Market Outlook - March 23rd

This week will be very interesting, especially today when the new toxic asset plan may be released. The key market movers are no longer in New York but in Washington. I heard that many firms have CSPAN on their TV, next Bloomberg and CNBC, so that speaks a loud message. My strategy remains the same: study my charts, get long firms with rich balance sheets, and short selective commercial real estate names. In addition, I will expand and look for an additional short exposure in leveraged financial companies, related to the consumer and mortgages.

As for the market in general, it is anyone’s guess, but futures as of 4:45 am were up about 20 pts on the S&P. The clip between Doug Kass and Gary Shilling says a lot. Kass and Shilling are two of the most negative people in the market, both calling this recession; however, Kass is extremely bullish, seeing 1100 on the S&P by summer. These two guys are rarely wrong, so it’s very weird to see them disagree. As for my take, there are a very more things I’d like to see before I change my bearish views. One is more clarity on how Geithner’s plan will stabilize the financial system. Another thing I want to see is a significant reduction in excess housing inventory, which may be difficult with this decline in unemployment. Lastly is jobs. In my view, if jobs goes, everything goes, but that is me. In addition, many families are starting to save, not spend, which could lead to a decline in consumption. If all of these show signs of improvement, the bottom may be in; however, normally the market is about six months ahead of an economic recovery, unless most of the portfolio managers are scraping 2008 and are already looking to 2009.

Either way, I think you can short and buy select names and will be fine, either way and that is my plan. Financials are up about 40% in the past 10 days; however, with short rates low, banks can make a killing and the write-downs may not be as bad as expected. You got C, BAC, and GE saying they will be profitable in the first quarter, so if that is true, it will be a big game changer and these financials can still run. I personally like JPM the best of out of the banks because I am betting on Jamie Dimon. However, there are a few financials I want to sell short but I will need to see Geithner’s plan. It looks like we might have a big up day, FAS may print $6 again if the buzz is strong, so stay tuned and I will post everything I do.