Sunday, May 13, 2007

Weekly look ahead

The recent roaring climb on wall street has some people opening up champagne.

Iran is still building nukes, but wall street doesn't care.

Economic growth is at its slowest in 4 years while earnings growth is at a 3.5 year low -- and yet the stocks are climbing. Home prices are expected to see their first year-over-year price drop ever, but stocks are climbing.

This is it, the capitulation where everybody who was still holding cash decides they have to get in on the roaring market. Everyone has heard the truism about how the market climbs a "wall of worry", and traders know that when the worry goes away the last money is entering the market and the drop is ahead.

Guess when the last time was that the markets climbed for this long? That would be roaring 1929, right before the great collapse. There shouldn't be a collapse this time (we don't have as much leverage and the fed policies are now countercyclic instead of procyclic), but the landing could still be harsh due to the hedge funds.

Hold fast to your cash reserves and be very conservative. I have only about 15% in stocks right now (all in the Finance Wonk Portfolio stocks)

Capitulation means this is "panic buying" an odd phenomena made of individual investors who suddenly think risk is gone and fund advisers getting yelled at because they aren't paid to manage cash. One can't predict when the madness will end, but we know how -- the market will drop. Now is NOT the time to buy.


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1 Comments:

Blogger ali said...

Finance
I just found your blog and want to say thank you! What an enjoyable time looking
through so many financial sites. Thanks for sharing

12:23 PM  

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