Tuesday, March 11, 2008

Cats Seen Bouncing From Broadway to Wall Street

The enduring play "Cats" has run its course on Broadway, but imposter cats have been spotted bouncing on Wall Street today in record number. After the Fed did what we pointed out was the rumor "over Manhattans in NY" in the last paragraph of our piece, "The Psychology of the Weeks Upcoming Data", stocks have had an overwhelmingly upward bias. Congratulations on reading us, and more congratulations if you traded on that rumor. Now, step back and think.

On one hand, we’re happy to see relief from the agonizing pain suffered by equity investors over the past several weeks. We would have preferred a free market wash out with no Federal Reserve intervention. What ever happened to accepting responsibility for your actions? What ever happened to Newton’s 3rd law: "Every action has an equal and opposite reaction."

That law may soon be tested. Today’s market reaction was not sentiment driven by optimistic Americans spending money, creating jobs, and loaning money in record numbers. It is nothing more than a synthetic rally driven by the Bernanke Fed. The Retail Sales data and Michigan Consumer sentiment will be a more telling metric than simply giving the Investment Banks $200B for 28 days.

Many Investment Banks have acted shamelessly in their underwriting practices and trading of subprime paper/mortgages in the last few years. We believe the free market system should correct itself without Federal intervention, and only then can it really earn the title of "FREE." For the Americans pointing fingers at the Chinese Banking system, shame on them, and shame on us for being overly critical of the Chinese system in our piece "The 2008 Animal Tug of War Explained." Anyone ever wonder whose system the Chinese are following? Yes, yes, and yes. Here's to a successful 2008 Olympics. Hip Hip Hoorah, say it thrice!!!

Although the breadth of the market is extremely positive, we wouldn't buy the S&P until it trades and stabilizes above 1,330 for several days. We urge our readers to tread with extreme caution today and not be fooled by the many Bouncing Dead Cats in lower Manhattan; they may head back to Broadway sooner than Bulls believe. Enjoy the show!

We thank you for reading this time sensitive Psychology of the Call, here's to free markets!

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