Editor’s Rant:
Where to start:
If you are operating under the premises that you must remain
fully invested long, then the the potential for great pain over the balance of the year is extremely high. Will
there be places to hide? Yes. But relative out performance only
goes so far. The market is working into another climax type
selling low, which will likely reverse in dramatic
fashion. But make no mistake, once
the next 1 to 3 month rally runs its course,
another shoe will drop, and this cycle of capital distruction will continue.
Over the years I have
found a chronic problem with prognostication. Things never
play out as quickly as one expects. One day you are reading the
tenth article on a subject when suddenly it hits you, ding. In
a microsecond you see how events should/will unfold…over the
next (pick a number) of months. Over the next week it seems all the key
elements of said expectations are touched on, and there you are. Your scenario of
certainty, tectonic in construct, has played out in a week. The
key is resisting the temptation of believing the coast is clear.
It is hurricane season. The sky is clear today, but there is a
big storm brewing.
A revision: The mortgage
meltdown is now estimated at $1.3 trillion, about a third more
than the original estimate. When the "out guessing" becomes a
game, that is when we will
know it is about over. So far, about 0.3 trillion have been
written off, that leaves $1 trillion to go.
With banks busy writing
off dead loans as fast as they can, they don’t have much to lend. In the 30’s depression, folks that were desperate
bought goods from the local store on credit. They were
terrified they wouldn’t be able to repay their good friend, the
store keeper. The store keeper extended the credit because he
knew the patrons and how desperate they were. This went on for
a while until the store keeper was over extended. Then there
wasn’t anything left in the store to buy, not even on credit. That is when it
really got bad.
With credit tight, as
companies raise prices, they will find / are finding that all
that does is reduce unit sales and therefore the entire economy. Many companies that
have held the line on prices had hedges to soften the blow.
Well, the hedges are running out. When they do, bang, they will
raise prices, or there won’t be anything on the shelf.
Cramer on CNBC always
has something for you to buy today. Why, because that is what
he does. He tells people what to buy today. The fact he does it
with great zest even makes it entertaining, in small doses of
course. But at the end of the day we are still standing out
there on a beach in the early phase of hurricane season. When
the wind starts to blow and the clouds darken, take protective
measures. If it isn’t the storm of the century, so be it. This
is a time (read: from now until deep in the fourth quarter) when
the penalty for being too conservative is much more attractive
than the risk of being over exposed in a bad market.
When will it all be
over?
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