Friday, February 4, 2011

A view into an analysts mind...

I had the fortune of being invited to an investor conference at the Four Seasons in Miami last night. It was a great commentary about the psychosis of markets and trading that I wanted to post about it.

Firstly, the conference reaffirmed the extremes and fragility of investor sentiment for me. Analysts, including the Deutsche Bank one, can not find a reason to sell this market only reasons to buy it. Those reasons are interestingly based more on a trend that is motion continuing that motion than foundational logic. The reality is that almost all of the analysis that I see people using represents a short snap shot of time, as in 25 years with just few incidents of the criteria being validated against the data or outright colored glasse distortions. For example, at the conference the subject of the 1.2 trillion in the cash reserves on corporate America's balance sheet was discussed. The concept was that this cash would be use for dividend distribution, stock buybacks or investment. The interesting thing is that the impression is that corporations and corporate insiders are buying with abandon already despite the fact that there have been the highest ratios of insider selling to insider buying in history for months and months now. In fact recently there was 1 week where not one share was purchased by a company or insider for an entire week. This does not indicate that people think that shares are priced well or the future economics are compelling. But in bullish mindsets right now, you need only see what you want to see.

I asked the analyst what would happen if there were to be a mindset change with regard to the massive fraud with regard to state and market assets on Banking (especially last institutional) balance sheets? What would that do to the bullish thesis. His response was that "Egypt happened we hit a new high. Iceland happened we hit a new high, Russia got bombed we hit a new high, Greece happened and we hit a new high...This is bullish. maybe we could get a 4 to 5% pullback.". Don't fight the fed was another prevalent theory despite the correct dates on QE1 not being represented on the chart collateral.

Ironically, the results of manipulated markets is that corporate america is losing pricing power and squeezing its margins. People are demanding less and will continue to do so as long as there is no compelling reason to take risks or to buy things. The reality is clear, just as the jobs number was today. We all know that the jobless rate DID NOT decline to 9.0% unless all the jobless who were represented on previous reports were magically erased...ohhh, they were. If this type of manipulation is consistent with the appoach of our leadership then we are not going to build much confidence. But alas, Mr. Bernanke demonstrated the relationship between the truth and policy yesterday and in most of his days or in special circumstances with his outright lies in front of congress and on 60 minutes.
Amazing times that we live in. People in banking, are willing to represent that massive government sanctioned accounting fraud and manipulated markets and marks are foundationally sound for continued allocation to risk assets...

I will kindly hold my short that i took over the last few days with a little more clarity as to the mindset of investors. And its maniacal.

Above is the Dhaka Stock Market Index in Bangladesh which has droped well over 20% so far for no apparent reason. The contraction in credit and debt money is creating fractures, easily dissmissed by bullish analysis...but not by market psychology.
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