Monday, August 18, 2008

Back in the Saddle

I am back. I don't have another trip planned during the week until the beginning of October when I go to the Value Investing Congress in NYC. I am looking forward to being at my desk for awhile. I actually kept up with the markets reasonably okay but still catching up. There isn't much happening besides the market continuing to rally while in general the rest of the world sells off, the credit markets continue to deteriorate, cost of money continues to go up, and Wall St. continues to think a bottom is in. Delusional.

I read this Saturday which are last weeks comment from Hussman which I found interesting (I only read his stuff off and on)

With bonds and utilities deteriorating, stock market internals are becoming unusually hostile. This sort of joint deterioration in interest sensitive securities has often provided important warning of steep subsequent losses, as we observed for example in 1966, 1987, and 1990. While the market is still sustaining something of a relief rally from the lows of a few weeks ago, I've noted that hostile yield trends have a tendency to cut such advances short, even when bearish sentiment and oversold conditions would otherwise invite more sustained bear market rallies.

I tend to agree. I actually thought last week Monday may have marked the high point for this rally. It would have been a classic top for a market rally. Huge week up the previous week (actually previous several weeks) followed by a last short squeeze only to get slammed down at the end of the day to finish about flat. The financials then broke down the following three days with the XLF closing below 21. Still to early to tell but it was the first shot of their being a top in the current rally. Since Monday is has just been kind of a battle ground. We had a couple of these such tops in the April / May rally also. One around April 10th and then another around the 5th of May. Who knows, all I am saying was that I went into Tuesday thinking that may have been it which was the first time I had felt that since the current rally started about a month ago. Time will tell.

This is Hussman's latest weekly commentary.

The stock market remains relatively overbought in an unfavorable Market Climate, which continues to pose substantial downside risk. Overbought conditions in unfavorable climates, and oversold conditions in favorable climates, are about the only times when I have any expectations at all about near-term direction. There's a relatively high degree of complacency here, reflected by the suppressed level of implied volatility and the general consensus that bad news has been priced into stocks. But against that, we're seeing a fresh blowout in credit spreads, now extending beyond financials and into a broader range of corporate debt (witness the spike in the ratio of Moody's Baa/Aaa yields). Meanwhile, the persistently high level of new claims for unemployment, along with a wide range of other economic data, is entirely consistent with the thesis that a U.S. recession began in January.

I agree. He goes on to write about the dollar this week and thinks it may have topped. That I disagree with but have no position either way besides being long dollar's because I live in the U.S. I think the dollar could be done going down for awhile though in the long term it will probably be lower.

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