Short Lived Rally
James | Apr 01, 2009 | Comments 0
Don’t get hyped by the surge in the Stock Market. This is what is known as a “Bear Trap.” I base this after hearing the news that Wall Street announced that credit is tightening again. Unless we see a reversal in the credit lending this will be a short-lived equity rally. Whenever credit tightens that usually is a Red Flag indicator that tougher times are still to come. Banks are reluctant to lend as they have a lack of confidence in Obama’s administration policies, combined with unabated declines in the economy. This might come as a surprise after Stocks surged after CitiGroup’s CEO announced that the bank was profitable in the first two months of the new year and that its capital positioning was strong. News that the SEC might put the Uptick Rule into place also boosted morale. The Uptick rule requires a move higher in the stock before it’s shorted. So how to play these markets if the banks continue to tighten credit. First and foremost, don’t invest in any companies with serious amounts of debt or companies in need of capital. In current times cash based companies are king. Currently many Tech companies such as Google, Apple, Microsoft, and Ebay are cash kings. It is simple to research, just check any companies balance sheet and compare Cash on Hand to Debt. Obviously you want Cash to be higher than Debt. Constantly read about the credit market and check the Treasury bonds as they can be indicators of which way the market will swing. Once we see Capital Markets rebound then it will be a opportune time to buy companies waiting in line for capital to expand business operations.
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