Boston Marathon bombings - America shines

Posted by Shyam Moondra

On April 15, 2013, it was a bright sunny morning when the 117th running of the 16-mile long Boston Marathon began in good spirits with 27,000 runners from 96 countries participating. This world’s oldest marathon takes place every year on Patriots’ Day (a civic holiday commemorating the anniversary of the 1775 Battles of Lexington and Concord as part of the American Revolutionary War). At around 2:40 pm, when the first batch of runners started to arrive at the finish line on Boylston Street, a loud explosion took place causing thick plume of smoke. A few seconds later, a couple of blocks down the road, another explosion took place. Instantly, it became apparent that it was a coordinated terrorist attack. A day of fun quickly turned deadly and thousands of spectators started to run away in panic. When it was all over, three people were dead and more than 280 injured, many of them seriously with amputated limbs. Among the dead were Martin Richard, 8 (his picture holding a sign that said “No more hurting people. Peace” became a worldwide sensation); Krystle Campbell, 29; and a student from China, Lingzi Lu, 23. It was a senseless murder of three promising youngsters whose dreams were cowardly cut short.

On April 18th, the FBI released the pictures of the two suspects, Tamerlan Tsarnaev (26) and his younger brother Dzhokhar Tsarnaev (19), both Chechen-born immigrants. These pictures were taken by the surveillance cameras around the terror sites. As soon as the pictures were made public, tips from the people of Boston started to pour in and the suspects realized that the police would be knocking on their door shortly. So they took off with a cache of explosive devices, hand-made grenades, and guns in a carjacked Mercedes-Benz SUV. The owner of the carjacked car somehow managed to escape and alerted the police that the carjackers admitted to him that they were the marathon bombers. After a dramatic chase and shootout, which involved loud explosions, the elder suspect was dead and the younger suspect sped away and disappeared in dark. In the shootout, Officer Sean Collier (26) was also shot dead and another officer, Richard Donohue, Jr. (33), was seriously injured. This was followed by an unprecedented lock down of Boston and house-to-house search. The younger suspect, who ran away on foot, was ultimately found hiding in a boat parked in the backyard of a private home in Watertown, a suburb of Boston. As a side story, a Brown University student, Sunil Tripathi (22), whose picture vaguely resembled the picture of one of the suspects, was wrongly identified by someone on Tweeter as the younger suspect - that tweet quickly went viral on social media. Tripathi got extremely distressed and disappeared on April 16th; his body was found floating in the Providence River on April 23rd.

The younger suspect, Dzhokhar, became a U.S. citizen only last year and took the oath to protect the constitution of the U.S.; the elder suspect, Tamerlan, also applied for the citizenship but his application was rejected because of the 2011 FBI investigation done based on a tip from Russia that he could be an Islamic extremist. Both brothers, who lived in Cambridge, Massachusetts, were born in war-torn Islamic region of Russia. Why did they do this? Their uncle said simply: "they did it because they were losers.”

From this tragedy, several points emerge:

• The suspect brothers came to the U.S. with their parents, who requested political asylum because they wanted to get away from their war-torn homeland in Russia. They wanted to come to America for freedom and to live in peace. The U.S. was generous to only let them in but also provide financial assistance to the whole family, including the two suspects, through a variety of welfare programs. In fact, the elder suspect was receiving welfare assistance as recently as last year. It’s astounding how the suspects ungratefully cut the very hands that were extended to help them. It’s abundantly clear that there is no other country in the world that is so generous and that values humanity so much. America, the country of immigrants, is one of the the few countries where immigrants can come, work hard, and achieve big things for themselves and for their adopted country. The fact that they were Muslims (and the World Trade Center attackers were also Muslims) and yet the U.S. gave them political asylum so they could live in peace is a testament to the incredible American generosity and desire to help those who need help. This reflects profoundly positively on America’s moral fabric and character. A big win for the U.S.A.!

• Another shining star in this tragic episode is the law enforcement establishment. It’s amazing to see how well various local, state, and federal agencies worked together and apprehended the suspects so quickly. The overall performance of first responders, police, hospital staff, FBI, ATF, and others was incredibly efficient and effective, almost to the point of perfection. Within two days of the attack, the law enforcement identified the suspects and within five days they captured the suspects, dead or alive.

• The people of Boston also exhibited tremendous courage and discipline during and after the attacks. The help of Bostonians was paramount throughout this sad incident. The tip from the owner of the carjacked car was instrumental in putting the police on a hot trail of the suspects. The tip from the owner of the boat, where the younger suspect hid, led the police to capture him. The people sent smart phone pictures and videos to the police that helped investigators identify the suspects so quickly.

