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starbucks4ever (96.89)

Crystal ball gets cloudy; current thoughts

Recs

8

October 16, 2010 – Comments (8)

The market continues to misbehave in several segments at once, and I see clearly that keeping the all-star charm during the next several months will be very difficult and in fact, unlikely. First, there is this emerging-markets rally detached from all fundamentals and looking like a replica of 2007. I am short China in Caps, and red ink will only be getting worse until the rally runs out of breath. Then there is oil rally running on hopes for more demand from China and the last stage of the gold bubble that could see prices double, and finally, there is disappointing performance by the banks. Only the blue chips are behaving correctly.

It seems to me that we are going to have a pullback, at least to 1120-1130, based on the Robosignergate scandal. The banks will continue to drop at least until the scale of the problem becomes clear. If it turns out that these morons have lost the paperwork for, let's say, 10% of mortgaged houses, then we may again have a banking crisis for a few weeks while the government decides how to change accounting rules and whether to start TARP 2.0. By the way, it will be ironic if the banking CEOs will now ask the government to un-return the TARP funds, having just fleeced shareholders to unlock bonuses by returning these TARP funds ahead of schedule.

In some extreme scenarios (10% probability or so), I even think those of us who missed the opportunity to pick WFC at $8 may get a second chance.

More likely, I think the missing documentation will affect something like 1% of mortgages, not enough to derail the long-term rise of banks. But the real wildcard is the lawsuits, and it's a certainty that the lawyers come very soon to extract their pound of flesh. For the next few years, headlines like "80-year-old woman sues Bank of America for $10 Billion after the bank illegally seized her house" will be putting brakes on bank stocks. After the dust settles, I think the banks will escape with modest losses on the order of $40-50 Billion.

At the risk of sounding trivial, I will say that boring stocks like KO will be the best bet for the next month.

Meanwhile, if this crazy story can succeed in creating a Liquidity Crisis Lite, then speculative Chinese stocks will be the first to crash so at least some of my red thumbs will finally be vindicated.  

8 Comments – Post Your Own

#1) On October 16, 2010 at 6:46 PM, starbucks4ever (96.89) wrote:

To express myself more clearly, I am now calling a temporary top, at S&P closed at 1176 yesterday, with likely downside of 5-6%, but maybe more if some of the more radical scenarios come to pass.

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#2) On October 16, 2010 at 7:25 PM, FleaBagger (28.98) wrote:

I think you're fighting an uphill battle against China's economic dominance. I'm not usually one for central planning of an economy, but everybody's doing it these days, and that can make things pretty relative. The Chinese economy has two things going for it that might trump all its problems: huge industrial capital, and huge human capital. The U.S. has been steadily losing ours for the past 20+ years.

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#3) On October 16, 2010 at 7:27 PM, starbucks4ever (96.89) wrote:

Hope you are right. But I see a bust ahead.

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#4) On October 16, 2010 at 7:30 PM, goalie37 (90.93) wrote:

I am never good at predicting market movements, but the stocks that I follow are all slightly overpriced to definitely overpriced.

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#5) On October 16, 2010 at 8:14 PM, RonChapmanJr (76.22) wrote:

Your oil shorts are going to hurt you if nothing else.  Did you really short XOM when you said did? 

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#6) On October 16, 2010 at 9:06 PM, starbucks4ever (96.89) wrote:

#5,

Yes, I did, but SDY also went up, so it's not as bad as it seems. Long-term, XOM is worth close to zero, but short-term will be exciting. I expect some more pain ahead.  

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#7) On October 17, 2010 at 1:23 AM, FleaBagger (28.98) wrote:

XOM close to zero? How do you figure? 

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#8) On October 19, 2010 at 1:57 PM, starbucks4ever (96.89) wrote:

Looks like we did have a temporary top and I was one day and 0.7% too early.

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