Thursday, October 23, 2008

Thoughts on near term action in equities

Many people have been telling me "we've hit bottom."  My usual reply is "well, were getting there but were not there yet...."  Rallies will continue to be sold, they are just short term rallies against the dominant bear trend.  The rest of October will continue to be down for equities, generally speaking, but there is a high probability that we get an election rally that could last into December as the so-called January effect takes hold for a month or so....

Then the reality will set in that Obama is not much different from the other politicians and the Obama rally will fail.  Even if the Dow rallies back to

Sunday, October 5, 2008

The collapse of the EURO

On June 1 when the EUR/USD was trading near its peak I wrote the following in a post titled "Has the EUR's long term bull market ended?":
The EUR has been in a bull market since 2002 but the economic and political fundamentals of Europe are not looking too good these days…and there are some dark clouds on the horizon for this currency when you consider the broader global socioeconomic framework....The EUR may very well rally further in the short and intermediate term, but fundamentals determine long term trends, and the long term trend for the EUR is reaching a turning point. I think it is a safe bet that a few years from now the EUR will be significantly lower, and looking farther out it is not a stretch to say that the EUR will be disbanded when countries like Italy leave it so that they can go back to depreciating their own currencies.

The dramatic speed with which the credit crisis has taken hold of the global markets has sped up the EUR's future demise.  In light of this I offer some new predictions: The EUR will be at par with the USD by June 1, 2009.  Italy will be the first country to withdraw and the EUR will collapse and be disbanded no later than December 2011. -John Bardacino

Saturday, October 4, 2008

Paulson Plan Already "Irrelevant" - Whats next for the stock market?

Just as the incredibly horrible Paulson Plan bill passed the House of Representatives on Friday, equities markets tanked.  The reality of this Bill is setting in.  I started reading parts of the 400+ pages of this monstrosity and was forced to stop due to acute nausea.  It is nothing more than a gift to special interest, does not address the root causes of the credit crisis and does nothing more than make a bad situation worse - oh yeah, it also gives the IRS new powers to invade what was left of US citizens privacy and there is some kind of tax break for toy wooden arrows....

So while the dominant downtrend gains in strength and equities prices (along with other markets) continue their slide, what will be their next move?  Bernanke will lower rates, probably half a point.  Its more of a symbolic move because rates are close to 0 anyway and the fed has been massively adding to the money supply.  When they do announce this easing (they have a meeting at the end of October), it will create another short term rally against the dominant trend that will provide yet another opportunity to increase short positions.  The equities markets will then continue to sell off (except for brief rallies such as when the Fed announces an easing).

After the election (and assuming Obama wins) there will be a rally in equities, mainly for psychological reasons, that will last throughout December and into January, which are traditionally good months - the so called January effect....  This is a rough scenario for where I see equities prices headed in the near future.... -John Bardacino

Thursday, October 2, 2008

Has the sky fallen yet?

I view the financial markets in terms of which theory is accepted by market players and increasing or decreasing in truth (or verisimilitude). The current dominant theory can be labeled "the sky is falling." This theory and its effects will continue to increase in verisimilitude (degree of truth) in the days and weeks ahead. Short term reactions against the price trends that this theory has produced should continue to be seen as opportunities (ie: short term rallies in the stock market as opportunities to get short (or get out of long positions) - generally speaking).

Yes, things are ugly and about to get uglier before they begin to improve. The Fed is desperately trying to reinflate the economy but it will not work quite yet. Congress is only making it worse by giving billions of taxpayer dollars to special interests and not allowing market forces to clear all the malinvestments that have built up over the years. Ron Paul is right, bad Federal reserve policy and other gov't stupidity such as gov't sponsored entities (fannie mae, freddie mac) and all the other dumb policies, rules and laws that distort the market created this mess.

Don't be a victim, instead see it as opportunity and exploit the effects of the flawed institutions that create the boom bust cycles such as the one we are experiencing right now.

How? by understanding the