• The social media proved to be a positive force when Arab Spring broke out in Tunisia, Egypt, and Libya. Without Twitter or Facebook, it would have been impossible to mobilize the popular uprising against dictatorships and fuel the quest for democracy. In case of Tripathi, however, the uncontrollable mega force of social media proved to be fatal. The question to be pondered is how to check the uncheckable digital revolution that often is used as a platform to spread false rumors (e.g., recently, a false tweet on AP website led to flash crash of the market that wiped out billions of dollars of market cap in just a few seconds) or impinge on privacy rights.

The iconic singer, Neil Diamond, flew to Boston on Saturday, April 20th to personally appear at the first Red Sox ballgame after the terrorist attack and show his support for Bostonians. The spectators were not only surprised but genuinely thrilled to see him sing Red Sox’ signature song “Sweet Caroline.” Diamond, a New York native, wore a Red Sox cap and as he left the field, the fans chanted "U.S.A.! U.S.A.!" That said it all!

Bull market is alive and well – it has a long way to go

Posted by Shyam Moondra

The DJIA is ready to crack the 15,000 mark this week or next for the first time in history and short sellers are scratching their heads. Since the market hit a low of 6,443 in March of 2009 at the height of the financial crisis, it is now up by 130%, making it one of the strongest comebacks ever. The bears, who thought an impending crash was a sure bet, are totally confounded at the resilience of the market.

I have written about the unfolding market story and predicting a long-term bull market that will take us to the 18,000 mark on DJIA by the end of 2015 (“We are in a secular bull market – DJIA headed to 18,000,” March 4, 2011; “Market impediments dissolving – DJIA headed to 18,000,” February 21, 2012; “Analysts behind the curve – market entering a major bull phase,” March 16, 2012; and “Bull market continues – DJIA headed to record high,” January 1, 2013). The current market conditions only reinforce my prediction.

It’s worth noting the following trends:

• When market goes up big (100+ points) with heavy volume several days in a row, exhibiting "irrational exuberance" (a term coined by former FED Chairman Alan Greenspan), it is usually a sign that the market has peaked. However, this is not what is currently happening; the market has been going up sluggishly with light volume, which means that it has a long way to go before we see a major correction.

• The current market rally is unusual in the sense that “not-so-sexy” stocks (such as Pfizer, Merck, Microsoft, IBM, Verizon, Coca-Cola, etc.) are going up but many industrial and financial companies (e.g., Alcoa, Bank of America, Citigroup, Caterpillar, Exxon Mobil, Apple, Dow Chemical, etc.) have not yet participated in the rally. This unevenness actually sets the stage for rotation and a continued bull run in the near-term.

• The corporate earnings are at record levels, thanks to their masterful management of their cost-structures and cautious capital expansion, which, of course, explains a slow pace of improvement in the job market. The corporations have one of the strongest balance-sheets ever, with $4 trillion of cash pile that will fuel further capital expansion and job creation in the coming months and years.

• The housing comeback, healthy auto demand, and surprisingly strong energy sector are contributing to economic recovery.

• We continue to enjoy an environment of low interest rates and low inflation that is usually ideal for market rallies.

• Increasing housing prices and higher stock prices are creating the wealth effect which would encourage consumers to spend more and thus continue to fuel the economic recovery.

• Many analysts view impending winding down of FED’s QE 3 as a catalyst for the market crash. If the FED does this gradually, all in all, we will actually see a stronger market for two reasons: first, the stimulative effect of QE 3 is unleashing economic expansion which would easily absorb the gradual unwinding of QE 3 and, second, as the interest rates go higher, the bond bubble will finally burst and some of that money will move to equities and thus keep the stock market rally going.

• Finally, based on historical standards, the current stock valuation is very attractive. WSJ reports that the trailing PE ratios based on operating earnings (i.e., excluding one-time extraordinary items) are as follows: DJIA 13.05, S&P-500 14.10, and NASDAQ-100 15.00. These ratios are, by no means, excessive (at the last market peak, these ratios were in high-20’s to low 30’s). Given that the economic growth is slower now than in the past, we may not see that high PE ratios any time soon, but from current levels the market could easily go up by 20-30% before beginning to look pricey.

Yes, as the market goes up, there will be intermittent profit-taking which will cause small corrections along the way, but a major bear trend is not in the cards, as yet. In fact, in the current bull run, we could witness one of the strongest short squeezes we have ever seen.