On Friday, the government released more economic data showing that the economy is still improving.  Obviously, this is backwards looking data but it does help confirm why the path of least resistance for the stock market has been up recently after a correction in January.  One of the indicators I’ve shared with you over the years has been the rate of change of economic growth measured by GDP (quarter over quarter annualized) compared to the S&P 500.  This has been a highly correlated comparison.  The latest reading shows the the economy grew at 5.9% annualized in the 4th quarter.  This was better than the average economist (aren’t they all average) had estimated (5.7%).

Above is the picture of the S&P 500 in blue and the GDP Growth rate in red.  You’ll notice a pretty tight correlation going back over the past 10 years.  Naturally, you’d look at the chart and say well if the red line (GDP growth rate) is still going up, surely the S&P 500 has to race up and has a lot more to run.  There are a few things to consider before making that assumption.  First, the red line can start to come down (which I expect very soon) and meet the blue line and they’d still be correlated.  Also, notice how investors seem very receptive to good economic data (red lines begin to turn up) but when the economy begins to decelerate (red line flattening out or going down), the stock market (blue line) continues to rise.

I think humans are greedy and naturally optimistic.  Therefore, when the economy has been bad for some time, we’re looking for any bit of good news.  On the other hand, we’re very reluctant to accept the fact that perhaps the improving economy is beginning to falter and stocks keep going up for a while.  I believe over the spring time, you’ll see this red line (economic growth) begin to roll over.  Keep in mind that doesn’t mean the economy is actually going backwards as in a recession, it simply means that the growth is slowing.  It might look like the 2004 and 2005 time frame.  But, you’ll notice that the stock market continued to rise in that environment.  So, be careful about taking this chart and assuming either the S&P is going to the moon because economic growth is still accelerating or the S&P 500 is going to head down as soon as the red line begins to fall.

My belief is that the economy is going begin to decelerate in the spring time and into the summer and the stock market will keep improving even though it won’t be at the rate it increased in 2009.  For now, I still believe the stock market is improving and investors are willing to assume more risk.  The cyclical (not secular) bull is still alive.

Click here for the video of a new kind of technology that reminds me what we’re capable of.

Click here to listen to Through A Trader’s Eyes Podcast #10 – February 23, 2010

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Late Thursday, the Federal Reserve announced they had the raised the discount rate to .75% from .50%.  The discount rate is a rate that the Fed charges banks that borrow directly from the Fed.  Basically, an emergency loan if need be.  You can see from the chart below going back to 2003, the discount rate has been flat or dropping since the middle of 2006.

The question of the day:  Is the Fed changing its easy monetary policy?  They (the Fed) claim they are not.  They still expect to keep the financial system loose and rates low for an extended period of time.  This is a significant move but at the end of the day, I don’t think it will have a big negative effect on stocks.  For all of you worried about “printing too much money” and inflation, this is the first step in trying (key word trying) to remove some of that extra stimulus. But, I don’t think its the end of an era of easy money.  It’s going to take a lot more than a .25% hike in the discount rate to end an era of easy money & over leverage.  But, it’s a start.

The trade here remains to be long the dollar.  For full disclosure, I remain long UUP calls.

I am humbled by this opportunity to announce the establishment of my new registered investment advisory firm, Eggerss Capital Management.  After serving fourteen years at the same company, resigning from my position as Chief Trader has enabled me to launch my own firm where I look forward to devoting the highest level of attention to managing the assets of my clients.  Because we no longer live in a passive, “buy and hold” environment where many firms continue to operate, Eggerss Capital Management is fully prepared to offer financial counsel marked by cutting edge strategies and unparalleled service.  It is a privilege to introduce Eggerss Capital Management and I welcome the opportunity to show you everything that makes my advisory firm unique and superior in its mission.

A native of San Antonio, my passion for the world of investing began with my first stock trade at age 14.  Managing and growing my own portfolio at an early age spawned a desire to help others unlock some of the mysteries of investing wisely and led my career path straight to financial advisory.  For well over a decade now, I have taken great pride in making prudent decisions for clients based on sound, research-driven strategies and I am constantly seeking innovative ways to help investors be protected and profitable in this economy.  In the last few years, I have also had the privilege of being invited for commentary and market analysis on local, national, and international television media including Fox Business, CNBC, CNBC Asia, Bloomberg, locally on KRIV 26 Houston, and KENS 5 San Antonio.  My television discourse can be viewed on youtube.com and my radio show, “Through a Trader’s Eyes” will continue in podcast format on my media website, www.karleggerss.com.

Today, it has never been more crucial that your advisor be able to detect and withstand rapid changes in the market such as the risk for inflation as well as the potential for rising interest rates, changes in geopolitical climate, and global market competitiveness.  Of equal importance is knowing that your advisor can take appropriate advantage of how worldwide events affect your capital, such as growth beyond our borders.  Simply put, the state of our economy requires that your investments be given constant oversight and be driven by intentional tactics.  At Eggerss Capital Management, all your assets will be carefully considered and built into a portfolio based on indicators under my constant watch.  Whether the strategy demands the need for stocks, bonds, mutual funds, exchange traded funds (ETFs), options, or any other type of security, ECM has the proficiency to determine appropriate allocations for clients according to their specific circumstances.  Having a fee-based firm also means ECM earns no commission for portfolio management which prevents any conflicts of interest you may have experienced with other advisors.  I encourage you to explore www.eggersscapital.com to learn more about the firm.

I am certain you will find Eggerss Capital Management to be an exceptional solution to your financial advisory needs.  We have the capability to serve clients regardless of location and I welcome the opportunity to discuss being the architect of your portfolio.

Sincerely,

Karl J. Eggerss
President &  CEO

Click here for the Through A Trader’s Eyes Podcast #9 – February 17, 2010

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A few weeks ago, I wrote an article regarding a technical pattern that would soon reveal a breakout for gold.  Either it would break down or take off like sugar did recently.  Today may have been that break out to the upside.  After touching $1050 a few days ago, gold has broken the downtrend its been in since early December and looks as if it wants to move higher.

The focus is on the stock market right now as it should be.  The underlying strength in stocks the last few days has been impressive.  There are still plenty of doubters which only adds fuel to the bullish fire.   Stocks I believe will have great moments and bad moments in 2010.  I think this year will be an average of the past two years.  That’s an opportunity for us but also a reason to pay close attention.  The market was deeply oversold as I had stated on my podcast several days ago and we are experiencing the bounce.  But, stocks always steal the spotlight and right now gold is quitely breaking out to the upside.  Based on the chart above, if gold can break the $1150 area (3% above the current level), it has a real shot of testing the all-time highs.

I’m resending this post because of an error. See post below for podcast.

Click here for the Through A Trader’s Eyes Podcast #8 – February 11, 2010

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As many of you know from listening to my podcasts this year, I’m very bullish on dividend paying stocks.  I believe 2010 will be a year where income plays a big part of total return.  I think 2010 will be an average of the last two years.  Perhaps you’d call it Goldilocks.  But, I think we’ll have mediocre growth with most stocks struggling.  In that environment, having some consistent income will be critical.  Obviously, dividends aren’t the only thing to look for when evaluating companies.  But, it helps right now.

Below is a list of companies from the S&P 1500 with market caps over $1 billion.  It’s ranked from highest to lowest based on current dividend yield.  This is the top 22 companies and keep in mind unlike most bonds, the income stream can change.

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