Impressive Rally

Not a bad way to start the second quarter.  Stocks soared yesterday on the belief that the worst in the credit markets is over and optimism spread through Wall.  Today, even the chronically depressed New York Times features a front-page article on the new optimism on Wall Street. It appears that the raising of capital by two prominent investment banks heartened the spirits of investors and led stock prices sharply higher.  As I have mentioned previously there is lots of institutional cash on the sidelines, which came into play yesterday as indicated by the big volume.  I’m not sure this rally has legs, but yesterday was impressive and some positive follow-through today would be very comforting. 

False Bottoms

In the past week there had been lots of speculation that the stock market had bottomed out and that it was up, up, and away.  Unfortunately, the action of the past two days suggests that talk about a market bottom was premature.  The housing market is still a disaster, although some smart folks seem to be stepping up to the plate and buying property on the cheap.  The credit markets remain fragile and gold is once again on the upswing in price.  Perhaps the worse is over, but I have a feeling there may be a significant retracement of recent gains in the days ahead.

Micro-Stock Doldrums

For a good part of my Wall Street career I have focused my research efforts on small and micro cap stocks.  It is therefore with much regret that I must admit that at this time there seems to be little interest in this sector of the stock market.   Investors just don’t seem to have much interest in the world of emerging small companies.  I follow many of these types of companies in my capacity as the director of research at Barrow Street Research and I can testify to the fact that while there are many terrific micro cap companies being traded their valuations are in the tank.  It’s very hard, particularly in this increasingly risk adverse investment environment for investors to get excited about small companies.  This is very unfortunate for the economy in general as these type of companies have for many years been the engine of job growth for the economy. What will it take to bring investors back into this sector?  I wish I had a good answer, but I don’t.  To some extent the disdain for small stocks is a result of many of the boiler room tactics that have been used in the past in promoting these types of stocks.  However, in today’s Internet world there is little reason for the savvy investor to be duped by unscrupulous touting of micro cap stocks. There is just too much information available on-line for any intelligent investor to be without the resources to check out micro cap stories.  For my part, I hope that investors begin to start looking for bargains among small stocks, for they most certainly exist.  I urge readers to start by looking at the Barrow Street Research web site.  I will be posting information on some smalls stocks that I find interesting in the days and weeks immediately ahead.

Bear Stearns Disgrace

The stock market has been behaving much better lately, and some folks are ready to declare the worst is over and it’s up and away from this point on.  Yesterday’s big rally was fueled by the revised offer for Bear Stearns that cheered many Wall Streeters.  The new offer came after big Bear Stearns shareholders embarked on a major whining offensive of how they were being screwed by the original offer to bail out the firm.  For my part, I want to know about the poor fools who were duped by all the junk that BS has been peddling for the past several years.  Who listens to their complaints?  As readers know I have no sympathy for the creeps at BS who created all these complicated financial instruments that are essentially worthless today.  These folks should suffer just like the people who were duped into buying them.  I supported the efforts of the Fed to bail out BS because to have that house of thieves go under would have been disastrous for the financial systems and hurt countless number of investors. But to sweeten the deal for the already millionaires at BS can get out at a higher price is just plain wrong.  No, it’s a disgrace. 

Gold Dust

One of yesterday’s most interesting developments was the plunge in the price of gold. For weeks now the precious metal had been soaring and topped $1,000 oz. just last week.  Gold was the big safety net of the past few months as rattled investors bid the price upward.  It was the clearest sign that panic had befell the financial markets.  However, I got a hunch that gold has seen its high and that yesterday (notwithstanding the drop in the market) with gold dropping so much, investors may be getting a little more confidence that the financial world is not on the verge of disaster.  The Fed has been strong and tough and with Democrats tearing themselves apart there is a chance that huge tax hikes are not a sure thing either.  Seems like an improving scenario to me as gold bites the dust!!

The Fed Gets It Right

Over the many years I have worked on Wall Street I have often been critical of actions taken -or not taken – by the Federal Reserve.  However, currently I can only offer praise.  I believe that economic history will show that the actions taken by the Fed during the past two weeks likely saved the economy from utter chaos.  Using tools not used for a generation the Fed rescued a major investment bank.  If Bear Stearns had failed it would have been very scary in the financial markets.  Yesterday the Fed lowered interest rates less than expected.  While initially disappointed the market rallied to a huge gain as the possible rationale of the Feds move became apparent.  Things are bad but not that bad that a full point cut was needed.  This, and better expected earnings by Goldman Sachs sent stocks soaring.  Let’s hope it lasts a little longer.

Den of Thieves

For those of us who have labored in the micro-cap sector of the market for most of our careers, we have been subject to the slings and arrows of the big boys on Wall Street who thought that what we did was replete with too much risk and in some cases outright fraud in touting small emerging companies.  Accordingly, it’s with some degree of satisfaction that I witness the fall of firms like Bear Stearns, and the supposed white glove guys who worked there.  As it turned out these geniuses were busy creating debt instruments that to this day defy understanding, and consequently have led to the financial panic of 2008. These super bright people with the help of elaborate computer programs have brought the financial and credit markets to a point not seen since the Great Depression.  These financial power houses it seems were nothing but a den of thieves.