GAMMA!

I’m going to use the word GAMMA instead of Second Derivative. I think it makes me sound smarter and certainly more conceited. Second Derivative is just so hackneyed these days. It is the catch cry of the crowd. I haven’t had a taxi driver say it to me yet, but it will happen soon for sure…and when it does, I’m going to bring out the GAMMA dog just to show him who the Daddy is. So the GAMMA of the Jobless claims number yesterday continued to improve. The Continuing claims number however was pretty stinky, taking the US over the 6m mark.
The housing numbers were poor too and having seemingly plateaued somewhat in the previous weeks, questions must now be raised about the future GAMMA of these numbers.
In much the same vein as the last few days the market couldn’t really make up its mind, yo-yoing about with a last hour rally for the second day running only to give it back overnight.

I saw an interview on Bloomberg with David Tice, Chief Strategist for Bear markets at Federated Investors. It may not come as the greatest surprise in the world to discover that he is…bearish! The S&P could trade down to 325 he warned. Now I don’t have an exact figure for the S&P earnings estimate, but it was about $40 the last time I looked so I suspect it’s around $35 now (Earnings estimates have been folding faster than Superman on laundry day for the past 18 months).
So at $35, the SPX is on 25x, at $40, its on 21x. Given the average is 15x, we’re in a recession so it should probably trade closer to 10x and earnings estimates will continue to come down, a 325 number doesn’t sound wholly implausible, albeit admittedly on a back of the envelope calculation.

I read an interesting piece on the IRA today I won’t go into the details of it because well, I’m not an accountant, so couldn’t really even if I wanted to but the broad brushstrokes are this: the Q4 FDIC banking report understates the health of the banking system due to an accounting process which doesn’t include the operating losses from WaMu for Q3 and for Wachovia and NatCity for most of Q4. If these were included, IRA reckon instead of the Industry post a $10bn profit, it would show at least a $10bn loss.

Now you can call me a sceptic for not taking what the banks/govt/management say at face value but a guy I used to work with often said, and I think this is apposite…”Just cos your paranoid, doesn’t mean they ain’t watchin’ ya” Bon weekend all. SP