Wednesday, July 15, 2009

Predictions Are Stupid

So I'll go ahead and predict the next 6 months for U.S. equities.

My view is that the ~40% bounce from March 9 through late May was due to the oversold state of the market and the fact that the deterioration in macro conditions finally started to decelerate. The second derivative is your friend sometimes.

The pause/correction over the last 6 - 8 weeks was both healthy and reflected the fact that folks who still wanted to get back in needed some leadership horses to bet on.

Ladies and gentlemen, I present Goldman Sachs and Intel, front and center, with much better than expected earnings. Financials and tech are supposed to be early cycle, leadership groups. Many of the financials are broken and can't lead, so it's a good thing we have Goldman. Intel is just coming off a cyclical bottom like its old self. A buddy at Morgan Stanley called the quarter "a classic early cycle in-your-face rebound quarter".

As an aside, you may have noticed that Goldman and Intel were much cheaper on Monday than people thought they were. Particularly people who said that the market was not all that cheap and therefore had no upside.

Here's what I think will happen. I think we get a short term rally based on new optimism and leadership, and then a meaningful correction between next week and labor day, designed to shake out all the folks who don't really want to be involved and piss off everybody with an ounce of optimism in their body. Finally, I expect an investable rally through year end with the S&P 500 ending the year up 20% or so, and lots of angry people on the sidelines.

That is all.


Google Finance changed their layout this week and my computer keeps crashing. Very frustrating. Not only do I crash but all my user names and passwords get erased.

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