Mark McHugh

Meltup or Mexican Standoff?

In Open Thread on Tuesday, March 30, 2010 at 2:16 am

When gibberish goes mainstream, the tower of  Babel’s probably not far behind…

Some words just irritate me.  Inflammable because it’s ambiguous.  Waterboarding because it sounds like something fun.  Widgets.  Tea-partiers.   But the word that tops my list of justification for censorship these days  is meltup.   It’s become the fabricated buzzword of choice for dunces attempting to describe the most recent run-up in US stocks.

Stocks hit their 2010 lows on February 5, the very same day that China Investment Corp.  (CIC) filed its 2009 year-end holdings with the SEC via Form 13F.  The sovereign wealth fund detailed holdings of $9.6Billion, which is a lot of money……unless you’re China Investment Corp.  In that case, $9.6B is pocket change.  The fund reported assets of $298 Billion at the end of 2008, so unless it managed to lose money in a year when US stocks were up over 20 percent, the fund was less than 3 percent invested at the start of 2010.

Conversely, US equity fund managers have gone “all in”, with only 3.6% in reserve cash.  I’ve prepared the following graphic to illustrate the difference in sentiment:

I got your meltup right here….

The sharpest pencils quickly realized how grossly underweight US stocks China was, and they started nibbling.  As stocks went positive for the year, otherwise reluctant managers were pretty much forced to participate (nobody likes a laggard).  Those conditions have led to a market that continues to shuffle higher, despite a stronger dollar (which usually has a kryptonite-like effect on stocks) and a $940 Billion healthcare reform package.  But  more and more, the stock market looks like it’s forgotten why it came here, yet is reluctant to go back where it was ( this sort of thing happens to me a lot when I go out to the garage).

Helpful Hint:  If you ever discover that you’ve managed to smash chewing gum into one of your favorite shirts,  WD-40 will get it out (and I mean, like, instantly!).  After removing the gum rinse out the WD-40 quickly to prevent staining.  Is there anything that stuff can’t do?

Anyway, let’s assume that the market is not teetering on the brink of senility.  It also not really fair to call this phenomenon a “meltup” BECAUSE THERE’S NO SUCH FUCKING THING!!!  (Wikipedia & Urban dictionary got my back on that).  So I’ve decided the best way to describe this situation is:

Mexican Standoff

From “The Good, the Bad and the Ugly

All I ever really need to know about investing I learned from spaghetti westerns.  So here’s some things you may want to consider before the next South Korean ship mysteriously sinks:

  • Report card day – The first quarter ends Wednesday.  Everybody who issues quarterly statements wants happy customers and let’s face it, for 80% of Americans their 401(k) statements are their view of the US economy.  While those receiving statements are sure to be pleased, their managers gotta be nervously eye-balling each other.
  • China – Maybe they’ll step in and start buying stocks, maybe not.  Of course, every time Chuck Schumer starts screeching about how they’re a currency manipulator (because they peg their currency to ours), that seems less likely.  Someone should tell Grandpa Munster that he sounds like a drunken jack-ass blaming the bedspins on his partner.  China’s got a lot to learn about capitalism.  You’re not supposed to put executives in jail unless they turn themselves in, and you’re supposed to reward fiscal irresponsibility by letting your currency appreciate.  And remember, the White House issued a statement that they had nothing to do with the Google thing.  So we’re good, I guess.
  • Eanings (and writedowns) – This should be an excellent opportunity for traders to test-drive the SEC latest gift (i.e. no uptick rule until 10% smackdown).  Nice.
  • China again – We saw some shaky bond auctions last week.  Could it be that the Chinese are not as impressed with the 95% socialized mortgage market scheme as we had hoped.  I mean, we pulled this off without reconciliation or anything!  Ought to count for something. 

Sooner or later someone’s gonna blink and the only thing I’m sure of is meltup won’t be in anybody’s vocabulary then…

  1. Great post Mark.

  2. It is just so peaceful in the garage… and there must be something out there that needs to get done, if you think about it real hard.

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