Is Anyone Awake?

Today was one of those days that you just want to be somewhere else. The market was about as dull as it could be and trading was light. For it's part, the Dow traded in a very narrow 35 point range today and it looks like the patient is in a flat line situation again. The participants are waiting for the Labor Day holiday to defibrillate this market. With the end of the month again in plain sight, we could have some strength but the Dow has shown remarkable weakness since Monday's intraday high near 10,650, closing at 10,450 today. (A close below 10,500, that's two days in a row.)

One other sort of interesting thing with the Dow being under 10,500 is the position of the SMA's with both the 50 day and 200 day being right on top of each other at 10,539. The Dow is now below that and can start to pull them down and in fact has pulled the 50 day down but has only managed to flatten the 200 day. OK, so it's not so exciting but it does beat the trading day today.

The other exciting thing today was our prolific Erick in the comment. He is giving all of us some reminders about the way the Japanese economy faltered in the last fifteen years. He mentions liquidity drying up as one of the possible catalysts to a bust. Hot markets, like real estate now and the NASDAQ craziness of the late 90's, generate their own liquidity. But, in the times of a downturn, the liquidity does dry up. This will be part of the next downturn as real estate will become one of those dried up liquidity holes.

The other driver for a bust was a shock to the system like an oil or currency crisis. Well, let's see, the oil shock doesn't seem to have done too much so far as people continue to live life pretty much as they always have. Maybe their use of credit is up a bit but that won't affect their monthly payments too much for a while.

A currency crisis is also a definite possibility as the dollar is having a little trouble right now and has for several years. Will the Euro or the Yen be able to compete with it or not? The Chinese have already set the tone for less dollar assets when it changed the value of the yuan.

Don't forget that Japanese real estate, residential, has dropped 70% in the last 15 years. You have heard the arguments about the fact that "they aren't making any more land" in order to convince yourself that real estate prices can only go up. Well, Japan is not very big and their population has grown in the last 15 years but what about real estate? We believe that the housing market in the US could stand a little cooling off but 70% seems scary to us.

Real estate is a big worry here at the Wednesday Update because of its hold on the whole economy. The real economy is the real estate market which is part of the financial economy. We can only watch and pay down as much debt as possible.

Thanks Erick.

Dow Industrials: 10,450.63 + 15.76
BGEIX: 11.34