Prague Twin

Friday, October 13, 2006

Markets

We are at another crucial junction for the markets. Bad news has been largely shrugged off but the Dow was unable to clear the crucial 12,000 mark. Today's retail sales disappointed, but if you take energy out of the equation, sales are up .8%. The dollar has been gaining momentum on this news and the bottom of the range we have seen over the last few months is being tested. EUR/USD trades at $1.2480. If the $1.2460 level is broken there is downside risk to $1.21. The Dow is down slightly on the disappointing retail sales figures, but a positive Michigan consumer sentiment number is underpinning equities, limiting the downside for the time being.

If the dollar continues to strengthen, I would expect the Dow to fall. However, with the Dow hovering around the top of the bollinger band, a breakout to the upside is still possible.

Inflation data next week will likely indicate the direction of the markets in the near term. Since the markets are expecting the Fed to be finished hiking rates with many expecting rate cuts to start next year, any surprise to the upside on inflation could cause a knee-jerk reaction to the downside as traders realize another hike could be in the cards. The 10 year yield is back up to 4.8% from it's low at 4.5%. So the bond traders are starting to price in a reduced possiblity for Fed cuts next year.

The housing market continues to weigh on markets and I expect that effect to accelerate over the next few months.



5 Comments:

  • 11,960!

    As part of the "investor class", I must say that the 401K of this blue collar union man is doing very well!

    By Anonymous Arch Stanton, at 5:40 PM  

  • As a member of the teacher's union in NYC, I remember a veteran teacher shaking his head one day while looking at his stock numbers during the middle of the Nasdaq crash and saying "I used to be worth a lot more yesterday than I am today." Ironically, he stuck around a few more years to try and make up the money difference and got hit again when the union's investment in Enron stock turned out badly.

    By Blogger reality-based educator, at 10:43 PM  

  • To bad for the veteran teacher that the union didn’t hire veteran investment brokers who would have taken heed to the adage: Don’t put all your eggs into one basket.

    I only wish that the Dem/Libs would have let me reroute a measly 2% of my S.S. These past few months would have given S.S. a great inoculation against the looming failure.

    When S.S. does fail, they will have only themselves to blame. Sadly, when this does happen the media will find a way to blame it on Conservatives.

    By Anonymous Arch Stanton, at 11:29 PM  

  • If social security fails it will be blamed on this administration because of the outrageous debt that has been acquired over the last 6 years.

    The government has already exposed itself to fluctuations in the market with the new tax scheme. If Americans were to invest their S.S. in the market as well, a crash would prove triply devestating as the 401Ks, the federal reserve, and people's individual accounts would all dry up at precisely the same time.

    Let us not forget that Social Security was created as a buffer for people against market forces. Investing your S.S. money in the same place as your 401K is exactly as you say, putting your eggs all in one basket.

    Arch, I'd be interested as to how you have your 401K diversified. Let me know if you have time.

    RBE,

    There are more than a few stories like that out there. Enron was considered a pretty rock solid investment at one time. People thought of it as low risk. I hope the teacher's union learned their lesson.

    By Blogger Praguetwin, at 11:10 AM  

  • Everything bad will be blamed on the Bush admin.,,,,but you knew that.

    By Anonymous Arch Stanton, at 4:29 AM  

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