Santa Claus is Coming to Town

This year for Christmas I want the same thing I always want: A Santa Claus Rally.

I must have been a good boy this year, because it looks like I'm going to get my wish.

Today's 350 point move to the upside is further confirmation that the market is poised for big gains. This may be the best Christmas ever.

Can you hear the bells jingling and the patter of reindeer feet?

My 2-year old son wants a Caterpillar front-loader he can ride and with CAT up $4.50 today alone he just may get it.

If you don't believe in Santa Claus that is alright, rallies like this need to climb a wall of disbelief.

Happy Days Are Here Again

"nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance"


Many of you will recognize the the above quote as the end of FDR's immortal "We have nothing to fear but fear itself" line.

The line of his 1933 Inaugural Address that got the loudest ovation was "This nation is asking for action, and action now."

I have to give credit to George Bush, who stepped up to the plate again for the second time in the last two months to support an unpopular but extremely necessary bailout. I've not been a fan of George Bush for the last several years, but I intend to remember him as a man who responded to a nation clamoring for action in a manner that was heroic.

Bush's call to bailout the Auto industry helped the market immensely.

Today was a critical day. As you know, I have been predicted an imminent "Bear Rally" for about a month now.

Today's action is a strong indication that this Rally began on November 20th.

Over the first five trading days beginning 11/20 the market ran up 1277 points.

It then dropped 675 or 50% in one day.

The two days after this cataclysmic looking drop the market rose 442 points.

The next day it dropped 215 or 50% in one day.

That was yesterday.

Today we were up 259 points in what looks alot like an imminent break out.

I have said for awhile that I expect this "Bear Rally" to be huge and to carry us up to 10,500 on the Dow by mid-January. I'm sticking with that prediciton. I did not pluck that number out of a hat. 10,500 is about 42.5% off the bottom.

I have attempted to position us to take maximum advantage of this rally.

I expect to make alot of money in the next 6 weeks.

Obviously, the one potential cloud on the horizon is a Big Three bankruptcy, but I don't expect that to happen. (If it does, I may change strategy.)

The Great Recession

A couple of comments about the market and the Auto Industry.

The unemployment numbers came out today; the worst one month job loss since December 1974.

That brought total unemployment up to 6.7%, the highest since the early 80's.

The market didn't go down that much on that data. We were off 60-80 points in early trading.

Unemployment is a lagging indicator and I think those numbers are already discounted.

The bigger drag short term is GM and the others.

It is uncertain what will happen to GM and the bailout. Wall Street hates uncertainty.

My guess is that we will get some sort of bailout/restructuring.

My biggest concern is that in their earnestness to punish the UAW that Congress not force a plan on GM that wipes out the debt holders.

If we wipe out the GM debt, Congress is going to have to give AIG another $100 billion or so. The reason for this is an instrument called a Credit Default Swap known colloquially as Bond Insurance. There is insurance on all of those bonds and AIG is on one side of most of them. Startlingly, bond holders were able to enter into these transactions for more than what they owned. Some holders may have insured their auto bonds for twice what they were worth. The cost of paying out those losses could be monstrous.

Additional costs: every 500,000 of jobs lost costs 10-20 billion in unempolyment benefits.

As much as I agree that GM and the others need to be restructured and the UAW contracts have to be renegotiated, I hope that Congress looks at the cost of not doing something and sees the obvious truth that the cost of letting these companies go into bankruptcy could be far greater than $34 billion.

On our side, we own cheap stocks. We own more cheap stocks than we did 3 months ago, 6 months ago, 1 year ago, and 18 months ago. We have been buyers here at these low levels. In my mind that was and is the smart thing to do.

GM's Wagoner to travel by car to Washington

In 1077, the Holy Roman Emperor, Henry IV, famously stood barefoot in the snow for three days outside of Canossa Castle seeking an audience with Pope Gregory VII. In an event know as the "Walk to Canossa," Henry had come barefoot and in a hairshirt to plead with the Pope to lift his ban of excommunication.

Almost a millenium later, GM CEO Rick Wagoner began his own "Walk to Canossa."

GM announced today that Wagoner will travel the 520 miles to Washington and his next meeting on Capitol Hill in a Chevy Malibu hybrid sedan. Wagoner is coming to plead with Congress for the bailout money he say's GM needs to survive.

Opportunity of a Lifetime

We think this is an incredible opportunity to buy stock and get rich.

2008 is currently the second worst year in stock market history. The only worse year is 1931.

Stocks are selling at 30 years low relative to earnings and 50 year highs relative to dividend yields.

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Worst Years in Market History
Since 1925

1931 -43.84%
2008 -37.56% *
1937 -35.34%
1974 -25.90%
1930 -25.12%
2002 -21.98%

* Through close on November 12, 2008


This morning we purchased the following stocks:

Caterpillar
BP
GE
3M
US Bank Corp.

I have also been looking at some of the accounts to add to our positions in Bank of America.

On Thursday we bought some more Citigroup ar $5.11.

I don't want to be in too much of a rush, but expect us to buy more stock over the next several weeks.

We expect Washington bail out the auto industry and implement a major stimulus package over the next several months.

We believe that the market will be substantially higher by mid January-early March.

Vote Early and Often

Elections tomorrow. I love Election Day. Since I was a kid, I have always liked sitting in front of the TV and watching the election results with my family. That is what I will be doing tomorrow night. I'll probably make a bunch of phone calls. Feel free to call my cell phone if you want. I'm always pretty excited on election night.

I've always loved politics even as I grew to hate politicians. I remember when I was 12, I replaced my Mother's sink so that I could stay up late and watch a McGovern infomercial. Politics, and particularly Presidential politics are just fun.

I wanted to share some thoughts on the market and these elections.

The market expects Obama to win. An Obama victory is already priced into the market. Should McCain pull off one of the greatest upsets in political history, I would expect the market to initially react negatively. Wall Street hates surprises and the civil distress and negative world reaction that would likely accompany that upset would be unsettling for the markets in the short-term.

In the longer term, I expect the economy and the stock market to recover regardless of who wins tomorrow.

Manufacturing hit a 26 year low last month. The lowest levels since September of 1982....one month after the beginning of the longest, greatest, and most powerful bull market in history.

I also think that it will be good to have this race finally come to an end. Political elections are divisive. They spread fear. Each party seeks to cast the opposition in such a negative light that it is hard not to buy into the fear. The news media hard sells the fear in order to keep you tuned in. By the end of the process, the country is divided into two camps each absolutely certain that the world will come to a quick and horrific end if the other guy gets elected.

Despite those fears, we've managed to survive and prosper through 55 Presidential Elections and I imagine we will survive a few more.

Bad News is Often Good News

One of the things that always fascinates me about the market is how seemingly bad news can often spark a rally.

This morning it was announced that US GDP declined in the third quarter. If we get another decline in the fourth quarter we will officially be in a recession.

We will find out if we got that second quarterly decline sometime toward the end of February 2009, or maybe the beginning of March.

As I've been telling you all, we've been in a recession for at least 9 months now.

Today's news signals to the market that we are already starting to come out of the recession.

That is why the market spiked up on seemingly bad news.

And this highlights the problem of getting your investment advice from the news media. The news media focuses on the current news, the stock market focuses on the predicted news in the future.

History says that stocks begin to rally 60% of the way through the recession. Are we there yet? I'm not sure, but we are close and likely to be there when the news media and the economists are ready to offically announce that we have been in a recession. Again, look for that announcement in late February or Early March of next year.

We still think this current rally will carry us to 10,500 - 11,500 by mid-January.

Stand Fast!