Monday, March 10, 2008

The market continues to slide

Just a few comments on the markets today:

It is becoming increasingly more obvious that we are now in a bear market. The market is acting very bearish. Lower highs followed by lower lows. We broke key support levels today by falling under 11,800 on the DOW.

Why is this important? Because many buyers that came in and bought at these support levels in Jan. are now in the red which usually triggers more selling. Some of this selling is triggered via computers as soon as we fall through these support levels.

Many rumors spook the markets daily right now. Today it was Bear Stearns having solvency issues which were strongly denied by the company. Goldman Sachs reported that the FED may do an emergency cut of 100 basis points. If this happens guys its NOT a good sign. It probably means someones in trouble and they are cutting in order to keep the markets stabilized.

We all need to start realizing that the FED cuts have and will continue to do nothing for the markets and will not lower mortgage rates. The issues of this market are ones of fear and lack of trust between banks. Since the FED has slashed rates from 5.25% down to 3% what has happened to mortgage rates? They have gone UP! What has happened to the stock market? Its gone DOWN.

This idea that the FED can save the markets and lower interest rates worked in a healthier market but it will not work now because it doesn't address our current troubles in the market. People have borrowed up to their eyeballs and the greed and corruptness of Wall St. hit a level never seen before. The ONLY way things get back to normal is trust is restored and the market corrects to where houses are affordable and the banks have transparent books with credible ratings agencies to rate debt.

Remember folks, Japan took rates to ZERO and housing has not moved higher for 20 years. We have better policy than Japan so expect better results but there is much more pain to come. Until we let this 20 year debt binge digest expect the market to go sideways or lower and housing to fall dramatically until people can afford to buy one and the bank is willing to lend you the money.

The times are a changing. Buy some fixed income and get ready to watch the bear replace the bull. If you feel compelled to invest I would buy some reverse income ETF funds like (QID), SDS, SKF which short different sectors in the markets. This is a much safer way to go short because you don't need to cover. I STRONGLY advise that this is a small percentage of your portfolio. CASH will be KING very soon as the money supply shrinks and deflation hits. Inflation rules for now. Deflation will rear its ugly head later.

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