Monday, August 17, 2009

Camping and the Markets

I went camping this past weekend in the great Texas August heat. I do not recommend it. I knew it was going to be horrible from numerous experiences in my younger days in boy scouts but decided to go anyway to hang out with friends. The thing is since I have done numerous times before, I don't have to prove to myself that I can do it. I would rather pay for a hotel room thank-you but city friends feel like they got to get out with nature. So it happened. The fellowship was awesome, trying to sleep was a nightmare. I even bought a $25.00 battery operated box fan to help out. It didn't help much I can assure you though I am helping China's export numbers. We did float the Guadeloupe river which is always fun. So I didn't really sleep (a six hour nap on Sunday) but minus the late night hours it was way fun.

Anyway, you don't care about any of that. What about the markets? Markets are brutal aren't they. If you wanted to play the short side but wanted to wait to see how things developed you would have missed almost the entire move today. The markets opened down and stayed in a very tight trading range. In the short term, this is all fairly bearish. What I don't know and not willing to say is that the final top is in before heading all the way back down to 800 and eventually lower. I put it at 50/50. What I have been looking at as leading indicators are all pointing south which is why I shorted some last week. China has been getting pummelled as has high yield credit. That doesn't mean however that U.S. equities will follow without a fight. China set its high before the U.S. did in 2007. It set its low in November of 2008. U.S. set a newer low in March of 2009 in which China did not follow.

The breadth was very negative today with very heavy volume for an August day. I would bet strongly we are going at least somewhat lower but there is still going to be some very good housing data that will be coming out in the next couple of months.

As as side note I feel like the economic picture couldn't be playing out closer than what I described in my first quarter letter and then in my second quarter letter. Consumption/demand is what matters. It is following the textbook deleverging cycle.

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