Prague Twin

Friday, March 09, 2007

Don't Get Too Excited

Equities have seen a bit of a recovery so far this week, after last week's melt down. But as the title suggests, this is no reason to get too excited. Tuesday saw the biggest gains, whereas Wednesday was flat, and Thursday saw modest gains (about half of Tuesday's). It is encouraging that the market is not diving all at once, but they rarely do. What is discouraging is how volatile the market seems to be. Yesterday was quite choppy, and the trend for the week was the market opening in a completely different place than it closed the day before. There is usually some adjustment overnight, but these gaps in the chart in between days is pretty unusual, and indicative of volatile markets.

Today will be another hurtle for equities. With European markets opening lower, and the mother of all data (Non-Farm Payrolls) coming out, we could see this weeks gains evaporate quickly.

Having said that, a poor employment number (which is widely expected) could actually boost stocks as interest rate expectations would drop. However, next week's inflation numbers (specifically the CPI in one week) will be the thing to watch. Persistent inflation concerns will force the Fed's hand and make it impossible to cut rates, even in the interest of saving the struggling housing market, or the equities markets.

So investors, don't get too excited just yet. There is still a way to go, and I still believe that we will see the Dow drop to at least 11,750 in the next few weeks.

As a side note, one of the major sub-prime lenders has stopped taking loan applications. There is trouble brewing here.

9 Comments:

  • I was quite worried that you had been affected by depression after I saw the picture you posted. Now I am relieved to find out that it was only the market. Unfortunately, it feels about the same . . .

    The beneficial powers of tincture of music can never be underestimated.

    Hope you are going somewhere not too cold in the US where many of us have been faced with a very late winter.

    By Blogger Publia, at 2:27 PM  

  • Thanks for you concern.

    No, I'm not depressed about the market. I'm not even that depressed. Just a bad day I guess.

    I'm going to California, so I should be plenty warm, although I'll be spending most of my time in the high Sierra mountains where I'll be happy if it is cold a snowing.

    By Blogger Praguetwin, at 4:29 PM  

  • praguetwin, you wrote:

    "So investors, don't get too excited just yet. There is still a way to go, and I still believe that we will see the Dow drop to at least 11,750 in the next few weeks."

    Exactly WHAT are you stating about the future?

    Is the Dow heading for 11,750 and remaining there in perpetuity?

    Is it stopping at that point before sinking to a lower point?

    Is it dropping to that point before turning up and heaing for the moon?

    By Blogger no_slappz, at 4:32 PM  

  • P.S.

    The subprime loan MARKET is not in a death spiral. However, most of the problems can be traced back to one segment of it: The no-doc, 100% loan-to-value segment.

    But those borrowers are self-regulating. If the real estate market is not climbing, borrowers with no equity are not speculating in it.

    Meanwhile, there are no reports that defaults at credit-card companies are on the rise.

    You can be sure that people with financial problems will default on their credit cards before they'll default on a mortgage.

    By Blogger no_slappz, at 4:38 PM  

  • praguetwin, on reality's site you asked:

    "Hey, what is up with moderation? N_S?"


    Based on reality's comments to me, it's clear he needs to censor and control the comments appearing on his site.

    He's obviously unsettled and agitated by opposing views because like way too many liberals, he's a dictator at heart.

    By Blogger no_slappz, at 4:46 PM  

  • N_S,

    I'm stating exactly what I stated. I believe we will see a correction to about 11,750. Then, hopefully it will stabilize. After that, who knows? This is of course just a guess anyway as all stock market predictions are.

    By Blogger Praguetwin, at 5:29 PM  

  • praguetwin, you wrote:

    "I'm stating exactly what I stated. I believe we will see a correction to about 11,750. Then, hopefully it will stabilize. After that, who knows?"

    First, you claim the market will drop to 11,750, and you call the decline a "correction."

    That's interesting. In other words, you think the current Dow valuation is too high; the market is currently "overvalued". But this implies that at 11,750 its valuation would be just right. A mere 4.5% below the current figure.

    If the DJIA were to descend to your number, why would it move from that point after reaching your estimate of the perfect valuation?

    By Blogger no_slappz, at 7:51 PM  

  • So investors, don't get too excited just yet.

    In other words...don't go engaging in any "irrational exuberance". ;-) (Sorry, just couldn't resist.)

    By Blogger Kvatch, at 9:01 PM  

  • N_S,

    Because markets always move.

    Kvatch,

    Well done. You got the reference.

    By Blogger Praguetwin, at 10:47 PM  

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