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Notes to myself, possibly of interest to others.
-- Bill Northlich

Monday, October 26, 2009

Vitus Update - Shortish

The market and and it's fellow travelers - commodities, oil, are down today. Some say its the fault of the fellow travelers - or - the fault of the dollar, which is up. I think Rosenberg is, and has been, on the case.

So, the market gain since recent earnings announcements is gone. Is this the turn in the market which some, including me, have been talking about? I, FWIW, don't think so. I think the turn will be between 1100 and 1200 S&P, closer to the latter (as I have said before). However this is very dangerous territory.

Personally I am reducing exposure to equities, and am increasing my exposure to bonds, including corporate investment grade, Tips, even treasuries, and even some high-yield. I will maintain my commitment to gold, medium/long term, although I admit to a sell-trade today as gold is sympathetically down with the rest of the commodities. Medium term I will also maintain some exposure to some emergent market action, mostly indirectly through Canada, Brazil, and Australia (They are industrial and agricultural commodity investments with less volatility).

Again, I don't expect a totally huge downdraft, but probably a slow, grinding, bottom of the "L" for some considerable time, that is to say, years.

Again, and In a nutshell, the structural problems facing the economy are

  • employment - continues to worsen
  • credit - continues to worsen
  • housing - according to RealtyTrac, more than 300,000 homes are still being foreclosed on every month
  • no meaningful financial reform is in the offing (to at least try to fix our systemic banking problems). The first effort from Barney Frank's committee, on OTC derivatives (meaning the hated CDS's) has enough holes to make it worthless, but Frank recently said he'd do better. I'm skeptical because of the completely, egregiously, broken congressional lobby structure in DC.
  • etc etc etc

The stimulus will probably carry the market and the economy into the first part of the year, but there does not seem to be much sighting of the recovery calvary on the horizon beyond that. On the other hand there is always Jeremy Siegel (of Stocks for the Long Run fame) who seems always upbeat.


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