Wednesday, April 2, 2008

Groundhog Day

Here we go once again. For the umpteenth time in the past 6 months, huge rally in stocks based on news that a financial company (2 in this case, UBS and Lehman) aren't going under. Never mind that on the same day UBS said it will lose $19B. It's as if magically the housing/credit crash was over instantly.

On the same glorious day GM and Chrysler announced sales were 19%. Lexus was down 7%. Even Honda was down 3%. MB was down 4%. Further proof the recession is here. This is what I look to when making decisions on investing, not whether or not Lehman can raise a couple of bucks. Lehman will raise money no matter what. It is in the best interest of every financial institution to lend Lehman money. It's a lend Lehman $200M and maybe lose it, or don't lend Lehman any money and lose $2B in equity because everyone freaks out Lehman can't raise money and sells financials including yours. I'm not saying it's a conspiracy, just the way things work. However, in a recession, I don't care how much money Lehman raises, earnings will be poor. And that's what it all comes down to. A stock's value is nothing more than future earnings. And when future earnings are almost guaranteed to be piss poor, it makes no sense to hold that stock.

Throughout 2000 and 2001 there were many 3%, even 4 or 5% rallies in the midst of the 2000-2000 bear market. They are called sucker rallies for a reason, and I'm quite certain this is another one. Time to go shopping for my new favorite toy, homebuilder puts.

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