Sep
10
What to Do? from Barry Gitarts
September 10, 2008 |
If one's model is saying that in the short term (next two quarters) the S&P is overvalued but over the next year it's undervalued, what does one do? Is it a matter of one's preference to trading over investing, or should one get long at the risk the market will realize the same thing and ignore the next two quarters of expectations? Although we like to say the market is a discounting mechanism, it seems very often to be discounting the very near future.
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You buy on weakness when despair hits the tape…
for what it is worth. Seems like the market for now is testing the 11100 level. September and October are potential mine fields for bad news historically and September tends to be the worst of the year for this. Rumors of hedge funds forced liquidations and mutual fund liquidations abound. Thus adding pressure to the markets. Remember that the individual investor is backward looking and will react to their statements. So what happens in September wont be reflected on the statements until October. Mutual fund liquidations were huge in 2002 and they are approacing this level now. Probably an indicator of how lethargic the market has been throughout this year. Ultimately the investor will throw in the towel out of boredom, lethargy, frustration, disappointment, margin calls and a host of other psychological variables.
Dollar is strengthening hitting yearly highs for what ever reason you wish to choose. Lower oil prices, commodity prices, weak European economy vis a vis the US. Gold is down to 800 range.
Financials esp Lehman WAMU Merrill continue to face massive selling pressures. Seems as though investing in financials is dead money. JP Morgan Chase is the stalwart of this group holding up the best amidst the carnage. Many site the cockroach theory that there is more bad news not yet revealed from Lehman and others.
Saw an interview with Greenspan and he said the government takeover of Fannie and Freddie was absolutely essential to survival of the system. Although it was terribly destructive to shareholders in the companies, its worthiness to stabilizing the real estate market and liquidity needs as well as instilling confidence was a critical step in moving forward.
After more than a year of this the investor must be getting very tired from all the body shots they have had to absorb. We know from history that after the sellout, they take their time before going back in.
Looking out to the horizon, major variables to consider, presidential election very much up in the air, the next financial institution to declare a crisis, a holiday season coming up whether it will be robust or boring. Residential real estate markets are still bland and credit availability both retail and commercial is extremely tight. Underwriting requirements are very stringent.
More to follow……………….
Wait a minute… if everyone knows the market is a discounting mechanism, then how can it be one? If everyone's panicking, panic with them I say! Cheers, George
Trading two conflicting trading systems is like introducing your wife to your mistress.
LOVE THE ONE YOU’RE WITH!
barrrrrrry???