Wednesday, February 28, 2007

Following the Bouncing Ball...

So we're poised at the open to bounce a little after yesterday's sell-off, but let's look at the new info.

GDP was revised down from 3.5% to 2.2%. That's a huge cut and look for more cuts in 2007 forecasts after yesterday's durable goods number.

I don't foresee a global meltdown of equities, there is too much $$ chasing performance for that to happen. However, data like today's GDP # reflect what we are all seeing (well everyone outside of Watertown which is experiencing it's own little retail/fast food/housing boomlet) the economy is starting to real from the slowdown in housing.

I expect us to see a series of weak economic reports to cause the markets to leak 1%/mth from here until 2008 or 2009. The Fed has no bullets to resurrect the economy at a time when it's starting to show cracks. Bernanke will say all the right things today but the reality is that he is a man without any paddles on the Niagara River.

As far as the impact all this has on your portfolio, I won't be too worried until we get to Aug-Sept. If the markets are down 10%+ for the year at that point we will get a mad rush by fund managers to make their number for the year. That means increased speculation and increased risk. That's when I'll get nervous (and even more short!!!).

Questions?

Tuesday, February 27, 2007

Ouch, That Was a Quick 400 pts...

Well, nothing like a little 3% drop to get your blood flowing again. At times like this when the markets become a major news story it's your job as a skeptic to separate fact from fiction as it relates to today's drop.

Here's the spin I've heard today on the major news networks as to what caused today's whackage - It's China, it was the attempt on Cheney in Afghanistan, it was weak durable goods orders, it was the pending revision of GDP, it was the weak dollar, it's the pending subprime blow-up, it's Iran, it's oil.................

China played a role, the $ played a role, GDP played a role, the NYSE played a role and Lacrosse players from Yale played a role.

Here's my take on the day - We gap lower on weakness overseas because of a threatened change in China's markets. The game on the street in recent years has been to buy these opening dips at 10am and make your money back by noon. I suspect many hedge funds got caught playing that game today. By early afternoon when there was no bounce people started cleaning up their sheets b/c there is concern about Wed's GDP number (rightfully so - I think it could be down from 3.5% to 2.5% or lower). A technical glitch causes the market to go haywire at 3pm and some real panic sets in w/the markets down 400-545pts. Tomorrow should be weak at the open, but look for London to try to stabilize (we'll know more tomorrow am obviously).

I've said for some time that all of my concerns about our economy - oil, housing, weak lending practices, weak dollar, etc - won't matter until one day they suddenly matter. Today appeared to be that day.

The greatest concern I have is that our economy is slowing (see tomorrow's revised GDP, home sales, today's durables number) at a time when the Fed can't cut rates for fear of sparking inflation. This is the early stage of a perfect economic storm that is not going to have an Easy Al solutions.

Questions? Comments? Shoot me an email and I'll answer any to the best of my knowledge.