5. The stock market isn’t the most important game in town anymore.
As we just saw firsthand, the credit market has the power to unravel the stock market, cripple the economy and take down major American icons (like Lehman Brothers and AIG). The credit market is now FIVE times larger than the stock market today.
• Gilead: +111% in 13 days
• Teekay Shipping: +40% in 2 days
• Regions Financial: +59% in 4 days
• InterContinental Exchange: +77% in 18 days
• eBay: +87% in 2 days
• Apple: +50% in 1 day
• Ryder: +86% in 2 days
• Newmont Mining: +65% in 3 weeks
• Fannie Mae: +46% in 1 week
• UltraShort Financials: +21% in 1 week
• Innovo Group, Inc: +25% in 1 week
• Century Aluminum: +54% in 10 days
• Cisco Systems: +26% in 1 week
• AC Moore Arts & Crafts: +42% in 12 days
• MIPS Technology, Inc: +25% in 1 week
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The debt market led stocks down, and I believe it will lead them back up (more on that in just a moment).
Bottom line: You simply MUST understand the credit market to thrive and survive as an investor.
In fact, there has been a very surprising and little-discussed change in the credit markets. Let’s look at what is happening and what it means for your investments.
The Truth About the Economy–An Improvement
No One Is Talking About
You won’t hear this from the mainstream media, but the credit markets are finally improving.
Brian Reynolds, a veteran credit analyst who has done a terrific job of calling bull and bear cycles for years, has been telling me that the debt markets are actually improving much more than anyone on the equity side of the market has been willing to acknowledge.
He believes that the Chrysler and GM sagas, in which bondholders stood up for their rights against the government and forced the companies into bankruptcy, created a sea change in attitude among the big institutions that buy credit. He says lenders’ resistance to government pressure made it more lucrative to be a bondholder, and there has been virtually euphoric buying of corporate debt even as stocks have struggled.
He’s not saying that this means the financial crisis is over, but that it provides the best chance to end the crisis since it began two years ago. To be sure, the economy is in bad shape and is likely to worsen this summer as General Motors and Chrysler plants and dealerships shut down. But people seem to forget that stocks and the economy are two different animals, and although it looks like they are tied together during bear markets, the connection is actually pretty loose and not synched.
The financial crisis didn’t occur because of a weak economy but because poorly constructed credit instruments stopped functioning properly, and big institutions stopped buying them and all other types of debt. If these institutions are buying credit again, then companies can start financing themselves in the debt markets just like in the old days — and they won’t have to depend on selling dilutive equity or taking government bailouts.
If the debt markets really are open again, then companies are going to start borrowing for purposes that will help them solidify their manufacturing base and improve their stock prices. They will buy competitors, buy back stock, buy back higher-priced debt, and try many other tricks and strategies that they know full well will ultimately work to improve their share prices.
At the moment, equity investors don’t seem to believe this will happen, or even could happen. So as Reynolds puts it, stock investors “will have to be dragged kicking and screaming” back into the market. And if that occurs, we could see euphoric buying, and stocks could run a lot higher and further than most people believe possible.
• Fifth Third Bancorp — 83% PROFIT
• Financial Bear 3x — 42% PROFIT
• Regions Financial — 59% PROFIT
• US Bancorp short — 27% PROFIT
• Honeywell short — 17% PROFIT
• Burlington Northern calls — 105% PROFIT
• Luluman Athletic — 42% PROFIT
• Century Aluminum — 54% PROFIT
• Technology Bull 3x — 43% PROFIT
• Goodrich Petroleum — 18% PROFIT
• Terra Industries — 19% PROFIT
• ProShares Ultra QQQ — 37% PROFIT
• AC Moore — 42% PROFIT
Please, don’t miss out. Let me show you how to start profiting from these developments now.
