What’s Next?

Believe it or not but the markets finished about where they started.  Treasuries finished about where they started.  What a trip though.

I would love to see a big rally Monday after today’s big rally and yesterday’s big rally.  But, I believe in the big scheme of things, a weak pullback would be the best thing we could see.  A low volume weak pullback would be healthy.  Markets don’t go straight up.  They breathe as I suggested we should do earlier in the week.  I have to admit that the rally we’ve seen the last two days doesn’t look like a rally to start a bull market.  That’s the preliminary data I’m seeing.  But, it’s been strong and broad the last two days and that’s a start.  In other words, it’s too early to tell if it’s THE rally to start a bull market.  But, you have to be participating in it because a lot of money has been made the last two days.

The fear definitely peaked yesterday.  Financial stocks that are typically very stable were down from $70 to $20 in one day.  Treasuries (3-month) were paying literally nothing and plenty of people were happy getting that in exchange for safety.  I had a record number of phone calls with concern and fear over just safety in our financial system yesterday.  I had a record number of hits on my website (blog) yesterday.  The percentage of stocks above certain moving averages was extremely low.  My crazy investor indicator was at very elevated levels.  All of that lead me to cover my financial shorts yesterday after covering my other shorts last week.  Materials were extremely strong today and even though I had 60% cash, I was up as much as the major averages.  I added to my equity positions today and will do so on weak pullbacks.  What was weak today?  Healthcare & consumer staples were weak on a relative basis as I said they would be if/when we got the rally.  So, what will be strong the rest of this rally?  I’m not getting too fancy.  I’m spreading out into different areas as we saw good breadth today.

But, let’s not get carried away here.  I will spend my weekend re-visiting my sell strategies for everything I own even though I think this rally will have legs.  It’s the prudent thing to do.  The economy is still very weak.  We avoided disaster and that’s reason to celebrate for a few days but it shows how bad things are.  The main reason I’m buying is because first the fear is too high and I’m expecting at least a counter trend rally.  Second, the Fed & Treasury have changed the rules of the game and we need to respect that.  So, let’s participate but let the market prove to us it’s ready to go even higher.

I’ll try to make another post discussing the various plans and my thoughts on if this is good or bad for our country this weekend.  For now, I need to decompress and relax.  Have a nice weekend.


3 Responses to “What’s Next?”

  1. 1 Lee September 20, 2008 at 9:58 am

    The Crash of 2008, which is now wiping out trillions of dollars of our people’s wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.

    The new era will see a more sober and much diminished America. The “Omnipower” and “Indispensable Nation” we heard about in all the hubris and braggadocio following our Cold War victory is history.

    Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.

    This is nonsense. What we are witnessing is the collapse of Gordon Gecko (“Greed Is Good!”) capitalism. What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.

    A true conservative cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic. He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.

    Is that really what got Wall Street and us into this mess — that we followed too religiously the gospel of Robert Taft and Russell Kirk?

    “Government must save us!” cries the left, as ever. Yet, who got us into this mess if not the government — the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

    For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.

    Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

    We are going to have to learn to live again without our means.

    The party’s over

    Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.

    But this generation decided that was yesterday’s bromide and we must march bravely forward into a Global Economy, where we all depend on one another. American companies morphed into “global companies” and moved plants and factories to Mexico, Asia, China and India, and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.

    As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.

    At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise. The dollar began to sink, and gold began to soar.

    Yet, still, the promises of the politicians come. Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.

    John McCain is going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or “bomb, bomb, bomb,” with Joe Lieberman as wartime consigliere.

    Who are we kidding?

    What we are witnessing today is how empires end.

    The Last Superpower is unable to defend its borders, protect its currency, win its wars or balance its budget. Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

    What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

    Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.

    Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

    An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

    What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

  2. 2 Dan September 20, 2008 at 1:14 pm

    When you interviewed Anivan Banerji, he mentioned that his research shows that the global economy is hitting the brakes, not just slowing down. More profound is that Anivan believes that the global stock markets have not discounted the severity of this global recession. How are you adjusting your strategy based on his statements in regards to your global growth positions? Many of us are down big on our global growth plays and if Anivan is correct with his statement, we are only at the beginning of this downfall.

  3. 3 keggerss September 21, 2008 at 3:34 pm


    My plan is the following: I believed the fall in materials & commodities was two fold. First, it was investors realizing that the global growth was slowing. Secondly, it was the unwinding of leverage in the financial markets and forced selling by hedge funds. Therefore, I held most of mine. I wanted to see when a rally came if they led the rally. So far, they are (behind financials). Therefore, I will fade this rally if it’s not the real thing and sell these at some point when the rally fades.

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