Well all I can say is this...
I looked for stocks that were breaking trend lines and as soon as they broke I bought puts. Worked perfect on the likes of PG.
I looked for stocks that I considered at the top of their valuation metrics that were worth lots per share. I figured, no way they stay up there and a drop of $5 bucks makes a big difference on an option. Worked perfect on the likes of MMM. I unfortunately sold my puts too early.
I figured that defense and health care would get cut down as soon as I heard the budget deficit had ballooned as high as it did. I knew that we were going to see it climb because of reduced cap gains receipts, but no way I thought it would be as high as it was. So.... I figure this...... Ok... we have this big deficit now. Are we going to get cap gains receipts next year? No, I don't think so. Government acts surprised about this deficit. I think we even talked about it on this board a while ago, so what do those people do while they sit in WA DC? Obviously they don't have a clue. So... I figure this right away..... budget deficit next year goes up another 125 billion plus interest due just to reduced cap gains. Next I have to figure that the government is NOT figuring in that CORPORATIONS will come in next year and either file ammended returns demanding refunds of overpaid taxes (because they reported too much in earnings all found out because everyone is looking at the books for the last few years) or they have carry forward losses. This fact the government has most likely not lit up a light bulb yet because they likely need to see it in writing (individual cap gains.... it took them a few months after tax deadline to notice a problem, but corporation restatements don't affect taxes till next year). So I figure, Ok..... budget deficit will be even higher than just losing another 125 billion. So........... they gonna have to cut the spending. What can they cut? Medicare reimbursement (already trying to cut MD's and extended care) and defense. So... I figure ok, those are going to fall now too. Worked perfect.
Now I don't expect they'll cut those areas yet because re-elections are coming, but just the thought that it might is probably enough to cause those stocks to drop.
Then I figure, ok.... no interest rate increases for a while because the government has to service their own debt. Raising rates makes the government pay more too. No bueno.
Then I figure, ok if the government cuts defense and medicare what really happens? Layoffs will follow in those areas and they are the ones where we are seeing job additions.
So then I start thinking.... I think that in the beginning of the year I got a whole bunch of offers for 0% balance transfers and I'm pretty sure they lasted about 6 months until they reverted to the prevailing rates and bingo.... here it is 6 months later. So... I figure... well I guess whoever didn't pay those cards off are probably only now seeing higher payments and rising debt.
So then I check out the financials, and sure enough the subprime lenders are in trouble.
So then I figure... well if the only sectors hiring are going to slow down and probably lay off, and higher bills are coming, then what happens to consumer spending? Probably softens. Then I figure.... I bet housing will soften, so I buy puts on those too. I was already suspicous of this when HD and Lowes were falling and then when Mohawk, Whirlpool and Maytag reported it only served to reinforce this. Sure enough housing starts are down but of course permits are fine. So what? A permit can get pulled and a house doesn't have to be built. There is no commitment in housing permits.
Well.... we best hope that we don't see that whole scenario take hold cuz what has been strong (defense, medical, retail and housing) is what has been holding up the econ. If those weaken and the rest don't start recovering (not looking likely), then the stock market is predicting that we're in doo doo and it's not a disconnect with the economy at all. It's telling us the same thing that the telecom equipment and software stocks told us.... something is indeed wrong.
My sister only confirmed what I thought about our local econ with her biz. She called me today and told me she's going to buy spyders. She has caught every bottom all the way down. Unfortunately for her, she hasn't sold on the rallies, but I'm amazed at her catches because she never looks at a chart, never listens to a biz channel, doesn't read any financial magazines. She only buys when she hears in the local news that stocks are falling. So..... I bet we bounce soon. How long it lasts I don't know, but I have an awful feeling that THE lows are still not close and it goes beyond redemptions.
TA |
