Cashin Comments

FAIR VALUE = -240
BUY PROG = -140
SELL PROG = -340
CASHIN'S COMMENTS
TUESDAY, MAY 5, 2009
[AN ENCORE PRESENTATION]

On this day in 1904, a 37 year-old pitcher for the Boston Americans added yet one more star to an amazing career. He retired all 27 of the Philadelphia Phillies in a row - - thus pitching the first "perfect" game in major league history. That would have been enough to earn him a place in baseball memory.

But he had done so much more. In the prior year's "practice World Series" he had out shown a hall of fame list that included Honus Wagner and a raft of others. In his career he had won over 510 games having pitched in nearly 900. His record got him a quick selection into the 1st Hall of Fame induction.

His mom called him by his given name Denton True. But his teammates, the fans and the sportswriters gave him a nickname based on his high hard right-hand delivery. As one bewildered batter muttered - - it came down like a cyclone. So Denton True Young become "Cyclone Young" - - at least for a week or two. Then he became "Cy Young" and he became a legend.

Yesterday the bears looked like they were facing Cy Young as they continued to keep their bats on their shoulders.

Bears Fail Stress Test As Bank Shorts Panic – The bulls got an icing on the cake solid rally Monday. They also got a lot of help from the shorts who appeared to panic and form into a circular firing squad.

Let's step back and review the pieces to this pleasant puzzle. It started Friday when the bulls, in a last minute push, managed to finally close the S&P above 875. Armed with that victory, it was assumed they would take a run at the 900 level at the first opportunity.

Over the weekend there were hints that the swine flu outbreak might be abating. That was not only good news on the health front, it removed or at least tempered a threat to economic recovery. Also over the weekend, there were reports suggesting the China stimulus package was kicking in.

Monday morning global markets were all quite strong especially Asia. That set up a positive background and it looked like the Dow might open up 50 or 60 points.

Instead, the Dow quickly spiked over 100 points surprising lots of trading types. Volume was strong in the first half hour, hinting some foreign players might be buying in a "catch up" play after the May Day holiday.

So, what converted what might have been a solid but mild rally into a roaring run for the roses? Well, a sharp-eyed friend pointed to a possible, even likely, source. Over the weekend Bloomberg did a story on the aggressive rise in short-selling of bank stocks as the rally progressed. Implicit in the story was that the bank stocks being shorted might be getting hard to borrow. Could a short squeeze be looming?

The article and short squeeze buzz may have made the rounds of trading desks. Even as the government was pointing new fingers at the banks who might need to raise more capital, there was a rush to buy many of those shares.

Additionally, CNBC had done extensive coverage of the Berkshire Hathaway annual meeting over the weekend. All day Monday, they repeated segments of that coverage. One featured Warren Buffett saying that he had run his own stress test on Wells Fargo. He said they passed with flying colors and added that he would love to buy more right here if he were not restricted by regulatory limits. That segment was repeated or alluded to several times over the day.

The short squeeze fears and the Buffett reassurances may well have been the fuel of the frenzied buying in the banks and financials. It looked very much like a short-covering panic. Wells Fargo spiked 24%. Bank of America shot up 19%. Even Citigroup cited by some as the most hobbled of the group rose about 8%.

All in all, it was quite a rally on decent volume. The spike may cause a re-assessment of the canopy or rolling top that seemed to be forming. Several folks claim the rally gave us a Dow Theory buy signal. Some saw the rally as a breakout from an inverted head and shoulders bottom formation. Quite a rally indeed.
Cashin's Comments
Tuesday, May 5, 2009
Page 2


Rosie Scenario May Be A Bit Less Than Rosie Cautions Bill Gross – The U.S. will see growth slow as regulation and government involvement increase. That's the opinion Bill Gross suggests in his May investment outlook. Here's a bit from a Bloomberg story on the report:

May 4 (Bloomberg) -- A demarcation for U.S. economic policy was reached in 2009 as the administration of President Barack Obama sought to curb the excesses of free-market capitalism, according to William Gross, co-chief investment officer of Pacific Investment Management Co.

This year “represents the beginning of government policy counterpunching,” Gross wrote in his May investment outlook posted today on the Newport Beach, California-based firm’s Web site. “Asset values should be negatively affected.”

Investors holding debt issued by Chrysler LLC, the Auburn Hills, Michigan-based carmaker, were forced to take lower values on the loans after the government guided the company into bankruptcy last week. After the announcement, Obama railed against “a small group of speculators” among the lenders who did not agree to the restructuring, while he thanked everyone from the executives to the unions for their efforts.

“The Obama cannon shot will have financial consequences,” wrote Gross, founder of Pimco and manager of the world’s biggest bond fund, in referring to Obama’s comments. “Do not be deceived by the euphoric sightings of ‘green shoots’ and the claims for the new bull markets in a multitude of asset classes.”

While Gross wrote that Pimco does not own any Chrysler debt, he said the firm does own an “infinitesimally small” amount of debt issued by General Motors Corp., the automaker also being restructured as part of a government bailout.

While the stock market's bubbling and risk appetites are growing, it is prudent to remember we are on a new road to a new normal.

Cocktail Napkin Charting – Mark Hulbert did a little analyzing of sentiment shifts surrounding strong bear market rallies. The samples available were few so the analysis was not as conclusive as we might like. This rally seems to have a sentiment spike profile that resembles or almost mirrors to accompanied the November/January rally.

Yesterday's rally blew right through the proximate resistance at 888/893. The next resistance looks like 927/932 and the January high at around 943/944.

Consensus – Bulls had the run of the field yesterday and the shorts clearly seemed to panic. I'll keep waiting on the two month cycle which hits on the 6th or 7th. We'll see if the charts morph into a new formation. Don't uncork the bubbly quite yet. Stay nimble.

Trivia Corner

Answer - The two workmen should saw 3 1/13th cords of wood which would keep them busy splitting for the rest of the day. (Yeah! Yeah! I know it's supposed to be fun not algebra.)

Today's Question - What am I missing - Here's one that someone found in a puzzle book. There is one letter (a vowel) missing from this series. If you add the letter several times and separate the words to make a sentence. (Hint the vowel should appear 17 times.)

"HGRTDTHLVNXTRMLYWLLDRSSDGNTLMN"