Right Shoulder Paranoia Plus things We Believe
Yesterdays sharp market decline fell right into what technically should be a right shoulder retest area. Our leverage ratio moved up yesterday to as follows:
Regular Stocks/ETF’s 1.092
Long Commodities/Basic Materials/miners .066
Short T-Bonds .096
Long Gold / Gold ETF’s .100
Total Leverage 1.354
Things we believe:
1. In market action, there is a cycle of equal and opposite reactions that continues to unfold in all dimensions, hourly, daily, weekly, etc.
2. Free markets work as long as everyone agrees that no one is bailed out, big or small.
3. The current bear market that started in fourth quarter 2007 will end in fourth quarter 2011, give or take a few days, and the S&P will bottom out in the 450 to 600 area.
4. The Government intervention that we are seeing is pushing the end of the bear market back much further than needed. It could have reached bottom this winter if they had stayed out of the situation.
5. The real estate markets because of the time that it takes to clear unsold inventory will be the last sector to bottom out.
6. The first sector to bottom out will be precious metals as they will be the first beneficiary of the reflation forces being unleashed by the government.
7. The only thing that can save the economy other than the time it takes to rid itself of excesses, will be a massive initiative to produce renewable energy….private sector jobs with government kickers will provide a basis to restart an economy based on something beyond excessive consumerism.
8. Most investors are trend/momentum oriented rather than value oriented, that is why we see extremes.
9. From a value orientation, bubbles are made to be sold, puddles are made to be bought. At the moment we have one bubble, T-bonds, and a lot of puddles.
10. Contrarian investors have to be early and patient because no one really knows where the bottom or top will be set.
Ok, I feel better.
6:35 AM CST