an 'interesting' post
From: dcb Replying To : dcb (post 451503) Aug 23 2006 12:00PM
Title: Maintaining short position
My mini Naz short (see the post to which I am replying... it is very interesting anyway) is doing well. The initial play is based on overbought in a downtrend.
I read a very interesting article yesterday by Hussman:
hussmanfunds.com
The major point he has been making for weeks (and he is a PhD economist as well as a multibillion dollar fund manager) is that inflation is not cyclical here, it is systemic. That means, in essence, the slowing of the economy a little will NOT stop inflation. Inflation is caused, at its root, by government spending in excess of utility; such things as war, transfer payments, and pork legislation come to mind.
The statistics of PPI and CPI running over 4% and intermediate goods PPI over 8% support his case.
Since the major reason for last week's rally was a conclusion that interest rate hikes were over, and since we have had two fed guys come out and say "not so fast" or something like that, I would have to suspect that the fed knows about the systemic inflation.
Today's very weak housing data, therefore, does not imply that inflation will be lower, it simply means stagflation is on the way. How much stagflation is priced into the market is hard to say, but the last 200 points on the Dow from last week reflect the pricing OUT of inflation expectations, and from my (and Dr. Hussman's) point of view, that is a mistake, and will be corrected.
I am waiting to add (and make "big" short positions again) until September 5, which is almost always a great time to short anyway. Iran might stir things up, but the big selloff comes when volume returns, after labor day. The election shenanigans might favor the bulls for a while too.
However, the longer term picture is growing weaker, and it is not reflected yet in stock price. So on balance, the short side case is growing slightly stronger.
dcb
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