Garbage stocks

Discussion in 'Wall St. News' started by wildfirepow, Sep 7, 2009.

  1. On the surface, the call certainly seems justified. Just take a look at what’s going on in the markets. In August three of the top performing stocks had to be a shock for anyone who can read a balance sheet. Shares of AIG soared 290% outpacing spectacular runs of Fannie Mae and Freddie Mac 250% and 270% respectively.

    The last month it seemed the worse the company, the better the shares did. These companies are on the hook for hundreds of billions of dollars in bailout money. They’re essentially worthless, but the market didn’t seem to care.

    But if we take a step back, we can see how one person’s “insanity” actually makes a lot of sense. All of the recent market action does make sense if you look at what’s going on in the markets. More importantly, the run in these “garbage stocks” signals a very, very big opportunity is just around the corner.

    Unprecedented Action, Unprecedented Results

    Over the past year we’ve witnessed unprecedented intervention in the markets and economy.

    In the economy, Congress passed the $787 billion stimulus package. It was filled with programs like Cash for Clunkers to spark consumer demand. Congress also passed the Troubled Asset Relief Program (TARP) to purchase bad loans from banks at above market values. At least that’s what they told us. Here we are a year later and TARP hasn’t bought any troubled assets and has essentially turned into a 12-figure slush fund for bailouts of all sorts of favored parties.

    In the markets, the Fed has taken moves which were unthinkable a few years ago and the Fed Chairman himself considered “inappropriate” before last fall. The Fed has openly acknowledged its monetizing government debt, buying hundreds of billions of dollars of mortgages directly from banks and other mortgage industry players, and guaranteeing trillions in private sector obligations.

    Basically, the Fed printed anywhere between $4 and $10 trillion in new money and back-stopped trillions more to get banks lending freely.
    All that money has to go somewhere…

    Money for Nothing

    So far that money has been making it into all sorts of places.

    Some of the money has made it into the real economy. Today’s ISM Manufacturing Index reading of 52.9 reveals manufacturing activity is increasing. The index shows expansion above 50 and contraction below 50. Today’s increase was the first in 19 months.

    It doesn’t stop there. The American Trucking Association recently reported its For-Hire Trucking Tonnage Index increased 2.1% in July. And last week the American Association of Railroads reported carloadings are at their highest level since March.

    This all isn’t necessarily great, recovery imminent-type of news, but it does show some of the money is making it into the real economy.

    A big chunk of the money went directly to banks to offset mortgage losses and to help restart the national mortgage lending machine. Once you combine that with the expiration date on the $8,000 housing tax credit, just a few months away, and you’ve got the makings of the sharp rebound in housing demand. In June new home sales increased 11%. Add in the limited number of housing starts during the recession and the number of new homes on the market dropped to its lowest point in 11 years.

    Finally, a big chunk of the money has made its way into financial assets. Case in point is the $185 billion in new assets pumped into mutual funds in the past four months. That has helped spark a rally in everything. Stocks, bonds, oil futures…it’s going everywhere.

    Complete article-:
  2. Daal


    This guy doesnt know what he is saying
    M2 is up just a little more than $100b YTD(2.8% annualized growth, very weak)
    The real 'money printed' is the monetary base(bank reserves plus currency, the fed is creating mostly just bank reserves) and all that 'money' is doing nothing but to sit on accounts that the commercial banks have at the NY Fed. And that is not bullish for junk stocks in bankrupt companies
  3. dtan1e


    i was expecting buylosellhi
  4. Excellent article
  5. Since the "cash for clunkers" program involves taking your clunker back, then that process of transporting it to the junkyards is probably responsible for the uptick in truck & rail activity, more so than anything else!:D