Investment

» BoltonCT - Market bottoming?

U.S. stock-index futures gained, indicating the Standard & Poor's 500 Index may hold its own from last weeks drop, on speculation earnings reports this week may not show as many write downs of losses. Wal-Mart is becoming a favorite of Wal-Mart as it toes the WS analysts line. WS is busy as analysts powder and put lipstick on the pigs that help them achieve their bonuses. But bonuses are a long way off and if they start in the summer there may be no bonuses by year's end. Perhaps that is why the market historically declines this time of the year. Futures gains are narrowing now.

The New Spiral Indicator would need about three weeks of bad news to say stop cherry picking into the market. The New MACD would need more than a month of good news to confirm a market bottom is in place. While they are bullish, the next month will determine the outcome. Sy Harding's theory would say we will wish we were not invested now as this is the period to be out of the market altogether. So will the New Spiral Indicator's bullishness be wrong and the MACD still be correct and bearish? One month of testing should tell.

The balance of trade did not get worse last month indicating that the dollar is now falling at a rate fast enough to match U.S. inflation. But that is not stability. Stability will occur when the dollar falls enough to slow the inflation rate by increasing U.S. exports and cutting U.S. imports closer to a balance. When that happens the other world economies will slow down. Therefore we can expect our trade partners to support the dollar periodically even though the situation is deteriorating. That will bring oil prices down for a while. We expect to see those temporary benefits begin soon (within two or three weeks).

Asian markets were mixed last night with most up factions but Chinas and South Korea down over a point. European markets are mostly up slightly at the moment.

Word is out Google people are leaving. The writing is on the wall. The bloom is off the company.

May 12, 2008
Round Two - Home Price Erosion
John P. Hussman, Ph.D.
See:
http://www.hussman.net/wmc/wmc080512.htm

With the U.S. stock market still relatively overbought in an unfavorable Market Climate, there is continued risk of substantial and possibly abrupt weakness.

We observed some initial weakness late last week, but we remain braced for more significant trouble.

At the same time, we have to recognize that the rebound through early last week brought market internals not far from the point that would begin to feed purely speculative "trend chasing." So while we're defensive here, you can think of us as having something of a "stop" at which we would cover part of our short-call option hedges (leaving the defensive puts in place) - effectively trading some risk of time delay in return for a modest exposure to rising prices in the event that investors become resolutely speculative.

Last week, CNBC aired an extremely useful and informed interview with Martin Feldstein, the president of the National Bureau of Economic Research ...
Among Feldstein's comments was the observation.... "If you compare where the economy was at the end of March with where the economy was at the beginning of the year, there's no question the economy is down by just about every measure."

More important were his remarks about economic prospects, and the risk of placing too much faith in the Federal Reserve to manage those risks. These comments are important, and should not be missed:

"To me, the big question is what happens as more and more homes move into negative equity - as more and more people see that the value of their mortgages exceeds the value of their homes. If we see a big increase in defaults, ultimately in foreclosures, that's going to push us definitely into a significant recession.
See: http://www.hussman.net/wmc/wmc080512.htm for details

-- posted by BoltonCT