GM Falls

The biggest story I could find on the market today was GM. A report suggested that Toyota may surpass GM as the No. 1 auto maker and the stock took a 5.7% drop during the trading day and dropped another 2.5% after hours. Connected to this story was the big investor that “saved” GM back in May with his announcement that he was taking a large stake in the company. Kirk Kerkorian indicated (actually his company, Tracinda) that they had sold part of their share in GM for about $20 a share after purchasing it in May for around $30, not a bad trade for six months. How would you feel if you lost a third of your portfolio in half a year? Not a good situation for anyone involved.

There was another item that we noticed only because we tend to watch it and wait for another opportunity and that was the price of gold. After trading near $540 last week, it closed under $500 today on a steep drop of about $10 and continues dropping in after hours markets around the world tonight to the tune of about $4 more. Silver followed suit by dropping 25 cents. The HUI did not move down nearly as much as gold but it has not followed gold on this run so it didn't have as far to fall. We are expecting another 15%-20% drop in the HUI as we wait for an opportunity. We are glad not to be on the wrong side of this move.

The other two news items we mentioned, housing starts and the PPI, were pretty much dismissed by the market. The bond market did drop initially on the news but managed to contain its losses over the course of the day. But, for the most part these items were not considered in trading today. No surprise there.

There was a bit of a surprise in that the market didn’t manage to make a good rebound from the losses it sustained yesterday. There’s a lot of week left but the reaction today was less then bullish from our perspective. We mentioned that the market would probably try to retrace some of its losses from yesterday and it still may but there is less strength in the market than most think.

As we approach the end of the year and this rally has run out of power, there is going to be a remarkable vacuum of buyers going into 2006. The market is Very dangerous right here and you should guard your principal. As bears, we look at a day like today and say that maybe tomorrow there will be a rally. Think of what the bulls must say after today. If they also say maybe tomorrow there will be a rally, and it doesn’t come what do they say tomorrow?

Be careful and BE SELLING any rallies.

Dow Industrials: 10,805.55 -30.98
RYVNX: 19.26
TLT: 90.68
BEGBX: 13.29