Top Line: We have been asked to add a few more pictures of the baby. Please indulge us for the moment, we are enjoying each and every one.
Stock market Top Line: The stock market continued its incredible volatility over the past seven sessions or so. Now comes the interesting part where the stock market has to decide which way to go. We say...oh, why don't you guess?
Yes, we think the market will resolve itself to the downside and that it's only a matter of time. The reason is simple, the market has not been able to sustain any kind of rally. As time passes without a real rally developing, the players get a little more nervous all the time.
The problem is that there has been a change in the flow of funds, it has slowed. The Fed has done a lot in order to "force" the world to borrow more money. This seems to be their solution to the problem that we have all borrowed too much. We don't think this will do much.
There really is no good solution at this point. The housing market has now taken control of the situation. The article in our last post talked about the real problem in subprime, that people can't afford the mortgage they are in even before the Reset on their ARM.
Thursday's excuse for the decline is the Philly Fed report which showed a much worse picture than expected. The stock market opened higher but couldn't hold its gains and then this news came out and there was no holding stocks up after that.
This evening we are suffering from bearishness. The reality of the situation is that our small blog doesn't have answers, just a bird's eye view of what seems to be going on. As we sit up in the crow's nest, we look down on the housing mess and know the reason was that the Fed had to do something about the stock market decline and 9-11. It chose the route of easy credit--remember this is debt, not credit, in the hands of the people.
We continue to view the housing mess move to other credit issues, the latest of which is the bond insurers who have two main businesses, municipal bonds and other bonds. Its those other bonds that have gotten them in their trouble, those pesky mortgage loans. The municipal side has been ok until recently when the auction bonds have started to fail, going off without getting funding. The circle is that municipalities will most likely end up having to tax more.
Or, there's the government bail out of Northern Rock. This is sure to cause trouble for taxpayers in the UK.
As we said, we are suffering from bearishness. There is money to be made on the downside right now. We know that people have already lost a lot of money just in the past couple of months. We know these people will continue to Hope that stocks will come back and will not sell. These people expect that the market will save their portfolios. Hope does not drive stock prices.
We recommend Extreme caution in this market. Of course, we will focus on the new baby so we don't have to think about the plight of the US, at least for now. Take care.