The Perfect L-Shaped Recovery

Since no one else will ask the question, I will; why in 2010 must the legislation of basic human integrity, still, is necessary? I know, man and money are not the stuff, of which, virtue is made, however, when will it sink in that tempting fate, especially during a secular bear market, ultimately, is a loser’s game?

The FinReg follies have concluded with TBTF banking left unmolested. If there were men, or women in charge, who would have said years ago, “…no thank you, this firm prefer not to do business in this manner”, the notional value of outstanding credit default swaps alone would not eclipse the insane $65 trillion dollars being demanded by Kim Jong-il, North Korea’s Supreme Leader, as reported in Forbes from an AP story, as war reparations from the US.

The denture-wearing Dodd-Frank Act is being hawked as the toughest regulatory piece of legislation since the 1930’s. Reinstating Glass-Steagall, strictly enforcing the Securities Acts of 1933, 1934, and the 1940 Investment Act would have been faster, cheaper, and more powerful. Progressive Republican, Judge Ferdinand Pecora is undoubtedly disappointed at the latest scion of his depression era handy work and he’s been dead since 1971.

If the BP Deep Horizon Project Manager had said “not on my watch” and stopped operating the drilling rig once it was discovered and reported that too many short cuts had placed the overall safety of the men, facility, project, and gulf of Mexico, into question.

Is it too much to ask that a dollop of integrity be used in Washington DC, as we enter the double-dip of the Great Recession, so that the proper mixture of program cuts, war funding, and tax increases is crafted with intelligence and vision?

Gee - 20?

North of the border, an amoral group of desperados, thieves, cutthroats, land pirates, scallywags, and mercenaries, oh yes - I’m not speaking of illegal immigrants invading Arizona, I’m referring to the G-20 confab being hosted by Toronto, Canada, at a cost of $1 billion dollars, to protect world leaders. The meeting ended with Europe committed to austerity measures while the US favors more spending.

I guess if you have almost destroyed the global banking system, the global financial markets, turned home ownership from a lifetime achievement reward into a daily nightmare, robbed the soon-to-be retired of their nest egg with a zero return over the previous decade, while paying actual retirees next to nothing for the use of their principal, and insisting that everyone’s standard of living for the next decade must become austere, for the greater good, then, protection to the tune of $21M an hour, including overtime, over a two day period, is necessary.

The European Union is on suicide watch, China’s foot is on the stimulus break before home prices and wages reach outer orbit, and Australia is smothering mining stocks with new taxes; so mining, one of Australia’s most powerful industries, smothered the career of the previous PM, and replaced he with a she. The USA and its states are broke, so are many of its citizens; the velocity of money is nearly a negative number, unemployment is not falling - but home prices are, The Gulf of Mexico is a challenge unto itself. Purchasing equities is a low priority.

The Bear Market

The secular stock market will experience severe head winds for the next few years. Highs in the popular averages have been made for 2010. The street is beginning to accept that there is no V-shaped recovery on the horizon; or a U-Shaped, nor a W-Shaped - the winner of the 2010 Post Great Recession Economic Silhouette is the letter L.

The final 1st qtr. GDP figure was 2.7%, down from 5.6% in the 4th qtr. of 2009. Consensus agreed at the outset that stimulus spending added roughly 2.5% in GDP growth.

That as a given, the organic GDP figures for the 4Q/2009 and 1Q/2010, respectively, was 3.1% and 0.2%. Averaging the two quarters, GDP growth is 1.65%. Congress, not passing the extension to unemployment benefits, is reducing in the economy, by an additional $5 billion, monthly, deposable income to aid spending, adding one more headwind to the recovery. Dodd-Frank will add to the cost of doing business. Massive layoffs are scheduled at the state and municipal levels. Tax selling will pick up as well.

In 2010, the way you win the money management game is by not losing.

Continue to buy gold on dips; GLD, IAU, SGOL, and gold bars and rounds. Cash is King. Don’t add to treasuries’ positions, with the 10-year note below 3%, and don’t sell any you may own– for now.

Apple Computer

Apple computer stock is a sell. The iPhone 4 is the greatest invention since electricity; this was proven with 1.7 million units being sold in the first three days. At the beginning of this year, everyone said the stock price would easily reach $300. It did not.

Some day it may reach that round figure, but not before the next market correction occurs. Apple will see $250 before it will see $300. It closed Friday at $266. If you want to own it, sell the 260 October put. If I’m right, the stock will come back to you. If you think I might be wrong, buy the 280 October call for insurance against a short-term bounce, though I doubt it.