are down under 2.7%. On Wall Street, there are many vehicles that are leveraged that give the saver an inordinate amount of returns.
What do I mean? You can find closed end muni-bond funds paying 6-7% tax free. You can find other closed end bond funds paying double digits. Many of these funds are trading at 25-50% premiums to their net asset value. On top of this, junk bonds are flying off the shelves at a time when they shouldn’t be.
Again, people reaching for yield. So here is my take. Ignore at your own risk. I don’t know if it is today or tomorrow, next month or in a few months…but we are getting closer to the bubble popping for all types of these instruments and it isn’t going to be pretty. This has happened before when buying has gotten out of hand…and bottom line, I think we are getting closer.
Any bond buying I am doing is short in duration where I should not get in any trouble…and I will not buy any fund as there are no maturity dates for funds. And when it pops, you can look no further than Mr. Bubble himself, Ben Bernanke to find fault. This man never learns. You do not fix problems brought on by too much debt and leverage and low rates…with more debt and leverage and even lower rates. There are always repercussions. I have warned you. His policies are forcing people to reach…and the reach is now getting out of hand.
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