Safety Stop In Place

As expected and hoped for here in yesterday morning’s post, the financial sector did indeed continue its run higher yesterday. Our own position in it had an outstanding day. That’s all well and good, but some prudent risk management looks to be in order, and is the reason we placed a safety stop under the 62% gain we’ve enjoyed since the Inauguration Day close.

People look for reasons in the news flow, but there aren’t many. What facts have changed since the Nov. 20 market low? We knew back then that banks were in a world of hurt, but the market surged upward anyway. Economic data grew darker and darker to the point where we were forced to discuss shades of black, yet what a run higher we saw at the end of last month and beginning of this. Then, lo’ and behold, banks came out with lousy data, and the market tanked. Then, the Obama team got busy on the economic front and the market surged again, as if all will be well with a signature.

With all the lay-offs, lack of credit activity, dropping mortgage applications, and such, the odds of another swing to despair seem good. Consider the stimulus package, for instance. Its passage has been cited as part of the reason behind recent optimism, but it’s filled with reasons to doubt. It may have made it through the House, but every Republican voted against it and so did 11 Democrats.

The best moment in the discussion happened when Rep. Roscoe Bartlett, an 82-year-old Maryland Republican, brought up the failure of past government spending sprees to do anything for the economy when he thought back to the Great Depression:

“I don’t remember any of the many government programs affecting the course of the Depression. Government programs didn’t work then, I don’t know why we think they would work now. Mr. President, I think our obsessive borrowing has fully mortgaged my kids and my grandkids. Now we’re working on mortgaging my two great-grandkids. Mr. President, I think it’s more than a little bit selfish to try to solve our economic problems which we created by burdening future generations yet to be born.”

The chamber burst into applause.

I see no reason to think the hope/despair pendulum has hung up on the hope side. I see many reasons to be safe on trades.

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