"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
If you haven't seen the movie, "My Big Fat Greek Wedding", do yourself a favor and go rent it. If you are of Mediterranean descent, you can probably relate. I grew up in a traditional Armenian family, so I particularly enjoyed many of the scenes depicting family exchanges.
One quote from the movie that I heard a lot growing up was, when the Greek father Gus said to his wife and daughter, nobody listen to me!
In my 20 years in the business, I am convinced the stock market isn't for everyone. When the markets are flying high, everyone wants a piece of the action. But, when times get tough, and the markets get volatile, the men are separated from the boys rather quickly.
Today, the financials were flying high on short covering, and oil prices resumed their decline. We have said several times that the solutions to our financial woes would eventually appear. They are not only appearing, they are appearing rapidly.
After several high-profile earnings disappointments in the financial sector, stocks bucked conventional wisdom and headed higher. Investors who get their advice from the TV set probably sold financials at the bottom only to watch them double in price in one week.
The solutions to the financial crisis were clearly coming. And despite the obvious, investors panicked anyway.
Treasury Secretary Paulson proposed a plan to rescue Fannie Mae and Freddie Mac. The SEC announced that short sellers of financial stocks would have to play by the rules and no longer be allowed to participate in "naked" or uncovered shorting. The obviousness in all of this is the financial sector is too important to the nation, and some kind of bailout or intervention was going to occur.
A government rescue has happened in the past, so why should we think this time would be any different?
Now that the government has stepped up to the plate, and tremendous amount of pressure will subside in the financial sector. In addition, we said the interventionists would do all they could to rescue the dollar and drive energy prices down. Well, low and behold, look whats happening.
As gas prices come down, consumers will have more of their income to spend on credit cards, lines of credit, and car payments. This will take even more pressure off the financial sector. In addition, lower energy prices will help deflate the inflation problem which will improve the numbers in the Consumer Price Index for August and September.
Going forward, the only concern I have is what energy prices will do after the 2008 presidential elections. The ploy of dropping oil prices before an important election is nothing new. Before the 2004 Presidential election, energy prices mysteriously declined (with help from the Saudis). After the election was over, energy prices reached new highs.
I call these election year moves, magic! It is amazing to watch what happens to the markets during the second half of a presidential election year. Over the past 100 years, the DJIA has gained an average of 9.7% during the second half of a presidential election year.
I will be watching the energy stocks very closely for clues of accumulation in September and October. If I see that falling oil prices were just an election year ploy, I will make some quick changes to the DG portfolios.
Today, Oil prices dropped by nearly $3 per barrel as Tropical Storm Dolly steered clear from oil refineries in the Gulf of Mexico. In addition, the dollar rallied again versus the Euro.
For now, let's enjoy the rally, and the election year magic. It looks as if the current crisis has taken a dramatic turn for the better.
