Monday, July 30, 2007

The coming economic storm

I haven’t yet mentioned the DOW loosing streak, down over five hundred points in two days. That’s the second large decline this year. Unlike the first decline in February, this one is more informed. Hedge funds are failing, global credit is tightening and the last best chance for the housing market is gone with the summer selling season. It’s down hill from here and everybody knows it.

I’ve read that markets usually head fake twice before they crash. If that is so then this is the second head fake for the U.S. stock market. Some would say that it’s not a head fake, that this is it, the big one, but I don’t think so - it just doesn’t feel like it yet.

I believe, due to human nature and greed that this economy and the stock market have a little life left. There is not yet open panic so the gamblers out there will surely pile back into the stock market at the slightest provocation. Never underestimate greed.

Look for one, two or even three more upswings of global markets before reality takes hold and the sky falls. That’s what it will take to get many investors out of the game, with or without their shirts. I expect they will resemble rats from a sinking ship, all waiting until the last minute in hope of a miracle turnaround that we all know (them included) won’t be coming.

As we approach the fourth quarter of this year I expect the news to grow ever worse as the extent of the derivatives market and the damage done gets dragged into the light with voices raised, fingers pointing and the promise of bills to be brought before congress advocating financial bailouts that will only benefit the scoundrels who perpetrated and got fat off of the whole mess in the first place.

It’s not all bad. In turmoil lays opportunity, but opportunity is spare for the unprepared.
Vern

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