All this talk about focus versus clutter and risk:reward versus predictions is interesting. As some of you know, I mostly post on CFZone, so some of this is a rehash of my posts there and some of this is stolen from there and other places. The presentation might be original, but the content is borrowed from a hundred places. -g
I do not care which way things go. Both present excellent opportunities. I could care less if the NASDAQ lost 40% on Tuesday. In fact, I would love that. I would equally like it if COMPX went to 5000 next week.
I am going to try to focus on the simple predicament the market is in. OEX is fighting with the high from March, NDX is fighting with the high from July, NYA is at a new high, and RUT wants to fight the July high. I think there are 5 tons of reasons why this market should go down, but if we push through this next level, I want to have a long-bias the size of Texas.
Aside from this overall neutral stance (Up, down, don't care), there are a number of reasons to think this will all end very badly for the permabulls. At some point we have to deal with the following problems that, so far, the market is refusing to discount:
* An outrageous, unprecedented credit/debt/asset bubble.
* Inverted yeild-curve. (2nd longest in history?)
* A massive trade deficit.
* Gasoline, HO, and NG prices that are not coming down soon.
The following events are likely in the next few months and they will put further pressure on equities:
* Decline in the dollar.
* A rally in bond yields. (This is a prediction I do not mind making. Where would they be today if not for the massive repo's?)
* Economic slowdown pressures earnings. Normally not fatal, but with these P/E's, it will be trouble.
This may take many months to work itself out. I do not know, but the longer we keep the rose colored glasses on, the more it is going to hurt our eyes when we take them off.
These sure are interesting times. |
