About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, July 08, 2008

Stock Market Conjecture

Recent weakness in the market brought a new cyclical low and
re-confirmed the bear market. As recently discussed, the market
was deeply oversold, so today's moderate bounce cannot be viewed
as a surprise.

Since I think we are in a low visibility economic environment, I
do not have strong views about where the market goes from here.
Housing is in the dumper, and although pent up demand is building,
the experts claim that lender financials and housing affordability
will not be in decent enough shape to support a recovery this year.
Since the spring selling season was weaker than I had hoped, I
find it hard to argue with this view. The broader economy is
afflicted by a wage / cost squeeze on household incomes and a
price/cost squeeze on business profits. A continuation of these
patterns spell additional trouble. Yet, in just two days, as the
commodities market has weakened, the inflation thrust indicator
has taken a big hit to the downside, as players become more
concerned that global economic demand is imperiled. Now, if it
turns out that fuels and other commodites are set to contract
further, or even flatten out, the squeezes mentioned above may
well ease some, and the Fed may feel less constrained to keep
monetary liquidity on such a tight rein. With this view,
fundamentals can begin to improve quickly, and a market rally
would likely ensue.

So, like the recovering addict, I am tending to take matters day
by day as I have since the end of 2006 when the economic crystal
ball first clouded up. At any rate, the main point is that when
commodities play such a strong role in global economic weal and woe,
matters can turn on a dime when it comes to the forward view, and
that leaves investors and traders having to be prepared for abrupt
turns no matter their convictions.

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