Tuesday, November 25, 2008

Fred Sanford: Is This The Big One? REZ up 14%?

After a late dinner in the Summer of 1982, a friend and I walked past a night club in New York City. Red Fox was on stage and there was no cover charge. The price of a drink took half of the per diem I was receiving from my company but there was no cover charge. My friend got smart and tried to go one on one against Fox. Needless to say, Red verbally abused us both. I will not mention the names he called us, the language he used to describe our wives or mothers or the relationships he decided my friend and I must enjoy.

Red was a funny man. His running gag about "the big one" is a classic. On the show Sanford and Son, in want of sympathy, he would sometimes clutch his heart, look into the sky and say, "This is the big one. I'm coming, Elizabeth". His TV son, Lamont was able to hold his own against Fred. For example Fred once said that he still wanted to sow some wild oats and Lamont retorted, "At your age, you don't have no wild oats, you got shredded wheat."


In several posts, I have said that after the big decline in commodities is well under way that the price of treasury bonds will soar, that financial stocks will make a V bottom just after the big rally in bonds and that consumer stocks will soar next. Last week, with gasoline at levels not seen in 4 years, the 30-year treasury bond soared to prices not seen since the 1950's. Across the big pond, English 5-year guilts jumped as hard and as fast as ever recall a bond market move. Is this "the big one"?

The momentum of the commodity bust has certainly slowed. The Baltic dry shipping index fell harder and faster than ever before but it can hardly fall anymore. We are in a period of deflation, so bond prices could go lower still, but current low long rates are consistent with high PE ratios.

I must run because I am headed to the beach for the holidays. Having said that, the calendar is normally very kind to the market during the Thanksgiving stub week. The huge rally of the past two days could be nothing more than a holiday bounce. On the other hand, the best historical season for stocks is all the way from November through May.

REZ, a home real estate reit, sure looked like it made the big turn this week. On November 20, it sold for 18.50 and for 21.07 yesterday. This 14% gain was out done by the bounce in beaten down bank stocks but both are feeding off the extra low bond rates.

Another extremely powerful indicator from two days ago was when a regular reader gave up. He held on to his stocks all the way to the bottom and then let'm fly. When a determined fellow lets go, it is common to see an immediate rally. I wish you all Peace, Grace and a Happy Thanksgiving.