Top Line: We have to say that the current market seems a little dull. Yes, we have been in an upward correction of the runup of the past six months and it has just begun. Still, it shouldn't be very powerful and we wonder if good trading opportunities are available.
As mentioned in our last post, we think that the average American will be scratching their head and wondering why the stock market isn't going down. The news continues to be bad with Tuesday's news on both the declining price of housing and the drop in consumer confidence. The expecation portion of the index, the way consumers feel about the near future, dropped to a low not seen since 1973 during the time when the oil embargo and the Watergate scandal were the top news stories.
These news items don't do much for stock prices since most sellers have been getting out over the past few months and many have no further desire to sell. The real question is when are the people that bought from these early sellers going to get tired of holding. Yes, we know, that is a few weeks, if not months away. We have to get on board the idea of a correction here that may take stocks higher than we would like to think about. For the moment our position is that we should see a rally that gets to the 13,000 level and then we have to see what kind of strength we will get at that time.
One item that popped up this evening was the news on the Social Security/Medicare front. We find the timing to be a little inconvenient, to steal a word from another heated debate (pun intended). We see the Fed and the government acting to save Bear Stearns by bringing billions of dollars to the table and within a week the news is to increase taxes because these social programs are going to need additional funding in the near future.
Several years ago, they were telling us that the trust fund for Social Security would need to be tapped to keep up the payments. That year was 2017 and you might notice that is Less Than ten years away. What's more is that the government has been using the excess Social Security payments in the general fund and writing IOU's to the trust fund in the form of bonds. When 2017 rolls around, the government won't be able to draw funds from the excess payments because there will be No excess payments. At that time the fund will need to draw funds from the government. So, either way you look at it, taxes will probably need to go up to cover this program.
Our thought is that the American people look at the Problem and say, "It's the government's problem not ours. You took care of Bear Stearns last week so now figure out a way to take care of us."
In case you were wondering more about the Bear JPM deal, we were pointed at this NY Times article that questions the actions of the Fed in the deal. It's a pretty short article and deserves a read.
FSI: 76.02 (slightly lower than yesterday)