Remember the double dip talk about a half a year ago? This was at a time when people did not believe in the recovery, and started to sell equities again.The FED´s quick reaction with money printing, "aka QE2", helped the market not only to regain confidence, but as Fred Hickey notes in his February Report, helped to jumpstart the return of a stock market mania that was reminiscent of 1999. He further notes:
“Relentlessly rising stock prices, extremely unattractive alternatives (zero percent interest rates with inflation rising – a negative real rate environment) and the knowledge that Big Ben, with his virtually unlimited money printing capability and his desire to see stock prices rise, are the ingredients encouraging the return of wild stock market speculation.”
Hickey also sounded the alarm bells for technology stock investors who are buying high PE multiple stocks such as VM Ware, Amazon, Salesforce.com and Netsuite.
"Once again, the risks of steep losses are high. Tech stocks are currently levitating on the assumption of a continuous flow of Fed juice. If that supply is interrupted for any reason (high inflation, the need to defend a plunging US dollar, etc) then heaven help the retail investor being lured into overpriced tech stocks today."
Even though I have to agree with the above, it was Mr. Hickey who said the following at the Barron´s Roundtable:
"I wouldn't short stocks, particularly tech stocks, in a money-printing environment." When there is tremendous liquidity coming into the market, investors seem to gravitate toward tech and they lose all concept of valuation. These stocks will get crazier. I am worried the tech sector is going to have another collapse, as it did in 2007-08 and 2000 to 2002."
But Mr. Hickey also noted:
"Google isn't a bad play, but there is some danger in all this spending. Given that, I am recommending Microsoft again this year. It is the cheapest of all."
Buying the cheapest could turn out to be a bad decision, when it comes up to MSFT and GOOG. If the later starts to rise again next week, it is a clear sign that the market starts to reward something Mr. Hickey does not see at this point in time. Mr. Hickey has all my respect for his work his has done, but maybe he will come out with a sudden change of mind this year, when it comes to GOOG.
Last week Microsoft decided to team up with Nokia, but this new alliance has been punished by the markets. Google, on the other hand, rose to USD 624.5, challenging once again break out territory.
GOOG: If momentum picks up, we have to add.
The rise in equities last week has once again seen very low volumes and Indices look more and more vulnerable to correct some of the recent gains. Momentum does not confirm the new highs set by the Stock Market Indices last week. But for now, there are no clear signs of a top.
