News items of note today:
- Existing home sales being about as much as last month
- Followed by a report on possible changes to the tax code that could reduce the home mortgage deduction (read CNN’s story on Mortgage Math)
- Consumer confidence falls on hurricanes and higher gas prices (in September)
- Bond prices fall despite fall in confidence
- Natural gas prices spiking ten percent today on the first hint of cold weather
- AMZN’s profit falling 44% in the Q3 and muted holiday sales forecast, with the stock off over seven percent after the news
Much can be said about the news items above but we take particular note of the ones related to housing. Those would be all but number six. We think that housing is about ready to show signs of fatigue both in pricing and in sales. As rates have moved up in the last two days, trying to test the recent upper range, we have considered the major possibility of the bond market making a stand here to stop the credit expansion now. We didn’t think that was possible just a few days ago but that outcome is on the radar screen tonight.
As we have mentioned in the past few weeks, this market is treacherous and you should be very careful with your assets.
One good thing for the Update was that RIMM decided to finally break under 60 today and with a vengeance. We shorted this stock at 69 and are sitting pretty with a close at 57.40 tonight. Yes, we know, GOOG has gone against us a little bit, ouch, along with the bond market and the stock market. The gold complex has rallied fairly nicely here, without us, and we expected some of that with another drop to take out last week’s lows. We are thinking of a tradable low occurring in that market in the next month. We do think that the market reaction to the Bernanke selection is a flash in the pan but we need to be careful. The market needed a little push and maybe this was it. Stay tuned.
Dow Industrials: 10,377.87 -7.13 (Far from 10,500, with much bullishness?)
RYVNX: 21.09
TLT: 89.94 (ouch, this hurts)
1 comment:
Glenn,
Here is an intersting article that some of the readers may find appealing. I know we don't think much of JP Morgan but this sounds logical.
JP Morgan: Cash could beat stocks
Analyst says higher short-term rates make stocks less attractive.
October 25, 2005: 12:00 PM EDT
NEW YORK (Reuters) - Higher return on cash investments may help push stocks down in coming months, according to JP Morgan Chase & Co.'s global equity analyst, Abhijit Chakrabortti.
In the past six months, equities have returned only 1.6 percent while the return on cash investments has risen to 4.4 percent, more than double the average level of 1.8 percent in 2004, according to JP Morgan data.
"As short rates move up, so does the required return for equities, and given our negative market outlook, we believe it becomes increasingly difficult for equities to outperform cash," Chakrabortti wrote in a report to clients.
J.P. Morgan estimates the benchmark lending rate, known as fed funds, will reach 4.5 percent by the start of 2006. Federal Reserve policy makers have raised the lending rate 11 times since June 2004 to 3.75 percent.
"Earnings need to grow at trend just to keep in pace with the required return to outperform cash," he added. "Given our zero earnings growth forecast for 2006, this becomes highly unlikely."
Erick
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