The Super Bowl And the Stock Market

Theory has it that whoever wins the Super Bowl will predict whether the market goes up or down. The Super Bowl Indicator predicts that if an NFL team wins the Super Bowl the market will go up but if an old AFL team wins then the market will go down. This theory has been right 33 times out of the 42 Super Bowls for a 79% rate of success of predicting the market. There's no logical correlation between who wins the Super Bowl and the stock market and it's more superstition than economic forecast.

Last year the Giants (an old NFL team) won the Super Bowl over the Patriots (an AFL team) which should've meant the stock market would go up but we all saw how that worked out. This year both the Cardinals and the Steelers are from the NFL (The Cardinals were originally of the St. Louis franchise). According to the indicator, no matter which team wins the stock market is predicted to go up. At least we can be optimistic. But if you ask me the Cardinals don't have a chance against the Steelers defense.

Outlook for 2009

This year the experts are expecting more pain. 2009 is going to be tough economically but most of the bad news we already know about. The majority of analysts predict that the markets will end the year in the range of 10 percent up or 10 percent down. Deleveraging by financial companies and other companies cleaning up their balance sheets will lead to lower earnings and return on equity. Rallies and any optimism will be offset by bad economic numbers and earnings reports. Their is an outside chance that the market will go up 15 or 20 percent if the stimulus measures that are put in place are effective and optimism for the economy in 2010 increases. We are no longer in a world where assets are always appreciating and consumers are shopping and taking on credit. Consumers are already starting to save more as their net worths have declined. On the other hand, consumers will benefit from the lower gas prices and from stimulus that is aimed at adding new jobs and giving tax cuts to the middle and lower class. However, all the stimulus and liquidity being added into the marketplace will eventually lead to higher interest rates and inflation once this period of deflation ends which will probably be in a couple of years.

That being said, their are many areas where risk and valuation are not priced accordingly. Their is a tremendous amount of money on the sidelines right now as investors flee for the most quality and liquid investments. Felix Zulauf of Zulauf Asset Management says that "In the past 10 or 20 years risk was high but perceived risk was low...Now we are moving into a world where perceived risk is high but real risk will eventually turn out to be much lower." The key to 2009 will be taking advantage of these misvaluations in these challenging times.

Our next strategy

Recently we have invested in Rohm and Haas Co. This was a merger acquisition of a chemical company we believed would benefit the acquiring company (Dow Chemical) immensely. Because of the profitability of our investment in ROH, we have sought out other acquisition deals. One we have come across was the recent announcement of Puget Sound Energy (PSD) being acquired.

We have done our due diligence about the follow through of the acquisition, and have decided this is a deal that will go through at a high rate. We feel investing in this company will result in roughly a 7% gain. Although this seems to be a risky investment, we feel the probability of this falling through is extremely minimal. Therefore, after putting in the research to validate this claim, we have decided to make an investment into PSD.

Currently we are waiting for the price of PSD to decline a little to maximize our gain off of this acquisition, yet allowing the market to go down as a whole to maximize our investment in DOG, a PowerShares short of the DOW. We plan to liquidate our current holding of DOG and reinvest this money into PSD. This will hopefully allow us to take full advantage of the declining DOW and take that money to capitalize on the appreciation of the full buyout of PSD.

In conclusion, we hope to take advantage of the appreciation of PSD after we have taken our gains from DOG. Currently we sit at a 2% gain on DOG and hope to find an increase within the next few days, with weak guidance on forcasted earnings from companies about to announce earnings (ie: Alcoa - AA). Our hope is to capture a 4% profit on this hedge trade and reinvest in what we have defined as a more than probable deal of going through.

We are open to any comments or feedback you might have on our outlook/research.