Hope: not a good investment strategy

Anyone that listened to chairman Ben Bernanke's testimony today and now feels better about our country's economic situation; god have mercy on your soul. Today I saw what was truly a dead cat bounce - short covering coupled with a few longs piggy-backing off of a glimmer of hope provided by Mr. Bernanke. A hope that maybe, just maybe, if everything goes according to plan we'll pull out of this recession in the latter half of 2009.

If the average investor were to assign a probability to the possibility of the country exiting recession by the end of this year what would it be? Well, clearly that probability was lower than Ben Bernanke's own number or else how do you explain a 3% increase in the broader markets. But what new information did we receive today? A look at the data:

• Case/Schiller home price index -18.55% (worse than expected)
• Consumer confidence 25 (worse than expected)
• Home Depot earnings $-58 Mil. loss (better than expected)
• Target earnings down 41% (worse than expected, credit losses mounting)

Is this really cause for optimism? Or just hope that things will turn around by themselves.

By the way, my own probability guess: 25%

Mental Note to self: Market on verge of critical inflection point next week.



With the lingering questions on the stimulus bill likely to be resolved soon, wall street is going to have to digest an enormous amount of market-moving information in the next 2 weeks as we finally get answers to the following questions:



1) How much money will ultimately be spent and where. Expect this to cause large sector rotation as traders solidify expectations on what industries are receiving cash.



2) Suspension of Mark-to-Market accounting - A bad idea as this will just allow banks to postpone the disclosure of insolvency. In any case, expect financials to rally on this news shareholders cheer less transparency.



3) Earnings - While not as meaningful as this week, the likes of NVDA, CS, KO, PEP and some big retail names are reporting next week.