Things to keep in mind for this week
Last week saw a massive 4% swing in the Dow. As we head into this week, I am thinking these thoughts.
1. Fact#1 The World economy is strong - For a long time the world has been a plane flying on one engine: the United States. Now we have Japan looking stronger, and India and China already strong. Interest rates were raised in the US and in China because the economy is doing too well, not because of recession.
2. Fact #2 - End of the US loose money policy. As monetary policy shifts and loose money disappears, asset valuation will deflate. That means housing most of all. We are returning to normalcy, not belt tightening. Notice that the deficit is dropping despite incredibly higher oil prices.
3. fact # 3 - Housing is the biggest cloud in the US sky. It has been the biggest employer, the biggest GDP driver, and the biggest source of wealth and consumer spending. And demand is slowing as speculative buying is finally disappearing and real demand is emerging and showing signs that, well, the demand for housing is actually a lot lower than folks thought. With rates high and trillions of mortgages getting re-written in 2007, the economy can be hurt. But it also works for the positive - banks will enjoy writing new loans, falling housing prices will help renters and new homeowners. A few folks will be burned, but mostly it will be speculators - folks who have plenty of income and wealth already. Losing money on a real estate investment will not be the thing that makes them think twice about buying a $2000 flat screen TV.
4. Opinion #1 - Commodities are in demand and will remain in demand. This is not just a shift of manufacturing to China, this is growth in major new economies like India and China, as well as growth in smaller regional economies like Brazil, Eastern Europe, and so forth. Infrastructure spending is continuing.
5. Opinion #2 - Few investment alternatives to the US stock market. Money chasing opportunities in Dubai got burned. Money will continue to flow away from shakier investments and into the US stock markets
This week is options week. A lot of shorts will be dumping shares, putting downward pressure on the market.
Direction - Be wary. Look for possible dead-cat bounces in-between the overselling. In general, very few stocks are oversold - they contracted after a major run-up.
1. Fact#1 The World economy is strong - For a long time the world has been a plane flying on one engine: the United States. Now we have Japan looking stronger, and India and China already strong. Interest rates were raised in the US and in China because the economy is doing too well, not because of recession.
2. Fact #2 - End of the US loose money policy. As monetary policy shifts and loose money disappears, asset valuation will deflate. That means housing most of all. We are returning to normalcy, not belt tightening. Notice that the deficit is dropping despite incredibly higher oil prices.
3. fact # 3 - Housing is the biggest cloud in the US sky. It has been the biggest employer, the biggest GDP driver, and the biggest source of wealth and consumer spending. And demand is slowing as speculative buying is finally disappearing and real demand is emerging and showing signs that, well, the demand for housing is actually a lot lower than folks thought. With rates high and trillions of mortgages getting re-written in 2007, the economy can be hurt. But it also works for the positive - banks will enjoy writing new loans, falling housing prices will help renters and new homeowners. A few folks will be burned, but mostly it will be speculators - folks who have plenty of income and wealth already. Losing money on a real estate investment will not be the thing that makes them think twice about buying a $2000 flat screen TV.
4. Opinion #1 - Commodities are in demand and will remain in demand. This is not just a shift of manufacturing to China, this is growth in major new economies like India and China, as well as growth in smaller regional economies like Brazil, Eastern Europe, and so forth. Infrastructure spending is continuing.
5. Opinion #2 - Few investment alternatives to the US stock market. Money chasing opportunities in Dubai got burned. Money will continue to flow away from shakier investments and into the US stock markets
This week is options week. A lot of shorts will be dumping shares, putting downward pressure on the market.
Direction - Be wary. Look for possible dead-cat bounces in-between the overselling. In general, very few stocks are oversold - they contracted after a major run-up.
posted by Andrew at
1:50 PM
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