nuf2bdangrus (< 20)

When will the bottom be in?

July 03, 2008 – Comments (0) | RELATED TICKERS: FXY , CNY , FXB

In my June 6 post, I abandoned my shorts as the market rallied in defiance of fundamentals.  Covered on the first bear day in belief it would bounce.  Of course, for the 3rd time, I threw in the towel just a day before the bear.  So now I am naked long, and it is not pretty.  HAve lost too much real $ and CAPSpoints.  The points are intangible, but real $ is hard to make back.

A deeper examination tells me that my attempts at bottom feeding are futile, and we have a long way to go before a real bottom is in.  We are now in the midst of massive delevering, and ultimately deflation, as overleverage of debt unwinds, relative values of everything will fall and currencies will strengthen. The Fed will try to solve this with more debt, but banks are unwilling to lend, and those that can borrow are unwilling to so such.  The gig is up, and the taxpayer will ultimately hold the bag. 

In the short run,we are going to see commodities slowly blowoff tops, one by one, until only oil & gas are left.  Coal, steel, & materials gave you a hint.  The dip will be bought, because it is the only trade that works.  Its days are numbered.   It's too dangerous to short, as all parabolic moves are.  That's where the best money is made or lost.  Some advise.  Short oil through a strong airline or refiner, such as AMR or SUN, FTO.  If you want to short oil, to hot short on the first blowoff top.  It will retest as the dip is rapidly bought by the "believers"  When the retest fails, short it shamelessly down to the 200 ema and get out.

The US dollar will weaken as it has, and stronger currencies will rise, thus investments in the FXY & CNY come to mind, and short FXB.

Gold may do well in the short run, but as central banks will not hyperinflate, in the end, gold will crash too, but not before it hits 1500.

Equities are in serious trouble until:

Every sector corrects 

The USD  strengthens.  That won't happen until a true recession washes out all of the debt financed retail overcapacity.  China will spend their surplus on infrastructure, thus maintaining full employment as exports to US decline.  

The USD cannot strengthen until:

1)  All of the unservicable debt is destroyed.  A Trillion USD is probably on the mark.  

2)  Home prices revert past then back to the mean

3)   A balance of qualified lenders and borrowers is acheived.

4)  Overcapacity in the US retail & service is cleaned out.  This will not be pretty. 

 Eduactional stocks may be worth a look, but some like Apollo have already rallied fierecely.

There will be some powerful bear market rallies, but I think 10750 is critical  support for DOW.  If that fails, we will near 7000 so fast it will make your head spin.  Capitulation, when people and companies de-lever, must occur for a base to develop.

Meaningful growth at that time will be in the BRICS, if they allow meaningful capital and contract law to flourish.  Russia is the highest risk, and I would be cautious.

THe Bull market we hasd was in effect a mirage, financed by cheap capital created by Easy Al.  Our wealth was really financed by 3rd world savers.  Our capital structure is too convoluted with cost and reluation to provide meaningful growth, which at some point will stall all together when the world develops.

It's dangerous out there.

I'll be going to 75% cash on Monday.  Trades & strong curencies are the rule of the day.  You cannot be long in this market until rallies hold, as that means investors are comfortable with holding positions overnight.  I have lost that confidence, as there are serious disparities out there.

Be careful out there.