Spiga

Bull or Bear: Inside a traders mind


Last week, the mini market meltdown was met with major intervention from central banks around the world. This generation has never seen the kind of synchronized movement we witnessed. And although the Rothschilds would be proud, what does this signal, and what comes next?


There are a few things to keep in mind.


1) Between March and July of 2008, most US mortgages will be recasting to a higher rate. The payment shock for those borrowers has not even been felt


2) Defaults are continuing to rise, and the peak probably isn't even until at least the fall of 2008.


3) Unemployment will rise in to 6% in 2008 (my prediction)


4) Consumer spending and the infallable American Consumer ARE FINALLY FINSIHED. Recent warnings by Home Depot and Walmart are a sign of the weakness to come. I consider Walmart a leading indicator of total aggregate consumerism in the US


and if you look at the 10 year chart of Walmart, its on a slow steady decent on its way to breaking 40 dollars to the downside. Someone is raising cash by selling WMT


Looking at the worldwide marketplace, there are a couple of things to watch and some that aren't truly involved in this unfolding scenario in the short term.


1) China is in its own world, not susceptible to the whims of the older, modern economies. I still remain short term bullish on mainland China. On of the few ways to play the volatility in China is the Ishare FXI. I believe we're about 2/3's the way through the upside in that country and probably will see the market retrenching into the 2008 olympics. Chinese dont have many investment options, are very bullish becouse its the year of the pig (and ultimately pigs get slaughtered) et. al. I would not short or put the market yet. It takes longer to form tops then bottoms.

2) The subprime meltdown is about half over. But its problems are moving into prime borrowers wallets. I see a major moneycenter bank (US or International) having issues by the late fall of 2007 or early 2008.

3) Financial Stocks (22% of current S&P value) are not at a bottom yet. The markets have made the highs for the year already. I would trade with a technical bias to the short side, or raise cash on rallies for most stocks. The Dow will hit 10K in 2008.

4) The dollar will continue to be under pressure. Especially watch the dollar vs. the Yen. If the Yen breaks 110, it is certain to penetrate 100 on the downside and create chaos in the carry trade most moneycenter banks have placed. (think of the speeding unwinding of carry trades as the subprime of the major moneycenter banks)

5) Commodities will continue to show strength since the dollar denominated markets will have to appreciate vs. other currencies. Worldwide demand will continue through 2009. Watch the CRB index

6) Asia and India will be the last areas of the world to find issues with the debt crisis (mainly through dropping exports to the US and devaluated dollar income). When you see those markets get rocked hard, its time to buy American and European stocks again (2010?).

7) Lawsuits resulting from market losses are going to explode in the US and Europe. The US has lost financial credibility and the repatriation of the dollar has now begun. Watch the eurodollar futures for some indication. Europe is in a better position to actually climb out of this mess faster then the US, partly becouse the EU is now showing the promise of integration that has taken over a decade to create.
Where to invest now? Watch upcoming postings for some ideas.....

0 comments:

footerads