"This is just hideous"
New home sales data is out...and apparently the news is "hideous"...are we at all surprised? Nope. It's just supply and demand economics, not brain surgery. http://tinyurl.com/2n3ddb
Very interesting stuff..
There is some incredible stuff potentially going on in the market right now. However unlikely (the U.S. administration simply can't allow this to happen), the fed's policy of air-mailing liquidity may finally be biting them is the butt. Amidst an already historically low dollar, some nations are considering releasing their currency pegs to the dollar. The thinking is: why should we (the other nation) inherit America's economic issues? If this happens, it could trigger a world-wide dollar dump (a domino type effect). If this is the case, and this is probably a big if, you will see massive inflation, a complete collapse in housing and likely a depression. Not recession...depression. Here. Crazy stuff. I gotta say, I get more intrigued by the market everyday. Check out the article at the below link.http://tinyurl.com/yp7q5u
New Position - BC
Today I added a small position in BC. It will likely just be a short-term (one to two months) trade as I think the economic risks remain high and a recession is more likely than most economists are forecasting, although not a definite. And in a recession the market for boats and other luxury type goods disappears. BC has quality management but has been battered for a while now and the price is attractive both from a long-term and short-term perspective, but with the economic risk, I'll play it as a short-term trade. In other news, I wasn't at all surprised by the Fed today. This is pretty much the nail in the coffin for the dollar. It may get a brief rally but I don't expect it to spend much time north of 80 in the in the intermediate term. Gold prices are easily going to take out the previous cycle highs around $730. The recent Fed action shows they want to talk down inflation, not actually do anything about it (they like to throw a nice scare into the commodity markets). They reason that all the economy's issues just require more dollars (through injections or lower borrowing rates). Well folks that is inflation, regardless of what the screwy PPI numbers say. That coupled with news today that Spain, the world's largest seller of gold this year, will not be selling more gold puts the downside risk to gold (and other precious metals) at a minimum.My current holdings include: SLW, GFI, CSX, and BC.
The Fed = "Wall Street's Bitch"
Great Article...
I read a great article on Minyanville tonight...it pretty much says what I think a lot clearer and more eloquently than I can say it:
http://tinyurl.com/2ffqe6
New position - CSX
I just added a position in CSX, a railroad company. As you may know this is an industry Warren Buffett added to his portfolio in April. In April he disclosed he added BNI to his portfolio. He added them at around $81.50/share which is just about where prices sit now roughly six months later. I'm not as long term oriented as Warren but I expect CSX to move to $100 in the next 2 to 3 months. As everyone knows Warren is the best at picking sound companies and holding them. So we can assume that the company's (on average) will maintain a long-term uptrend. What I've noticed is many of his investments also display very deliberate and very visible intermediate and shorter term movements. Check out the very smooth undulations in the 1 year chart for BNI, these moves provide the opportunity to make extra money within the long-term move. That is in essence what I try to accomplish, try and take smaller pieces, with less run-downs within a long-term uptrend.
The see-saw continues...
It's hard for anyone to say with certainty where this market is headed, however in the absence of time-earned wisdom, I'll make a stab at it. All I have heard recently is how the fed's action a couple weeks ago, cutting the discount rate wasn't so much a bailout but was the fed stepping in to save the operability of the banking system. That's fine, call it what you wish, but it still served as a bailout. All the market pundits on CNBC tell us that the Fed's sole mission is to ensure the stability of the nation's banking system. Well that statement is about to be put to a bit of a test in my opinion.
Market valuations and earnings indicate that the economy is on solid ground, and in little need of a rate reduction to fuel earnings. The other piece of the puzzle and the one that people still do not want to talk about is the average mortgage consumer in this country over the last 7 years. A large chunk of them will not be able to afford their mortgages when their rates adjust out. This isn't a newsflash, but what may be is the fact that these ARM's are adjusting out at a much greater rate over the next nine to twelve months. The issues that exacerbated the credit crunch are only going to get worse. The Fed's mission may now include ensuring the stability of the banking system by ensuring the stability of the housing market. A series of rate cuts could provide the cushion the housing market needs to stabilize. The stock market probably doesn't need, nor deserve a rate cut, but housing certainly does.
So my guess is that the Fed cuts in September and each of the meetings after that until the end of the year, because the housing system is now irrevocably intertwined with the banking system which the Fed is charged with ensuring the stability of. So now the loan that Joe Smith got from some deadbeat loan shark, which he used to buy his $400k house on his $50k salary has a direct effect on the entire economy. But what do I know I'm just a kid.
The market will continue to see-saw sometimes violently in the absence of some clear indication by the fed on what they intend to do with rates.
So where does a possible rate cut leave us? Back in the Greenspan liquidity snowball, of course. Excess liquidity drives inflation. Commodity prices will rally because the dollar will have been weakened by the Fed's series of "economic stimulus". I think gold, silver and oil will be very strong and if the excess supply issues in natural gas can be resolved, I think the gains in natural gas could be very dramatic. There are very strong long-term and international growth prospects, but the credit issue and liquidity issues are just being pushed to a later date. The government these days likes throwing more money at the problem.
I currently own significant positions in SLW and GFI.
